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 September 30, 2015

 

Commission File Number: 50-11050

 

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

 

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 o

 

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

 

Larger accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

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 o 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 November 23, 2015, the Company had 25,595,902 shares of common stock of the registrant outstanding.

 

 

 

ELITE DATA SERVICES, INC.

NQuarterly Report on Form 10-Q for the period ended September 30, 2015

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Unaudited Condensed Consolidated Financial Statements.

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statement of Operations

5

Condensed Consolidated Statement of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

 

 

 

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

38

Item 4.

Controls and Procedures.

38

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings.

39

Item 1A.

Risk Factors.

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

39

Item 3.

Defaults Upon Senior Securities.

39

Item 4.

Submission of Matters to a Vote of Security Holders.

39

Item 5.

Other Information.

39

Item 6.

Exhibits.

40

Signatures

42

 

 
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
 

 

ITEM 1. FINANCIAL STATEMENTS

 

ELITE DATA SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$ 6,947

 

 

$ 659

 

Prepaid expense

 

 

18,341

 

 

 

820,882

 

Total Current Assets

 

 

25,288

 

 

 

821,541

 

 

 

 

 

 

 

 

 

 

OTHER ASSET:

 

 

 

 

 

 

 

 

Deposit

 

 

100,000

 

 

 

 

Total Assets

 

$ 125,288

 

 

$ 821,541

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 310,923

 

 

$ 606,221

 

Line of credit payable

 

 

 

 

 

151,000

 

Loans from a related party

 

 

126,086

 

 

 

139,029

 

Loan payable

 

 

 

 

 

13,325

 

Contingent consideration payable

 

 

 

 

 

566,212

 

Derivative instrument liability

 

 

418,198

 

 

 

 

Note payable, net of discount of $50,000

 

 

 

 

 

 

Convertible notes payable, net of discounts of $68,100

 

 

368,400

 

 

 

 

Total Current Liabilities

 

 

1,072,711

 

 

 

1,475,787

 

 

 

 

 

 

 

 

 

 

LONG TERM DEBT:

 

 

 

 

 

 

 

 

Convertible note payable, net of discount of $206,250

 

 

18,750

 

 

 

 

 

Convertible Note payable, related party

 

 

587,564

 

 

 

587,564

 

Total Liabilities

 

 

1,679,025

 

 

 

2,063,351

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 250,000,000 shares Series A authorized; issued and outstanding 0, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; issued and outstanding 25,595,902 and 19,219,070, respectively

 

 

2,559

 

 

 

1,922

 

Additional paid-in capital

 

 

9,435,195

 

 

 

7,581,444

 

Subscription stock not issued

 

 

124,575

 

 

 

 

Deficit accumulated

 

 

(11,266,962 )

 

 

(8,825,176 )

Total Stockholders' Deficit

 

 

(1,704,633 )

 

 

(1,241,810 )

Total Liabilities and Stockholders' Deficit

 

$ 125,288

 

 

$ 821,541

 

 

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

 

 
4
 

 

ELITE DATA SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

 

 

$ 3,192

 

 

$ 1,596

 

 

$ 12,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting services

 

 

79,000

 

 

 

6,000

 

 

 

138,794

 

 

 

38,500

 

Project development costs

 

 

98

 

 

 

 

 

 

319

 

 

 

29,000

 

Investor relations services

 

 

31,822

 

 

 

 

 

 

323,260

 

 

 

 

Warrants issued for services

 

 

 

 

 

 

 

 

481,156

 

 

 

 

General and administrative

 

 

121,931

 

 

 

31,323

 

 

 

202,135

 

 

 

111,937

 

Total Operating Expenses

 

 

232,851

 

 

 

37,323

 

 

 

1,145,664

 

 

 

179,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(232,581 )

 

 

(34,131 )

 

 

(1,114,068 )

 

 

(166,816 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on extinguishment of debt

 

 

571

 

 

 

164,999

 

 

 

(958,700 )

 

 

280,246

 

Gain on derivative instruments

 

 

138,097

 

 

 

 

 

 

138,097

 

 

 

 

Amortization of debt discount

 

 

(22,917 )

 

 

 

 

 

(22,917 )

 

 

 

Settlement of debt

 

 

(85,842 )

 

 

 

 

 

(85,842 )

 

 

 

Interest expense – related party

 

 

(38,150 )

 

 

(21,656 )

 

 

(61,329 )

 

 

(47,427 )

Interest expense - other

 

 

(274,739 )

 

 

(8,418 )

 

 

(307,027 )

 

 

(19,743 )

Total Other Expense

 

 

(282,980 )

 

 

134,925

 

 

 

(1,297,718 )

 

 

213,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE PROVISION FOR INCOME TAXES

 

 

(515,831 )

 

 

100,794

 

 

 

(2,441,786 )

 

 

46,260

 

PROVISION FOR INCOME TAX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$ (515,831 )

 

$ 100,794

 

 

$ (2,441,786 )

 

$ 46,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Share - basic and diluted

 

$ (0.02 )

 

$ 0.00

 

 

$ (0.11 )

 

$ 0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

25,581,065

 

 

 

17,423,673

 

 

 

22,886,381

 

 

 

15,582,842

 

 

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

 

 
5
 

 

ELITE DATA SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net (loss) profit

 

$ (2,441,786 )

 

$ 46,260

 

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

 

 

 

 

 

 

 

 

Loss (gain) on extinguishment of debt

 

 

958,700

 

 

 

(280,246 )

Stock compensation for investor relations services and consulting

 

 

473,053

 

 

 

 

Warrants issued for services

 

 

481,156

 

 

 

 

Gain on derivative instruments

 

 

(138,097 )

 

 

 

Non-cash interest expense

 

 

259,029

 

 

 

 

Amortization of debt discounts

 

 

22,917

 

 

 

 

Non- cash settlement costs

 

 

85,842

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(1,875 )

 

 

 

Accounts payable and accrued expenses

 

 

48,792

 

 

 

120,173

 

Net cash used in operating activities

 

 

(252,269 )

 

 

(113,813 )
 

 

 

 

 

 

 

 

 

INVESTING ACTIVITY:

 

 

 

 

 

 

 

 

Deposit

 

 

(100,000 )

 

 

 

Net cash used in investing activity

 

 

(100,000 )

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from stock sale

 

 

25,000

 

 

 

 

Proceeds from convertible promissory notes

 

 

481,500

 

 

 

 

Repayment to convertible promissory note

 

 

(135,000 )

 

 

 

 

Payments to related party

 

 

(48,810 )

 

 

 

Proceeds from related parties

 

 

35,867

 

 

 

112,500

 

Net cash received from financing activities

 

 

358,557

 

 

 

112,500

 

NET INCREASE (DECREASE) IN CASH

 

 

6,288

 

 

 

(1,313 )

CASH BEGINNING OF PERIOD

 

 

659

 

 

 

2,884

 

CASH END OF PERIOD

 

$ 6,947

 

 

$ 1,571

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

 

 

$

 

Interest paid

 

$ 15,000

 

 

$

 

 

 

 

 

 

 

 

 

 

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

 

$ 1,754,595

 

 

$ 340,362

 

Issuance of common stock for consulting services

 

$ 149,794

 

 

$

 

Note payable for the purchase of classifiedride.com (See Note 5)

 

$

 

 

$ 587,564

 

 

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

 

 
6
 

 

ELITE DATA SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2015

(Unaudited)

 

NOTE 1. DESCRIPTION OF BUSINESS

 

Elite Data Services, Inc. (hereinafter the "Company", "Our", "We" or "Us") business plan is to market and advertise assets that either the Company "owns" or "controls", with "controls" being defined as being the party entitled to the gross revenues generated by the asset or venture. We customarily will develop software applications designed to enhance existing platforms such as the Carline Negotiator™ and the VIP Salesmen Directory for classifiedride.com . Currently, we have been focused on an expansion opportunity in the gaming sector on the island of Roatan, the largest of the bay islands of Honduras. On April 6, 2015, we entered into a Securities Purchase Agreement and Promissory Note for the acquisition of an entity that holds a gaming distribution license for two cities on the Honduras mainland and Roatan, the largest of the bay islands. A good faith non-refundable deposit of $100,000 was pledged to secure the arrangements. On June 30, 2015, we amended the Securities Purchase Agreement and Promissory Note to delay the effective date of the Agreement upon the first payment of $900,000 due and payable on April 6, 2016. So long as the Company remains in good standing on its payment obligations, the Company is permitted to work towards implementation of gaming machines for operations on the effective date. Currently, we have hired a consultant who is on-site assisting with the required approvals and developments required to enable our first Strategic Vendor Partner, Lands End Resort, to operate for gaming business purposes pursuant to the regulatory requirements of the Honduras jurisdiction. See Note 13.

 

NOTE 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. The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K for the year ended December 31, 2014, filed with the SEC on April 15, 2015.

 

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements, which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2014 have been omitted.

  

Going Concern

 

The Company has accumulated a deficit of $11,116,066. 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 current business plans. There can be no assurance that such funding will be available in the future, or available on commercially reasonable terms favorable to the Company. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

 
7
 

   

The accompanying 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.

 

The Company continued to manage its costs for the nine months ended September 30, 2015 to ensure appropriate monies are on hand for continued operations through convertible debentures and financing from a related party. See Notes 5 and 9. The Company 's plans include the raising of capital through the equity markets to fund future operations and pay debts until we are self-sufficient in generating revenue through our business. However, even if we do raise sufficient capital to support our operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable us to develop business to a level where we will generate profits and positive cash flows from operations.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The 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 in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to intangible assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

  

Reclassifications

 

Certain reclassifications have been made in Statement of Operations for the year 2014 to the period ended September 30, 2014. These reclassifications impacted the classification of certain items within the Statement of Operations: relating to classification of interest expense. The reclassifications had no impact on previously reported total operating expenses, net loss, or stockholders' deficit.

 

 
8
 

   

Impairment of Long-Lived Intangible Assets

 

We review our long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment, if any, is measured as the excess of the carrying amount over the fair value based on market value (when available) or discounted expected cash flows of those assets, and is recorded in the period in which the determination is made. Intangible assets not subject to amortization are tested annually for impairment and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

 

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 nine months ended September 30, 2015, the Company incurred no development costs. As of September 30, 2015, 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.

    

The Company does not have any unrecognized tax benefits as of September 30, 2015 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 September 30, 2015 and December 31, 2014.

 

 
9
 

   

Cash

 

Cash includes all highly liquid instruments with an original maturity of three months or less at the date of purchase. The Company maintains its cash in cash deposit accounts, which are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per legal ownership. At times, the Company's accounts may exceed federally insured limits. To date, the Company has not experienced any losses in such accounts. At September 30, 2015, the Company had no cash equivalents.

 

Fair Value of Financial Instruments

 

The Company's financial instruments consist of cash, accounts payable, accrued liabilities, line of credit payable, loans from a related party, contingent consideration payable, and convertible note payable. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Fair Value Measurement

 

The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

  

The three levels of the fair value hierarchy are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.

    

The Company's financial instruments consisted of cash, prepaid expense, deposit, accounts payable and accrued liabilities, line of credit, loan from stockholders and convertible debt. The estimated fair value of cash, prepaid expense, deposit, accounts payable and accrued liabilities, line of credit, loan from stockholders approximates its carrying amount due to the short maturity of these instruments. The recognition of the derivative values of convertible debt are based on the weighted-average Black-Scholes option pricing model, which the Company's classifies as a level three of the fair value measurement hierarchy.

 

 
10
 

   

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.

  

Business combinations

 

Each investment in a business is being measured and determined whether the investment should be accounted for as a cost-basis investment, an equity investment, a business combination or a common control transaction. An investment in which the Company do not have a controlling interest and which the Company are not the primary beneficiary but where the Company have the ability to exert significant influence is accounted for under the equity method of accounting. For those investments that we account for in accordance ASC 805, Business Combinations, the Company record the assets acquired and liabilities assumed at the management's estimate of their fair values on the date of the business combination. The assessment of the estimated fair value of each of these can have a material effect on the reported results as intangible assets are amortized over various lives. Furthermore, according to ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer.

 

Common Share Non-Monetary Consideration

 

In situations where common shares are issued and the fair value of the goods or services received is not readily determinable, the fair value of the common shares is used to measure and record the transaction. The fair value of the common shares issued in exchange for the receipt of goods and services is based on the stock price as of the earliest of the date at which: 

 

i.

The counterparty's performance is complete;

 

 

ii.

commitment for performance by the counterparty to earn the common shares is reached; or

iii.

the common shares are issued if they are fully vested and non-forfeitable at that date.

  

Stock-Based Compensation

 

On December 1, 2005, the Company adopted the fair value recognition provisions codified in ASC 718, Compensation-Stock Compensation. The Company adopted those provisions using the modified-prospective-transition method. Under this method, compensation cost recognized for all periods prior to December 1, 2005 includes: a) compensation cost for all share-based payments granted prior to, but not yet vested as of November 30, 2005, based on the grant-date fair value and b) compensation cost for all share-based payments granted subsequent to November 30, 2005, based on the grant-date fair value. In addition, deferred stock compensation related to non-vested options is required to be eliminated against additional paid-in capital. The results for periods prior to December 1, 2005 were not restated.

 

 
11
 

   

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from parties other than employees in accordance with ASC 505, Equity. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the counterparty.

  

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.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 "Derivatives and Hedging Activities". Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Each reporting period, the Company evaluates whether convertible debt to acquire stock of the Company contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price under the respective convertible debt agreements.

 

The Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

    

Recently and Issued Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 requires an entity  to recognize the amount of revenue to which it expects to be entitled for transfer of promised goods or services to customers. ASU-2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts. ASU-2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016, using one of two retrospective application methods. Early application is not permitted. The Company is currently evaluating the effect that the adoption of ASU 2014-09 will have on the Company's consolidated financial statements.

 

 
12
 

   

In April 2015, the FASB issued amended guidance in a FASB ASU on, "Interest-Imputation of Interest", which simplifies the balance sheet presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the liability. This treatment is consistent with the presentation of debt discounts. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted, and the new guidance should be applied retrospectively. The adoption of this update on January 1, 2016 will not have a material impact on our consolidated financial statements.

 

In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-11, "Simplifying the Measurement of Inventory (Topic 330)", ("ASU 2015-11"). Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. The amendments in ASU 2015-11 require an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective in the first quarter of fiscal year 2018 for the Company, with early adoption permitted. The Company does not expect the adoption of this guidance to have an impact on its condensed consolidated financial statements.

 

Other 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.

  

NOTE 4. DEPOSIT FOR PURCHASE OF LICENSE

 

On April 4, 2015, the Company instructed the escrow agent to deliver $100,000 as a deposit in good faith pursuant to the Securities Purchase Agreement dated April 4, 2015 (the "SPA") and Promissory Note dated April 6, 2015 (the "Note") t o acquire all of the capital stock of El Mar Muerto Beauty Mineral, Sociedad Anonima (hereafter "EMBM") a Honduras corporation, whose sole assets consist of a Honduras gaming license for EMBM's use, which permits the operation of Eighty (80) gaming machines in Trujillo, Eighty (80) gaming machines in La Lima, and One Hundred and Sixty (160) gaming machines in Roatan, the largest of Honduras's bay islands, for a total purchase price of $10,000,000. On September 30, 2015, the Company amended the Note and SPA to reflect a due date of April 6, 2016 in conjunction with the first payment of Nine Hundred Thousand Dollars ($900,000), which is due in either cash, stock, or 25% of the net revenues of EMBM's operations at the seller's option, and the current purchase price owed was reduced to $9,900,000, which deducts the $100,000 deposit tendered on April 4, 2015 as referenced herein. The business purpose for the amendment was to allow the Company the proper time to incorporate a Honduras corporation in compliance with the laws of the Republic of Honduras to own the securities of EMBM and effectively be able to transact business in that municipality. The good-faith non-refundable deposit permitted negotiation for a commitment at a later date, which the Company will recognize upon the effective date of April 6, 2016.

    

NOTE 5. RELATED PARTY TRANSACTIONS

 

Myers - LOC

 

The principle amount due Sarah Myers (director and executive officer of the Company, the related party) at September 30, 2015 was $126,086, which represents an unsecured promissory note and addendums ("Myers – LOC"). These amounts are unsecured and bear interest at the rate of 12% per annum. The Myers – LOC has been amended to be due and payable on December 31, 2015. The accrued interest under the Myers – LOC as of September 30, 2015 was $31,404.

 

 
13
 

   

January 13, 2014 Agreement - 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, an online classified listing website where private sellers can buy, sell, and trade their vehicle. Ms. Myers is the managing member and sole owner of Baker Myers, and also serves as an Officer and Director of the Company. As of September 30, 2014, pursuant to GAAP ASC 805-50-30, the transaction carrying value of the assets rather than the fair value was recorded to the transaction as it was being made by a related party. A convertible note totaling $587,564 was amended to reflect the carrying value that carries an interest rate of 8% per annum. The Maturity Date of the Note is January 13, 2017. Upon default of the Note, the interest rate increases to 10%. Pursuant to the Note, Baker Myers may convert all or any part of the outstanding and unpaid principal amount of this Note within 180 days from the date of the note into fully paid and nonassessable shares of Common Stock at the conversion price of $.05 per share with a limitation of 4.99% of the total shares of common stock of the Company outstanding. The Note also contains a $2,000 per day fee for failure to deliver common stock to the Holder upon three days delivery. At September 30, 2015, the note balance and accrued interest was $587,564 and $79,360, respectively.

 

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.

 

Separation and Settlement Agreement with Steven Frye

 

On June 15, 2015, the Company entered into a Separation and Settlement Agreement Release of Claims (the "Agreement") with Steven Frye, our former Chief Executive Officer, Chief Financial Officer, and President. According to the Agreement, the Company agreed to pay Mr. Frye $54,794 for services rendered in the form of 391,386 shares of Common Stock of the Company valued at $0.14 per share on the date of the Agreement. The Agreement further stated Mr. Frye would be responsible for all taxes, and Mr. Frye signed a general release of any and all claims, known or unknown, against the Company. On July 1, 2015, Mr. Frye delivered his executed paperwork to the Company.

    

NOTE 6. CONTINGENT CONSIDERATION PAYABLE

 

On February 25, 2011, the Company's wholly owned subsidiary, Dynamic Energy Alliance Corporation (hereafter "DEDC") and a former director no longer associated with the Company (hereafter "the Director") entered into a Stock Purchase Agreement (hereafter "Agreement") and corresponding Amendments No. 1, No. 2 and No. 3, dated December 30, 2011, March 31, 2012 and September 26, 2012, respectively, by which DEDC acquired all of the outstanding shares of Transformation Consulting, Inc. (hereafter "TC"). The purchase price for the shares was $2,000,000, payable from the gross revenues of TC, subject to the following contingent reduction or increase of the purchase price. Pursuant to the Agreement, if TC's gross revenues during the two years following the closing were less than $2,000,000, then the purchase price for the shares would be reduced to the actual revenue received by TC during the two year period. If TC's revenues during the same two year period exceed $2,000,000, then the purchase price for the shares would be increased by one-half of the excess revenues over $2,000,000 (hereafter "contingent consideration").

 

Pursuant to the contingent consideration of $2,000,000 due to the Director from TC, all revenues generated by TC under the Agency Agreement were disbursed to the former Director. Through December 31, 2012, gross revenues under the TC Stock  Purchase Agreement totaled approximately $2,000,000. Through December 31, 2013, payments, net of refunds, made to Director under the TC Stock Purchase Agreement totaled $984,638. On September 30, 2013, the former director assigned  the remaining contingent consideration debt note (hereafter the "Note") to Habanero Properties via an Assignment and Assumption Agreement. The Note was subsequently offset by $108,788 as payment for warrants exercised at their strike price by the former director. Habanero Properties subsequently assigned the remaining contingent consideration due and payable to Rocky Road Capital, Inc.

 

 
14
 

   

For the period ended June 30, 2015, the Company eliminated the remaining balance due and payable by entering into five Assignment of Convertible Promissory Note and Consent and a Convertible Promissory Note totaling $322,012 with third parties not affiliated with the Company. Each agreement specified the amount of the assignment to be paid back at $.10 per share for the conversion of 3,220,120 Shares of the Company's Common Stock. None of the assignments amounted to any of the Assignees owing more than 4.99% of the outstanding securities of the Company. The estimated fair value of the common shares was used to measure and record the transaction with the difference between the conversion prices and estimated fair value being recorded as loss on extinguishment of debt. On June 30, 2015, the Company recognized a loss of $107,816 on extinguishment of debt as a result of the transactions.

    

At September 30, 2015 and December 31, 2014, the contingent consideration payable was as follows:

 

 

 

As of September 30,

 

 

As of December 31,

 

Contingent consideration due

 

2015

 

 

2014

 

Contingent consideration due

 

$ 2,000,000

 

 

$ 2,000,000

 

Less payments, net of refunds, to Director

 

 

(984,638 )

 

 

(984,638 )

Payment of exercise of warrants

 

 

(108,788 )

 

 

(108,788 )

Conversion of contingent consideration to common stock

 

 

(906,574 )

 

 

(340,362 )
 

 

$ 0

 

 

$ 566,212

 

   

NOTE 7. LOAN PAYABLES – RELATED PARTY

 

On April 14, 2014, the Company entered into a Promissory Note dated April 15, 2014 (the "Note") with Stephen Frye, former Chief Executive Officer, President, CFO, and Director of the Company, for $13,500 with interest accruing at the rate of 12% per annum with an extended due date of December 31, 2015 ("Addendum One"). On June 15, 2015, the Company entered into Addendum Two ("Addendum Two"), which allowed the conversion of $15,206 (the principal and outstanding interest due under the Note) payable in Common Stock of the Company with the price per share being the closing price of the Company's stock as of the date of the Agreement. The fair value of the closing stock price was calculated, as of June 15, 2015, at $0.14, whereby the Note and accrued interest was converted into 108,614 shares of Restricted Common Stock of the Company to pay off the Note in full. As of September 30, 2015, loan payable to related party is $0.

  

The amounts due under the Myers – LOC at September 30, 2015 was $126,086. These amounts are unsecured and bear interest at 12% per annum. At September 30, 2015, accrued interest on these amounts was $31,404.

 

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, an online classified listing website where private sellers can buy, sell, and trade their vehicle. Ms. Myers is the managing member and sole owner of Baker Myers, and also serves as an Officer and Director of the Company. As of September 30, 2014, pursuant to GAAP ASC 805-50-30, the carrying value of the assets was recorded to the transaction being made by a related party as $587,564 and a convertible note was amended and issued in the amount of $587,564 with an interest rate of 8% per annum. At September 30, 2015, the note balance and accrued interest was $587,564 and $79,360, respectively.

 

 
15
 

   

NOTE 8. PROMISSORY NOTE

 

In conjunction with the Equity Line as discussed in Note 14 below, the Company issued a promissory note to Tarpon Bay Partners for $50,000, due on January 31, 2016, with 10% interest per annum as consideration for transaction costs incurred by Tarpon. The $50,000 of transaction costs will be treated as a note discount under current Generally Accepted Accounting Principles and the discount will be amortized as costs related to equity financing issuances. At September 30, 2015, the note balance and accrued interest was $50,000 and $849, respectively.

    

NOTE 9. RELATED PARTY CONVERTIBLE PROMISSORY NOTE

 

Baker Myers Convertible Note

 

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, an online classified listing website where private sellers can buy, sell, and trade their vehicle. Ms. Myers is the managing member and sole owner of Baker Myers, and also serves as an Officer and Director of the Company. As of September 30, 2014, a convertible note was amended and issued in the amount of $587,564 with an interest rate of 8% per annum to Baker Myers. The Maturity Date of the Note is January 13, 2017. Upon default of the Note, the interest rate increases from 8% per annum to 10% per annum. Pursuant to the terms of the Note, Baker Myers may convert all or any part of the outstanding and unpaid principal amount of this Note within 180 days from the date of the note into fully paid and nonassessable shares of Common Stock at the conversion price of $.05 per share with a trading limitation of 4.99% of the authorized common stock of the total shares outstanding. The Note also contains a $2,000 per day fee for failure to deliver common stock to the Holder upon three days delivery. At September 30, 2015, the note balance and accrued interest was $587,564 and $79,360, respectively.

 

NOTE 10. CONVERTIBLE PROMISSORY NOTES

 

Iconic Holdings, LLC

 

On March 16, 2015 (the "Effective Date"), the Company entered into a $120,000 Convertible Note with Iconic Holdings, LLC ("Iconic") with a Maturity Date of March 16, 2016. Under the terms of the Convertible Note, the Company received net proceeds of $100,000 with $10,000 being retained under an Original Issuance Discount ("OID") and $10,000 having been paid to Iconic as legal fees pertaining to the transaction. The convertible debenture bears a one-time interest charge of 10% assessed on the outstanding principal not repaid as of the 181th day from the effective date. Beginning on the 181th day from the Effective Date, the Company must seek permission from Iconic to repay the outstanding balance of the Note, and Iconic will have the right to convert any unpaid sums into common stock of the Company e qual to 60% of the lowest trading price of the Company's common stock during the 20 consecutive trading days prior to the conversion . During the quarter ending September 30, 2015, the Company retired the note and paid a $15,000 interest fee on the date of retirement.

 

 
16
 

   

JSJ Investments Inc.

 

On June 11, 2015 the Company issued a 12% Convertible Note (the "JSJ Note") to JSJ Investments, Inc ("JSJ") in the principal amount of $100,000 (net $88,000 to the Company after payment of related legal and broker fees). The JSJ Note bears interest at the rate of 12% per annum, and is due December 11, 2015 (the "Maturity Date"). The JSJ Note has a redemption premium of 135% of the Principal if repaid within 90 and 120 days, which increases to a redemption premium of 145% if after the 120th day (the "Repayment Amount"). The Company must request permission from JSJ to pay the JSJ Note after the 120 th day. At any time or times on or after the Maturity Date, the Holder is entitled to convert all of the outstanding and unpaid principal amount of the JSJ Note into fully paid and non-assessable shares of Common Stock of the Company at a 45% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. As of September 30, 2015, the balance outstanding on the JSJ Note was $100,000 and accrued interest was $3,682.

 

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15  Derivatives and Hedging . Pursuant to ASC 815, " Derivatives and Hedging ", the Company will recognize the fair value of the embedded conversion features as a derivative liability when the note becomes convertible on December 11, 2015.

  

LG Capital Funding, LLC

 

On June 16, 2015, the Company and LG Capital Funding, LLC ("LG") entered into a Securities Purchase Agreement under which we issued a convertible note in the principal amount of $52,500 (the "LG Note") due June 16, 2016 bearing interest at the rate of 6% per annum. After broker and legal fees, the Company netted $45,000. The LG Note is due and payable on June 16, 2016, with interest payable in shares of common stock. If the Company fails to repay the LG Note when due, or if other Events of Default there under apply, a default interest rate of 24% per annum will apply along with other breach provisions and related penalties contained in the note. The LG Note is convertible into shares of our common stock at a conversion price equal to 58% of the lowest closing bid price of our common stock for the ten trading days on or prior to the date upon which notice of conversion is received, subject to reduction to 48% if there is DTC Chill placed on our shares of common stock. The Company may prepay in full the unpaid principal and interest on the LG Capital Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 140% of the then outstanding balance on the LG Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made.

 

Additionally, upon the occurrence of certain fundamental events as described in the LG Note, we are required to repay the LG Note at the request of the holder in an amount equal to 150% of the then balance. Further, such redemption must be closed and funded within three days of giving notice of redemption or the right to redeem shall be null and void. As of September 30, 2015, the outstanding balance of the note was $52,500 and accrued interest was $923.

 

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15  Derivatives and Hedging . Pursuant to ASC 815, " Derivatives and Hedging ", the Company will recognize the fair value of the embedded conversion features as a derivative liability when the LG note becomes convertible on December 16, 2015.

 

 
17
 

 

Adar Bays, LLC

 

On June 16, 2015, the Company and Adar Bays, LLC ("Adar") entered into a Securities Purchase Agreement under which we issued a convertible note in the principal amount of $52,500 (the "Adar Note") due June 16, 2016 bearing interest at the rate of 6% per annum. After broker and legal fees, the Company netted $45,000. The Adar Note is due and payable on June 16, 2016, with interest payable in shares of common stock. If the Company fails to repay the Adar Note when due, or if other Events of Default there under apply, a default interest rate of 24% per annum will apply along with other breach provisions and related penalties contained in the note. The Adar Note is convertible into shares of our common stock at conversion price equal to 58% of the lowest closing bid price of our common stock for the ten trading days on or prior to the date upon which notice of conversion is received, subject to reduction to 48% if there is DTC Chill placed on our shares of common stock. The Company may prepay in full the unpaid principal and interest on the Adar Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 140% of the then outstanding balance on the Adar Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made. Additionally, upon the occurrence of certain fundamental events as described in the Adar Note, we are required to repay the note at the request of the holder in an amount equal to 150% of the then balance of the note. Further, such redemption must be closed and funded within three days of giving notice of redemption or the right to redeem shall be null and void. As of September 30, 2015, the outstanding balance of the note was $52,500 and accrued interest was $923.

 

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15  Derivatives and Hedging . Pursuant to ASC 815, " Derivatives and Hedging ", the Company will recognize the fair value of the embedded conversion features as a derivative liability when the Adar Note becomes convertible on December 16, 2015.

 

EMA Financial, LLC

 

On July 14, 2015, (the "Note Issuance Date"), the Company entered into a Securities Purchase Agreement (the "SPA") with EMA Financial, LLC ("EMA"), whereby EMA agreed to invest $156,500 (the "Note Purchase Price") in our Company in exchange for a convertible promissory note (the "Note"). The Company netted cash proceeds $135,000 after brokerage and legal fees aggregating $21,500 were disbursed at closing. Additionally, the Company issued to EMA 100,000 shares of Common Stock of the Company as a loan fee. Pursuant to the SPA, on July 14, 2015, we issued a convertible promissory note (the "Note") to EMA, in the original principal amount of $156,500 (the "Note Purchase Price"), which bears interest at 12% per annum. All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which is July 14, 2016 (the "Note Maturity Date"). EMA may extend the Note Maturity Date by providing written notice at least five days before the Note Maturity Date. However, EMA may only extend the Note Maturity Date for up to an additional one-year period. Any amount of principal or interest that is due under the Note, which is not paid by the Note Maturity Date, will bear interest at the rate of 24% per annum until it is paid (the "Note Default Interest").

  

The Note is convertible by EMA into shares of our common stock at any time ending on the date which is six (6) months following the Issue Date ("Prepayment Termination Date"). At any time before the Prepayment Termination Date, the Company shall have the right, exercisable on not less than five (5) Trading Days prior written notice to EMA of this Note, to prepay the outstanding balance on this Note (principal and accrued interest), in full. The conversion price is the lower of:

 

i) the closing sale price of the Common Stock on the Principal Market on the Trading Day immediately preceding the closing date, and (ii) 60% of the lowest sale price for the Common Stock on the Principal Market during the 20 consecutive Trading Days immediately preceding the Conversion Date. EMA does not have the right to convert the Note into Common Stock if such conversion would result in EMA's beneficial ownership exceeding 4.9% of our outstanding Common Stock at that time.

 

 
18
 

   

We agreed to reserve an initial 8,000,000 shares of Common Stock for conversions under the Note (the "Initial Reserve"). We also agreed to adjust the Initial Reserve to ensure that it always equals at least four times the total number of Common Stock that is actually issuable if the entire Note is converted.

 

In the event that we issue securities, or rights to purchase securities, on a pro rata basis to our Common Stock shareholders (the "Purchase Rights"), we agreed to calculate EMA's pro rata portion under the Purchase Rights as if EMA had fully converted the Note immediately before we offered the Purchase Rights.

 

All amounts due under the Note become immediately due and payable by us upon the occurrence of an event of default, including but not limited to (i) our sale of all or substantially all of our assets, (ii) our failure to pay the amounts due at maturity, (iii) our failure to issue shares of Common Stock upon any conversion of the Note, (iv) our breach of the covenants, representations or warranties under the Note, (v) our appointment of a trustee, (vi) a judgment against us in excess of $50,000 (subject to a 20 day cure period), (vii) our liquidation, (viii) the filing of a bankruptcy petition by us or against us, (ix) our failure to remain current in our reporting obligations under the Securities Exchange Act of 1934, (x) the delisting of our Common Stock from the OTCQB or equivalent exchange, (xi) a restatement of our financial statements for any period from two years prior to the Note Issuance Date until the Note has been paid in full, or (xi) our effectuation of a reverse stock split without 20 days prior written notice to EMA. We are required to pay the Default Sum, which is defined in the Note, depending on the event of default that has occurred.

 

As of September 30, 2015, the balance outstanding on the Note was $156,500 and accrued interest was $4,065.

 

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15  Derivatives and Hedging . Pursuant to ASC 815, " Derivatives and Hedging ", the Company will recognize the fair value of the embedded conversion features as a derivative liability when the note becomes convertible on January 14, 2016.

 

Birch First Capital Fund, LLC

 

On August 16, 2013, Birch First Capital Fund, LLC and/or Birch First Capital Management, LLC ("Birch First") filed a complaint against the Company in the 15th Judicial Circuit of Florida (2013 CA 012838) alleging breach of contract under a Line of Credit Agreement ("LOC") totaling $151,000. On November 18, 2013, Birch First brought a lawsuit in the 15th Judicial Circuit of Florida against Mr. Charles Cronin and Dr. Earl Beaver (former officers and directors of the Company), naming the Company as a nominal defendant. A motion to dismiss was filed by the Company concerning this derivative lawsuit, which is still currently pending. On July 23, 2015 the Parties finalized the settlement agreements, which lead to the conclusion of Case 2013 CA 012838.

 

On July 23, 2015, the Company and Birch First Capital Fund LLC ("Birch First Capital"), a Delaware limited liability company and Birch First Advisors LLC, a Delaware limited liability company ("Birch Advisors"), executed a Settlement and Stipulation Agreement (the "Settlement Agreement") dated July 21, 2015, pursuant to which the parties dismissed, with no liability admitted or deemed to be admitted by any party, any and all claims that have been, or could have been, raised in the outstanding litigation between the parties (the "Litigation").

 

 
19
 

   

On July 23, 2015, pursuant to the terms and conditions of the Settlement Agreement, the Company executed an amended and restated convertible debenture (the "Amended and Restated Note") dated July 21, 2015 in the total amount of $300,000 bearing two percent (2%) interest per annum for a period of two years for the benefit of Birch First Capital. Pursuant to the terms of the Amended and Restated Note, $75,000 of the principal balance would be immediately converted at $0.10 per share for a total of 750,000 shares of the Company's Common Stock issued within five (5) days from the date of execution of the Settlement Agreement. The remaining $225,000 in principal and interest of the Amended and Restated Note will be convertible on a quarterly basis in the amount of $37,500 into shares of the Company's Common Stock at a share price equal to the lesser of $0.10 per share, or fifty percent (50%) of the three (3) lowest intraday trading average for the twenty (20) day trading period prior to each conversion date, until paid in full, with accrued and unpaid interested due and payable in the final payment, under certain terms and conditions set forth in the Amended and Restated Note. The Company recognized and expensed non-cash settlement fees aggregating $85,842.

 

The original note contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note. Using the Black-Scholes option pricing model, the fair market value of the of the of the embedded conversion option at inception was determined to be $472,028 with the following assumptions: risk-free rate of interest of .711%, expected life of 2.0 years, expected stock price volatility of 175.371%, and expected dividend yield of zero. The initial carrying value of the embedded conversion option was $472,028 exceeded the note and $225,000 was attributed to the note discount and one time interest expense of $247,028 recorded in the current period.

 

The parties agreed to amend certain parts of the Amended and Restated Note. As of September 30, 2015, Birch and the Company had not specified the terms of any such amendment, but, at the mutual agreement of the parties, no shares have been issued pursuant to the Amended and Restated Note. As of September 30, 2015, the balance outstanding on the Note was $225,000, accrued interest was $1,151, and the derivative liability was $348,664.

 

Birch Advisors, LLC

 

On July 23, 2015, pursuant to the terms and conditions of the Settlement Agreement referenced herein, the Company executed a new Consulting and Advisory Agreement (the "Agreement") dated July 21, 2015 with Birch Advisors, LLC ("Consultant") for a period of twenty-four (24) months to commence upon the execution date of the signed Agreement, payable in the form of a convertible debenture ("New Note") in the amount of $300,000 at two percent (2%) interest per annum for a period of two years. Pursuant to the Agreement, Consultant shall be paid $37,500 each quarter in the form of a reduction of the outstanding principal balance of the New Note, convertible into shares of the Company's Common Stock at a share price equal to the lesser of $0.10 per share or a twenty-five (25%) discount of the three (3) lowest intraday trading average for the twenty (20) day trading period prior to each conversion date, until paid in full, with accrued and unpaid interested due and payable in the final payment.

 

The Consultant will perform advisory and consultation services to the Company, including, but not limited to, assisting Company's management with general corporate operations, business development strategies, marketing and business plans, SEC compliance and advising the Company on other ad-hoc matters as appropriate. The parties agreed that either the Company or Consultant may request a quarterly review by a designated third party reviewer, whom shall determine if the Company has the right to terminate the Agreement earlier for non-performance by the Consultant. The Agreement also contains other customary and standard provisions. The convertible note liability will be recorded as the quarterly benchmarks are reached.

 

 
20
 

 

The original note contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note. Using the Black-Scholes option pricing model, the fair market value of the of the of the embedded conversion option at inception was determined to be $84,267 with the following assumptions: risk-free rate of interest of .711%, expected life of 1.69 years, expected stock price volatility of 170.599%, and expected dividend yield of zero. The initial carrying value of the embedded conversion option was $84,267 exceeded the note and $72,267 was attributed to the note discount and one time interest expense of $12,000 recorded in the current period.

  

The parties agreed to amend certain parts of the New Note that would mutually benefit each party. As of September 30, 2015, the Consultant and the Company had not specified the terms of any such amendment, but, at the request of the Consultant, no shares have been issued pursuant to the New Note. Birch completed the services during the first three months for the period ended September 30, 2015, and the parties have mutually agreed to not issue the shares payable at this time. The Note payable is accrued by quarter since it depends on the services being performed. At September 30, 2015, the principal, including accrued interest, derivative liability under the Note was $75,000, $1,151, and $69,534 respectively.

  

The fair market value of the derivative instruments liabilities at September 30, 2015 was determined to be $418,198 with the following assumptions: (1) risk free interest rate of 0.591% (2) remaining contractual life of 1.5 to 1.81years, (3) expected stock price volatility of 191.006% to 203.065%, and (4) expected dividend yield of zero. For the nine months ended September 30, 2015, the Company has recorded a gain on change in derivative instruments of $138,097, recorded a one-time interest expense charge of $259,028, and recorded debt discount to the note payable for $297,267 with remaining unamortized debt discount for $274,350.

   

 

 

Derivative

Liability as of

December 31, 2014

 

 

Derivative

Liability as of

September 30, 2015

 

 

 

 

 

 

 

 

Convertible notes

 

$ -

 

 

$ 418,198

 

 

 
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NOTE 11. COMMITMENTS

 

Stock Compensation for investor relations services

 

On December 3, 2014, the Company entered into an Investor Relations Consulting Agreement (the "Agreement") with EraStar Inc. ("EraStar"). Under the terms of the Agreement, the Company had the ability to challenge performance under the contract to an independent referee within certain timelines, which the Company initiated on January 21, 2015 (the "Termination Date"). As a result of the ruling in favor of the Company by the independent referee, the entire Agreement was cancelled. As of September 30, 2015, the Company had not reached EraStar due to the passing of EraStar's Chairman. For the nine month period ended September 30, 2015, the Company expensed $772,594 of warrant expense and stock based compensation for investor relations' services, and $40,000 is accrued in accrued liabilities until a final settlement is reached.

 

NOTE 12. CAPITAL STOCK

 

Authorized

 

The Company is authorized to issue 250,000,000 shares of preferred stock, having a par value of $0.0001 per share, and 500,000,000 shares of common stock, having a par value of $0.0001 per share.

 

Effective October 15, 2015, the Company Restated its Articles of Incorporation and Bylaws, and Equity Incentive Plan increasing the total number of shares of stock of all classes which we shall have authority to issue from 60,000,000 shares to 750,000,000 shares, of which the Common Stock, $0.0001 par value per share, was increased from 50,000,000 shares to 500,000,000 shares (hereinafter called "Common Stock") and of which the Preferred Stock, $0.0001 par value per share, was increased from 10,000,000 shares to 250,000,000 shares (hereinafter called "Preferred Stock").

  

Issued and Outstanding

 

Preferred Stock

 

At September 30, 2015, the Company there are no shares of preferred stock outstanding.

 

Common Stock

 

At September 30, 2015, the Company has 25,493,402 shares of common stock issued and outstanding .

 

 
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During the nine months ended September 30, 2015, the Company issued 6,274,332 shares of common stock as follows:

 

On January 8, 2015, the Company sold 25,000 shares of Common Stock and received net proceeds of $25,000.

 

On January 30, 2015, the Company entered into a settlement with a creditor wherein an aggregate of $88,431 of debt was settled by the issuance of 87,212 shares of common stock. The estimated fair value of the common shares was used to measure and record the transaction with the difference between the conversion prices and estimated fair value being recorded as gain on extinguishment of debt aggregating $44,825.

 

On February 4, 2015, the Company entered into a note conversion agreement with Rocky Road Capital, Inc. to convert $94,200 of the principal balance, which was due to a former director and subsequently assigned to Rocky Road Capital, Inc., into 942,000 shares of Common Stock (at $0.10 per share), thereby reducing the balance owed under the note to $472,012. The estimated fair value of the common shares was used to measure and record the transaction with the difference between the conversion prices and estimated fair value being recorded as loss on extinguishment of debt aggregating $376,800.

  

On February 20, 2015, the Company entered into a note conversion agreement with Rocky Road Capital Inc. to convert $150,000 of the principal balance, which was due to a former director and subsequently assigned to Rocky Road capital, Inc., into 1,500,000 shares of Common Stock (at $.10 per share), thereby reducing the balance owed under the note to $322,012. The estimated fair value of the common shares was used to measure and record the transaction with the difference between the conversion prices and estimated fair value being recorded as loss on extinguishment of debt aggregating $600,000.

 

On June 12, 2015 and June 15, 2015, the Company entered into note conversions pursuant to the Rocky Road note totaling $322,012 at $.10 per share for the conversion of 3,220,120 Shares of the Company's Common Stock, thereby eliminating the entire balance owed. Rocky Road Capital Inc. The estimated fair value of the common shares was used to measure and record the transaction with the difference between the conversion prices and estimated fair value being recorded as loss on extinguishment of debt aggregating $152,520.

    

On June 15, 2015, the Company entered into a Separation and Settlement Agreement Release of Claims (the "Settlement Agreement") with Steven Frye, our former Chief Executive Officer, Chief Financial Officer, and President. According to the Settlement Agreement, the Company agreed to pay Mr. Frye $54,794 for services rendered in the form of 391,386 shares of Common Stock of the Company closing price of the Company's stock as of June 15, 2015 ($.14 per share). The Settlement Agreement further stated Mr. Frye would be responsible for all taxes and signed a general release of any and all claims, known or unknown, against the Company. On July 1, 2015, Mr. Frye delivered his executed paperwork to the Company.

  

On June 15, 2015, the Company entered into Addendum Two ("Addendum Two") of the Promissory Note dated April 15, 2014 (the "Note") between the Company and Steven Frye. The Promissory Note dated April 15, 2015 was for the principle amount of $13,500 with 12% accrued interest. As of June 15, 2015, the principal and interest totaled $ 15,206 and was converted into 108,614 shares of Common Stock of the Company at $.14 per share, the fair value of the closing stock price calculated as of June 15, 2015. On July 1, 2015, Mr. Frye delivered his executed paperwork to the Company.

    

On July 14, 2015, the Company issued 100,000 restricted shares of Common Stock as a loan fee in connection with the Securities Purchase Agreement and 12% Convertible Note with EMA Financial, LLC a t $0.20 per share, the fair value of the closing stock price calculated as of July 14, 2015.

 

On July 27, 2015, the Company issued 2,500 restricted shares via a notice of issuance of stock to an individual for his consulting services for the year ended December 31, 2013, at $0.10 per share, the fair value of the closing stock price calculated as of July 27, 2015.

 

 
23
 

   

Stock Awards and Options

 

We do not have outstanding stock awards or options to purchase shares of our common stock.

 

Warrants Issued for Services

 

The Company issued no warrants in the nine months ending September 30, 2015, and there were 2,307 warrants outstanding with a weighted average exercise price of $260 at September 30, 2015.

  

The following table summarizes the warrant activity for the nine months ended September 30, 2015:

 

 

 

Warrants Outstanding

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Balance, December 31, 2014

 

 

1,002,307

 

 

$ 259

 

Granted

 

 

 

 

$

 

Exercised

 

 

 

 

 

 

Expired/Cancelled

 

 

(1,000,000 )

 

 

(2 )

Balance, September 30, 2015 

 

 

2,307

 

 

$ 260

 

Exercisable at September 30, 2015

 

 

2,307

 

 

$ 260

 

 

The range of exercise prices and the weighted average exercise price and remaining weighted average life of the warrants outstanding at September 30, 2015 were $130 to 390.00, $260 and .25 years, respectively. The aggregate intrinsic value of the outstanding warrants at September 30, 2015 was $0. 

    

NOTE 13. ACQUISITION

 

On April 4, 2015, the Company entered into a Securities Purchase Agreement (the "Agreement") and Promissory Note (the "Note") with H y H Investments, S.A. (the "Seller") for the purchase of all outstanding securities of El Muerto Beauty Mineral, Sociedad Anonima (hereafter "EMBM") whose sole asset consists of a license to operate 80 gaming machines in two cities on the Honduras mainland and 160 gaming machines in Roatan, the largest of the bay islands of Honduras. The total purchase price for the acquisition was Ten Million Dollars ($10,000,000) payable in the form of a Promissory Note (the "Note"). Upon the signing of the Agreement and Note, the $100,000 funds in escrow were paid to the Seller under the terms of the Note. The Company owes no further obligation under the terms of the Note until April 6, 2016, at which time $900,000 is due to the Seller, payable in the form of cash or shares of common stock of the Company at the average closing price of the common stock of the Company for the five trading days immediately proceeding April 6, 2016. The remaining balance under the Note is payable up to $2,500,000 per year thereafter through March 31, 2021 by either cash payments or by a revenue-share of 25% of the net revenues received by EMBM during such time period. In the event that Seller has not received the full amount due on or before March 31, 2021, such amount due may be payable via the issuance of the Company's shares of common stock at the average closing price of the Company's common stock for the five trading days immediately preceding March 31, 2021. Beginning on or after April 17, 2017, payments tendered in the form of Company common stock may be repurchased by the Company given the Seller's approval with the purchase price being the value of the shares at the corresponding payment date . The Company is not obligated to re-purchase the shares. The Seller agreed to waive interest payments of 3.85% per annum, due in monthly installments, in exchange for a sub-license granting the Seller usage of twenty-five (25) machines in the municipality of Roatan.

 

On September 30, 2015, the Company amended the Note and SPA to reflect a due date of April 6, 2016 in conjunction with the first payment of Nine Hundred Thousand Dollars ($900,000), which is due in either cash, stock, or 25% of the net revenues of EMBM's operations. The Note was also amended to reflect the current purchase price owed was reduced to $9,900,000, which deducts the $100,000 non-refundable deposit tendered on April 6, 2015. The business purpose for this amendment was to allow the Company the proper time to incorporate a Honduras corporation to be in compliance with the laws of the Republic of Honduras to effectively be able to transact business in that municipality. The good-faith non-refundable deposit permitted negotiation for a commitment at a later date. The Company will recognize the appropriate asset and liability when performance occurs on the effective date April 6, 2016.

 

 
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NOTE 14. STOCKHOLDERS' EQUITY

 

Equity Purchase Agreement and Registration Agreement with Tarpon Bay Partners LLC

 

On July 14, 2015, we entered into an Equity Purchase Agreement (the "Purchase Agreement" or "Equity Line") and Registration Rights Agreement (the "Registration Agreement") with Tarpon Bay Partners LLC ("Tarpon") whereby Tarpon is obligated, providing the Company has met certain conditions, including the filing of a Form S-1 Registration Statement for the shares to be acquired, to purchase up to $5,000,000 of the Company's common stock at the rates set forth in the Purchase Agreement. As of September 30, 2015, the S-1 Registration Statement was filed, but is not yet effective.

    

The Purchase Agreement has a term of two-years (the "term") and may be terminated sooner by the Company or if Tarpon has purchased a total of $5,000,000 of the Company's common stock before the expiration of the term. During the term of the Purchase Agreement, the Company may at any time deliver a "Put Notice" to Tarpon thereby requiring Tarpon to purchase a certain dollar amount (the "Investment Amount") in exchange for a portion of the Shares (the "Put"), determined by an estimated amount of Shares equal to the investment amount indicated in the Put Notice divided by the closing bid price of the Company's common stock on the trading day (the "Closing Price") immediately preceding the date the Put Notice was given (the "Put Date"), multiplied by one hundred twenty-five percent (125%) (the "Estimated Put Shares").

    

Subject to certain restrictions, the purchase price for the Shares is equal to ninety percent (90%) of the lowest closing bid price, quoted by the exchange or principal market Company's Common Stock is traded on, on any trading day during the ten (10) trading days immediately after the date the Company delivers to Tarpon a Put Notice in writing requiring Tarpon (the "Valuation Period") to purchase the applicable number of Shares of the Company, subject to certain terms and conditions of the Purchase Agreement. In the event the number of Estimated Put Shares initially delivered to Tarpon is greater than the Put Shares purchased by Tarpon pursuant to such Put Notice, then immediately after the Valuation Period Tarpon shall deliver to the Company any excess Estimated Put Shares associated with such Put Notice. If the number of Estimated Put Shares delivered to Tarpon is less than the Put Shares purchased by Tarpon pursuant to a Put Notice, then immediately after the Valuation Period the Company shall deliver to Tarpon the difference between the Estimated Put Shares and the Put Shares issuable pursuant to such Put Notice.

 

The number of Shares sold to Tarpon shall not exceed the number of such Shares that, when aggregated with all other shares of common stock of the Company then beneficially owned by Tarpon, would result in Tarpon owning more than 9.99% of all of the Company's common stock then outstanding. Additionally, Tarpon may not execute any short sales of the Company's common stock. The Purchase Agreement also contains other customary and standard provisions.

 

NOTE 15. SUBSEQUENT EVENT

 

Reverse Stock Split

 

Effective October 15, 2015, the Board of Directors under their sole discretion by Board Resolution and applicable FINRA requirements may initiate a 1:1,000 Reverse Split, the number of shares of capital stock issued and outstanding will be reduced to the number of shares of capital stock issued and outstanding immediately prior to the effectiveness of a Reverse Split, divided by up to one thousand (1,000). Each fractional share shall be rounded up to the nearest whole share. There will be no change to the number of authorized shares of Common Stock and Preferred Stock as a result of a Reverse Split. With the exception of the number of shares issued and outstanding, the rights and preferences of the shares of capital stock prior and subsequent to a Reverse Split will remain the same. It is not anticipated that the Company's financial condition, the percentage ownership of management, the number of shareholders, or any aspect of the Company's business would materially change, solely as a result of a Reverse Split.

 

As of the date of the first Amendment to our S-1 Registration Statement, the Board of Directors has not initiated a Reverse Split.

 

 
25
 

   

Equity Incentive Plan

 

Effective October 15, 2015, the Company adopted the Equity Incentive Plan (the "Plan") whereby the Company may issue common stock, not to exceed 25,000,000 shares of common stock of the Company (the " Stock Award " or " Stock Awards "), or grant options to acquire common stock of the Company (the " Option " or " Options "), (the " Stock "), which may be in the form of Stock Awards, or "incentive stock options" (" ISOs ") intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the " Code "), or "non-qualified stock options" (" NQSOs ").

    

Pursuant to the Plan, the exercise price of stock awards or options granted under the plan which are designated as NQSO's shall not be less than 85% of the fair market value of the stock subject to the Option on the date of grant, and not less than 65% of the fair market value of the stock subject to the Stock Award on the date of grant. To the extent required by applicable laws, rules and regulations, the exercise price of a NQSO granted to any person who owns, directly or by attribution of stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary (a "Ten Percent Stockholder") shall in no event be less than 110% of the fair market value of the stock covered by the Stock Award or Option at the time the Stock Award or Option is granted.

     

Pursuant to the Plan, the exercise price of stock awards or options granted under the Plan which are designated as ISO's shall not be less than the fair market value of the stock covered by the stock award or option at the time the option is granted. The exercise price of an ISO granted to any Ten Percent Stockholder shall in no event be less than 110% of the fair market value.

 

The fair market value is defined as the closing price of such stock on the date before the date the value is to be determined on the principal recognized securities exchange or recognized securities market on which such stock is reported. If selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date before the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which there were quoted prices). If there is no established market for the stock, the fair market value will be determined in good faith by the Administer. The Administer will either be the Board of Directors or an Administer appointed by the Board of Directors.

 

Second Amendment to Securities Purchase Agreement with H y H Investments S.A.

 

Effective November 20, 2015, the Company signed a Second Amendment (the "Amendment") to the Securities Purchase Agreement (the "Agreement") with H y H Investments, S.A. (the "Seller") regarding the acquisition of the gaming license whereby the Company re-assigned the Agreement to Elite Holdings S.A., a wholly owned subsidiary owned by the Company on a jointly and severally liable basis with the Company so as to comply with the regulatory authority of the Republic of Honduras. The Amendment also removed any Required Approvals on part of the Seller to enter into the Agreement. The Amendment specifies that as long as the Company is current in its payment obligations, upon good faith payment, Purchaser shall have the right to operate gaming machines permitted under the license and proceed with the use of the license as owner of EMBM with full power and authority to contract, license, sub-license, loan, lease, enter into contract or any other business venture in which entitles Purchaser to the benefit of the license on behalf of the Corporation. The Amendment also clarified that the shares of EMBM would be assigned to Elite Holdings, S.A. after the full purchase price had been tendered to the Seller.

 

 
26
 

   

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 nine-month period ended September 30, 2015. This discussion should be read in conjunction with the unaudited financial statements and notes as set forth in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report. Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

 

Forward-Looking Statements

 

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

 

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Quarterly Report.

 

Company's Approach to Management's Discussion of Financial Condition and Results of Operations

 

In our discussion, we aim to provide: 1) a narrative explanation of our financial statements that enables investors to see the Company through the eyes of our management; 2) an enhancement of the overall financial disclosure with provided context with which the financial information should be analyzed; and 3) information about the quality of, and potential variability of, our earnings and cash flow so investors can ascertain the likelihood that past performance is indicative of future performance. In our overall presentation, we aim to focus on the material, analysis, key performance measures and known material trends and uncertainness of the Company, disclosure regarding liquidity and capital resources, and disclosure regarding critical accounting estimates. As part of our overall presentation, we strive to present the most material information as the most prominent and avoid unnecessary duplicative disclosures that can tend to overwhelm our readers and act as an obstacle to identifying material matters.

  

Executive Level Overview

 

Our business is focused mainly, but not limited to, the marketing and advertising sector whereby we develop software solutions for assets or ventures in which the Company "owns" and/or "controls," with "controls" being defined as being entitled to the gross revenues generated by the asset or venture. We customarily will create custom software applications designed to enhance our existing platforms such as the Carline Negotiator™ and the VIP Salesmen Directory developed for enhancing classifiedride.com. We believe that by owning or controlling (as defined above) such platforms will allow us to generate long-term revenues overtime and not be reliant on customer client contracts. For the last two years, we been have been focused on our online automotive platforms, and on April 4, 2015, entered into Securities Purchase Agreement (the "Agreement") to acquire a company which holds a gaming license which permits operation of three hundred and twenty (320) gaming machines in three specific locations in Honduras, including Roatan, the largest of the bay islands as further discussed below. As of September 30, 2015, the Company had not acquired the gaming license, but has begun the process of preparing for its use by April 6, 2015 by sending an on-site consultant to our first Strategic Vender Partner location as discussed further below.

 

 
27
 

   

Our business is reliant on capital and if we fail to generate such capital by means of equity, debt, or other arrangement, we will not be able to implement our business plan.

 

ClassifiedRide.com

 

On January 13, 2014, the Company entered into an asset purchase agreement with Baker Myers and Associates, LLC ("Baker Myers LLC") to acquire the domain www.classifiedride.com, an online selling and buying platform for automotive markets ("ClassifedRide"). 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 for the purpose of generating revenue from private sellers, dealerships, affiliate lead providers, and third party advertisers.

 

Autoglance

 

On January 15, 2014, the Company entered into an Asset Purchase Agreement with Baker Myers LLC 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. 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 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.

    

Gaming Distributor Acquisition Overview

 

On April 4, 2015, the Company entered into a Agreement and Promissory Note (the "Note") with H y H Investments, S.A. (the "Seller") for the purchase of all outstanding securities of El Muerto Beauty Mineral, Sociedad Anonima (hereafter "EMBM") whose sole asset consists of a license to operate 80 gaming machines in La Lima, 80 gaming machines in Trujillo, and 160 gaming machines in Roatan, the largest of the bay islands of Honduras. The Company entered into contract to acquire the shares of EMBM and not the license directly as the license is in the name of EMBM. The total purchase price for the license was Ten Million Dollars ($10,000,000) payable in the form of a Promissory Note (the "Note"). The Company tendered $100,000 as a non-refundable good-faith deposit under the terms of the Note that is applicable towards the purchase price which allows permitted use of EMBM's assets as long as we are in good standing in regards to our payments as further discussed below.

 

Pursuant to the first Amendment, the Company owes no further obligation under the terms of the Note until April 6, 2016, at which time $900,000 is due to the Seller, payable in the form of cash or shares of common stock of the Company at the option of the note holder. If the Seller elects to convert such payment or a portion of such payment into shares, the value of the shares will be assessed at the average closing price of the common stock of the Company for the five trading days immediately preceding April 6, 2016. If the Seller elects to receive cash, and we do not have the cash on hand to satisfy the obligation, pursuant to Section 4.3 of the Securities Purchase Agreement, the Seller has the right to terminate the entire Agreement, unwind the transaction and assume ownership of the EMBM shares if the Company is unable to negotiate an extension or alternate arrangement. The remaining balance under the Note is payable up to $2,500,000 per year thereafter through March 31, 2021 by either cash payments or by a revenue-share of 25% of the net revenues received by EMBM during such time period. In the event that Seller has not received the full amount due on or before March 31, 2021, such amount due may be payable via the issuance of the Company's shares at the average closing price of the Company's common stock for the five trading days immediately preceding March 31, 2021. Beginning on or after April 17, 2017, payments tendered in the Company's common stock may be repurchased by the Company given the Seller's approval. The Seller agreed to waive interest payments of 3.85% per annum, due in monthly installments, in exchange for a sub-license granting the Seller usage of twenty-five (25) machines in the municipality of Roatan.

 

 
28
 

   

On June 30, 2015, the Company amended the Note to reflect an effective date of April 6, 2016 in conjunction with the first payment of Nine Hundred Thousand Dollars ($900,000) which is due in either cash, stock, or 25% of the net revenues of EMBM's operations. The Note was also amended to reflect the current purchase price owed ($9,900,000) April 6, 2016, which deducts the $100,000 non-refundable deposit tendered on April 6, 2015. The business purpose for this amendment was to allow the Company the proper time to incorporate a Honduras corporation to be in compliance with the laws of the Republic of Honduras to effectively be able to transact business in that municipality.

 

The license permits operation and/or distribution of gaming machines at different locations as follows: Eighty (80) gaming machines in La Lima, Eighty (80) gaming machines in Trujillo, and One Hundred and Sixty (160) gaming machines in Roatan, the largest of the bay islands of Honduras.

 

We currently only have one strategic vendor partner as further discussed below and have not attempted or negotiated any sub-license arrangements.

  

Plan of Operations

 

Strategic Vendor Placement Agreement with Lands End Resort

 

On May 15, 2015, the Company entered into a Strategic Vendor Placement Agreement (the "Vendor Agreement") with Lands End, a resort in West End Village in Roatan. The Vendor Agreement permits us to place Twenty Five (25) gaming machines at Lands End on a revenue share agreement by which Lands End retains Six Percent (6%) of the net revenues from the operations of the gaming machines. The Company will pay the taxes and legal fees pertaining to these gaming machines. In addition, Lands End will be required to pay a licensing fee at the time the machines become operational equal to the lower of $1,000 per year or two percent (2%) of the net gaming revenue generated from each machine per month. At September 30, 2015, Lands End had not completed the construction developments needed to obtain its business permit to begin the operation of gaming machines and construction is still underway.

 

Operational Developments

 

As of July 7, 2015, the Company paid a consultant to travel to Lands End for six months to help us begin branding, conduct market research, research the creation of a legal entity, and assist Lands End in the necessary construction to receive their business permit to operate machines. As part of our Agreement, we agreed to furnish the consultant with a computer, pay travel expenses and $3,000 for six months worth of services. We have been monitoring our analytics and developments in regards to our automotive platforms, but have not conducted any recent developments as we determine the applicable strategies geared towards profitable revenues from these platforms.

 

Our ability to complete subsequent phases of our business will be subject to us obtaining additional financing as these expenditures will exceed our cash reserves. Upon the effective date of April 6, 2015, we intend to purchase gaming machines and maintain those machines with an on-site consultant utilizing proceeds from our applicable agreements with Tarpon and potentially other financing arrangements to purchase gaming machines at an average of $1,200 per machine plus an addition $200-$300 for shipping. We anticipate starting with 25 machines pursuant to our agreement with Lands End. However, concerning our financing arrangements with Tarpon, our registration statement filed with the SEC is not yet effective and there is no assurance that it will ever be declared effective and we do not have the capital on hand to purchase machines at this time or fulfill our contractual obligations with the Seller if he elects to receive cash and not stock shares for the first payment due April 6, 2016.

 

 
29
 

 

Aside from the agreement with Tarpon, we do not have any future financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund further phases of our business plan. In the absence of such financing, we will not be able to purchase gaming machines and/or continue our website platform development and our business plan will fail. Even if we are successful in obtaining equity financing to fund our ventures, there is no assurance that we will obtain the funding necessary to pay our creditors and note holders on a timely basis. If we do not continue to obtain additional financing or we are unable to complete this Offering, or file a new offering or amendment in furtherance of utilizing the entire proceeds of $5,000,000 pursuant to the Purchase Agreement, we may be forced to abandon our gaming operations.

 

Requirements and Utilization of Funds

 

To implement our business plan, we will need to continue to raise working capital in an amount of $2,000,000 over the twelve month period beginning in the fourth quarter of 2015 on terms and conditions to be determined. Management may elect to seek subsequent interim or "bridge" financing in the form of debt as may be necessary.

 

At this time, management is unable to determine the specific amounts and terms of such future financings, or whether or not we will be successful in raising such funds on a basis acceptable to us.

 

On July 14, 2015, we entered into an Equity Purchase Agreement (the "Purchase Agreement" or "Equity Line") and Registration Rights Agreement (the "Registration Agreement") with Tarpon Bay Partners LLC ("Tarpon") whereby Tarpon is obligated, providing the Company has met certain conditions, including the filing of a Form S-1 Registration Statement for the shares to be acquired, to purchase up to $5,000,000 of the Company's common stock at the rates set forth in the Purchase Agreement. The S-1 Registration Statement was filed on September 28, 2015, and has not yet been declared effective. If we cannot raise the required proceeds via a private placement of our common stock or secure debt financing, we would be required to cease business operations. As a result, investors in our common stock would lose all of their investment.

 

Management believes that a total of US $5,000,000 will be needed to execute the Company's business plan over the next three to five years. Management is of the opinion that we will not require additional funding based on revenues from future operations if we are able to utilize the full $5,000,000 in Put Shares pursuant to our Registration Agreement with Tarpon Bay Partners, LLC (See Note 14); however, it should be noted that our acquisition agreement requires an aggregate payment of $10,000,000 beginning with a $900,000 payment on April 6, 2015 as further discussed above and in Note 13. In addition, we were unable to register the full amount of shares required to utilize the full amount of our credit line and will have to either re-file or amend our S-1 to register additional securities, if and when the registration statement becomes effective.

  

Going Concern

 

As for the period ended September 30, 2015 and in their report for our December 31, 2014 Form 10-K, our auditors have issued a "going concern" opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our expenses. This is because we have not generated enough revenues and no substantial revenues are anticipated in the near-term. Accordingly, we must seek to raise working capital from sources other than from the sale of our products through debt and equity financing facilities.

 

 
30
 

   

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles ("GAAP") in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and the accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

 

We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. We have identified in Note 3, Summary of Significant Accounting Policies to the Financial Statements contained in Item 1 of this document, certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements.

 

RESULTS FROM OPERATIONS

 

Results for the three months ended September 30, 2015 compared to the three months ended September 30, 2014

 

Revenues and Net (Loss) Profit

 

Our operating results for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 are as follows:

 

 

 

  Three Months Ended

September 30,

 

 

2015

 

 

2014

 

Revenues

 

$

 

 

$ 3,192

 

Operating and other expenses

 

 

(515,831 )

 

 

97,602

 

Net (Loss) Profit

 

$ (515,831 )

 

$ 100,794

 

  

For the period ended September 30, 2015, no revenues were generated from the Company's efforts under their current business plan has all available resources focused on implementation and development of the hospitality segment. For the three-month period ended September 30, 2014, the Company generated $3,192 in revenue from classifiedride.com.

 

 
31
 

   

Operating Expenses and Other Expenses

 

Our operating expenses for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 are as follows:

 

 

 

Three Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Consulting services

 

$ 79,000

 

 

$ 6,000

 

Investor relation services

 

 

31,822

 

 

 

 

Gain on extinguishment of debt

 

 

(571 )

 

 

 

Project development costs

 

 

98

 

 

 

(164,999 )

Gain on derivative instruments

 

 

(138,097 )

 

 

 

Interest expense

 

 

312,889

 

 

 

30,074

 

Amortization of debt discount

 

 

22,917

 

 

 

 

 

Warrants issued for services

 

 

 

 

 

 

General and administrative expenses

 

 

121,931

 

 

 

31,323

 

Non-cash settlement charge

 

 

85,842

 

 

 

 

Total Operating and Other Expenses (Income)

 

$ 515,831

 

 

$ (97,602 )

 

The increase in consulting services in 2015 as compared 2014 is due to a non-cash payment in shares of common stock to a consultant aggregating $75,000 pursuant to a consulting agreement.

 

The increase in General and Administrative Expenses from 2015 from 2014 is primarily due to the hiring of the necessary consultants to assist in the Company's new business pursuits.

 

The decrease in project development costs from the quarter ended September 30, 2015 to the equivalent period in 2014 is primarily due to the Company's expansion into the gaming sector thereby reducing project activities relating to investigation and design of proto-type technologies that started in the fourth quarter of 2013.

  

The gain on derivative instruments incurred in the current period of measurement is associated with two convertible notes. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values in accordance with pronounced accounting standards. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments and changes in the market price of our common stock, which is a component of the calculation model.

 

 
32
 

   

We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because

 

Black-Scholes uses our stock price, changes in the stock price will result in volatility to the earnings in future periods as we continue to reflect the derivative financial instruments at fair values.

 

The increase in interest expense is a result of increased financing facilities during the current period of measurement and the working capital funds utilized for implementing our revised business plan towards into the gaming sector.

 

The increase in general and administrative of $90,608 is mainly attributable to increased accounting related fees of $29,639, financing cost of $21,500 and legal fees of $39,075, which were partially attributable to out S-1 Registration Statement filing.

 

During the current period of measurement we also incurred a non-cash settlement charge of $85,842 in regards to the Birch First Capital Fund, LLC Settlement Agreement.

 

Results for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014

 

Our operating results for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 are as follows:

 

Revenues and Net Loss

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Revenues

 

$ 1,596

 

 

$ 12,621

 

Operating and other expenses (income)

 

 

2,443,382

 

 

 

(33,639 )

Net (Loss)

 

$ (2,440,190 )

 

$ 46,260

 

  

During the nine-month period ended September 30 2015, there was a decrease in revenues due to the Company's shift of resources on implementation and development. For the nine-month period ended September 30, 2014, the Company generated $12,621 in revenue from classifiedride.com.

 

 
33
 

   

Operating Expenses and Other Expenses and (Income)

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Consulting services

 

$ 138,794

 

 

$ 38,500

 

Investor relation services

 

 

323,260

 

 

 

 

Project development costs

 

 

319

 

 

 

29,000

 

Interest Expense

 

 

368,356

 

 

 

67,170

 

Gain on derivative instruments

 

 

(138,097 )

 

 

 

Amortization of debt discount

 

 

22,917

 

 

 

 

Loss (gain) on extinguishment of debt

 

 

958,700

 

 

 

(280,246 )

Warrants issued for services

 

 

481,156

 

 

 

 

General and administrative expenses

 

 

202,135

 

 

 

111,937

 

Non-cash settlement charge

 

 

85,842

 

 

 

 

Total Operating and Other Expenses (Income)

 

$ 2,443,382

 

 

$ (33,639 )

 

The increase in consulting services from 2014 to 2015 is primarily due to the Company is due to a non-cash payment in shares of common stock to our former President and chief financial officer aggregating $54,794 pursuant to a separation agreement and a non-cash payment in shares of common stock to a consultant aggregating $75,000 pursuant to a consulting agreement.

 

The increase in payments for services from 2015 from 2014 is primarily due to the hiring of the necessary consultants to assist in the Company's new business pursuits.

 

The decrease in project development costs from 2015 to 2014 is primarily due to project activities related to development relating to investigation and design of proto-type technologies and web design of networks that started in the 2014 and was contingent upon external financing, which the Company did not receive. It is also attributable due to the Company's expansion into the gaming sector thereby reducing project activities and working capital funds being allocated to this segment of the revised business plan.

  

The increase in interest expense is a result of increased financing facilities during the current period of measurement and the working capital funds utilized for implementing our revised business plan into the gaming sector.

 

 
34
 

   

The gain on derivative instruments incurred in the current period of measurement is associated with two convertible notes. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values in accordance with pronounced accounting standards. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments and changes in the market price of our common stock, which is a component of the calculation model.

 

We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because

 

Black-Scholes uses our stock price, changes in the stock price will result in volatility to the earnings in future periods as we continue to reflect the derivative financial instruments at fair values.

 

The loss on the extinguishment of debt is mainly attributable to the conversion and elimination of the contingent liability of $566,212 in our current period of measurement. The debt was converted at $0.10 per share and the non-cash loss resulted from the difference in the market price of the stock on the date of the conversion for the number of shares converted on that date.

 

Warrant costs applicable for warrants issued before the preceding nine months are a result of warrants issued to a consulting firm and amortized over the life of the warrant. The agreement with the firm was cancelled under the terms on the agreement on January 21, 2015 and the warrant was cancelled on April 1, 2015. The remaining prepaid expense was expensed.

 

The increase in general and administrative of $90,608 is mainly attributable to increased legal fees of $16,575, which was partially attributable to out S-1 Registration Statement filing; financing related costs of $61,500 and non-cash financial consulting of $28,750. During the current period of measurement we also incurred a non-cash settlement charge of $85,842 in regards to the Birch First Capital Fund, LLC Settlement Agreement.

 

Liquidity and Capital Resources

 

As of September 30, 2015 and December 31, 2014, the Company had cash on hand of $6,947 and $659, respectively. The Company had increased cash flow of $6,288 for nine months ended September 30, 2015 from proceeds received from the sale of stock, convertible notes and expense advances from a related party.

 

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. This capital will be needed for continued development of the Company's network strategy and gaming expansion.

    

We were able to secure an Equity Line in the amount of $5,000,000 with Tarpon Bay Partners, LLC, but we anticipate that the actual likelihood that we will be able to access the full $5,000,000 is low due to several factors, including that our ability to access the Equity Line is limited by share volume restrictions and impacted by our stock price. On September 28, 2015, we filed our S-1 Registration to register 5,000,000 shares. This registration statement is not yet effective. When and if our S-1 registration statement is deemed effective by the SEC, our equity line will continue to be limited and restricted if our share trading volume and/or market price of our stock continue at their current levels or decrease further in the future from the volume and stock prices reported over the past year.

 

 
35
 

   

No assurance can be given that the volume and/or market price of stock will increase (and/or not decline) from current levels to permit us to utilize the full amount of the Equity Line. Our trading volume for the last several months has been significantly low, with only sporadic trading. Our share price has fluctuated and fallen below our registration statement estimates. If we are unable to fully use the Equity Line we will need to find alternative sources of funding or we may need to scale back our operations until such time as we have sufficient revenue to support increased operations. We currently have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. We require additional working capital to fund our business and to cover our payroll and other operating expenses. We anticipate $2,000,000 would allow us to implement our business plan for the next twelve months. If we are unable to use our Equity Line there can be no assurance that alternative sources of funding will be available upon acceptable terms.

  

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. We have a working capital deficit and will need cash infusions from investors and/or current shareholders to deploy our current business plan.

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Current assets

 

$ 25,288

 

 

$ 821,541

 

Current liabilities

 

 

(1,072,711 )

 

 

(1,475,787 )

Working capital deficit

 

$ (1,047,423 )

 

$ (654,246 )

   

Cash Flows

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Net cash used in operating activities

 

$ (252,269 )

 

$ (113,813 )

Net cash used in investing activities

 

 

(100,000 )

 

 

 

Net cash provided by financing activities

 

 

358,557

 

 

$ 112,500

 

Net increase (decrease) increase in cash

 

$ 6,288

 

 

$ (1,571 )

  

Net cash provided by investing activities for the period ended September 30, 2015 includes the non-refundable deposit tendered for the gaming license. Net cash provided by financing activities in the period ended September 30, 2015 is from the sale of common stock, funds provided from a related party, and proceeds from convertible notes. Net cash used in financing activities includes the proceeds of the convertible notes that were used to secure the gaming license, which provides for distribution rights in two cities on the Honduras mainland and Roatan, the largest of the bay islands of Honduras. Net cash provided by operating activities for the period ended September 30, 2015 includes the stock compensation and warrants issued for investor relations services and the loss recorded on the extinguishment of debt pursuant to the contingent consideration payable.

 

 
36
 

    

Going Concern Uncertainties

 

Management believes that our current financial condition, liquidity and capital resources will not satisfy our cash requirements for the next twelve months to deploy our current business plan, and as such we will need to either raise additional proceeds through financing facilities, sales of securities and our officers and 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 current business and fund our necessary operating expenses, through financial commitments from future debt facilities and equity sales, if and when possible.

 

Management believes that we may generate more revenue within the next 12 months, but that these revenues will not satisfy our cash requirements to implement our current 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 September 30, 2015. 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 revenue, and could fail to satisfy our future cash requirements as a result of these uncertainties.

 

It will be necessary to raise working capital funds through equity and debt financing facilities, which are extremely difficult for an early stage company to secure and may not be available to us or on a basis favorable to us. However, if such debt financing is available, we would likely have to pay additional costs associated with high-risk loans and be subject to above market interest rates.

 

The Company and has accumulated a deficit of $11,266,962 at September 30, 2015. We currently have only limited working capital with which continue our 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 working capital in the form of debt and equity in order to cover our current expenses over the next 12 months and continue to implement our 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.

  

Capital Expenditures

 

We have not incurred any commitments for material capital expenditures except for the non-refundable payment for the intangible asset license.

 

 
37
 

   

Off-Balance Sheet Arrangements

 

During the nine months ended September 30, 2015, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.

 

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.

 

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, a misstatements due to error or fraud may occur and not be detected.

 

  Changes in Internal Control over Financial Reporting

 

During the quarter ended September 30, 2015, there were no changes in our internal control over financial reporting identified in connection with management's evaluation of the effectiveness of our internal control over the financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

 

 
38
 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

Lawsuit Against EraStar, Inc.

 

On August 31, 2015, the Company filed suit against EraStar, Inc. in the Chancery Court of Davidson County in Tennessee claiming breach of contract, breach of duty of good faith and fair dealing, breach of fiduciary duty, conversion, unjust enrichment, fraud and fraudulent misrepresentation, tortious interference with Contract, intentional misrepresentation, and violation of the Tennessee Consumer Protection Act, requesting injunctive and declaratory relief in addition to damages regarding EraStar's willful attempt to deposit Five Hundred Thousand (500,000) Shares of common stock of the Company in violation of the terms specifically negotiated pursuant to the Investor Relations and Consulting Agreement dated December 2, 2015. In the Complaint, the Company also asks for damages of $159,000. The Company's likelihood of success on the merits or any amount of recovery to be awarded and/or collected is undeterminable.

 

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.

 

The Company did not issue any unregistered sales of equity securities for the period ended September 30, 2015.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

On August 27, 2015, our Board of Directors and shareholders holding a majority of the outstanding shares of our Common Stock approved an amendment and restatement of our Articles of Incorporation, (ii) an amendment and restatement of our bylaws, (iii) creation of an equity incentive plan and (iv) authorization for a reverse split ratio of up to 1:1,000 within a year from the date of effectiveness as determined by the Board of Directors (each referred to as an "Corporate Action" or collectively referred to as the "Corporate Actions"). The Corporate Actions were effective October 15, 2015 ("Effective Date").

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
39
 

 

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

 

 

 

3.7

Amended and Restated Articles of Incorporation (incorporated by reference to the Company's 8-K filed November 11, 2015 as Exhibit A of the Company's Definite 14C filed on September 23, 2015)

3.8

Amended and Restated Bylaws (incorporated by reference to the Company's 8-K filed November 11, 2015 as Exhibit B of the Company's Definite 14C filed on September 23, 2015)

3.9

2015 Equity Incentive Plan (incorporated by reference to the Company's 8-K filed November 11, 2015 as Exhibit C of the Company's Definite 14C filed on September 23, 2015)

10.01

Asset Purchase Agreement between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 13, 2014. (incorporated by reference to the Company's 8-K dated January 13, 2014)

10.02

Asset Purchase Agreement between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 15, 2014 (incorporated by reference to the Company's 8-K dated January 15, 2014)

10.28

Line of Credit with Sarah Myers (incorporated by reference to the Company's Form 10-K, dated May 12, 2014)

10.30

Amendment to Asset Purchase Agreement between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 13, 2014 (incorporated by reference to the Company's 10-Q for the period ended September 30, 2014)

10.31

Restated Convertible Promissory Note between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 13, 2014 (incorporated by reference to the Company's 10-Q for the period ended September 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 (incorporated by reference to the Company's 10-Q for the period ended September 30, 2014)

10.36

Investor Relations Consulting Agreement between Elite Data Services, Inc. and Erastar, Inc. (incorporated by reference to the Company's 8-K dated December 11, 2014)

10.37

Elite Data Services, Inc. Warrant Agreement to issue 1,000,000 shares of Common Stock in the name of Erastar, Inc. (incorporated by reference to the Company's 8-K filed December 11, 2014)

10.38

Note Purchase Agreement between Elite Data Services, Inc. and Iconic Holdings, LLC dated March 16, 2015 (incorporated by reference to the Company's 10-K for the period ended December 14, 2014)

10.39

Convertible Promissory Note between Elite Data Services, Inc. and Iconic Holdings, LLC dated March 16, 2015 (incorporated by reference to the Company's 10-K for the period ended December 31, 2014)

10.40

Convertible Promissory Note between Elite Data Services, Inc. and Iconic Holdings, LLC dated March 16, 2015 (incorporated by reference to the Company's 10-K for the period ended December 31, 2014)

10.41

Addendum #1 to the Promissory Note between Elite Data Services, Inc. and Steven Frye dated April 15, 2014 (incorporated by reference to the Company's 10-K for the period ended December 31, 2014)

10.42

Securities Purchase Agreement between Elite Data Services, Inc. and H y H Investments, S.A. dated April 4, 2015 (incorporated by reference to the Company's 8-K dated April 9, 2015)

10.43

Promissory Note between Elite Data Services, Inc. and H y H Investments (incorporated by reference to the Company's 8-K dated April 9, 2015)

10.44

Addendum #5 to the Revolving Line of Credit Agreement between Elite Data Services, Inc. and Sarah Myers dated March 31, 2015 (incorporated by reference to the Company's 10-Q for the period ended March 31, 2015)

10.45

12% Convertible Note between Elite Data Services, Inc. and JSJ Investments, Inc. dated June 11, 2015 (incorporated by reference to the Company's 8-K dated June 15, 2015)

10.46

6% Convertible Redeemable Note dated June 11, 2015 between Elite Data Services, Inc. and LG Capital Funding, LLC (incorporated by reference to the Company's 8-K dated June 15, 2015)

10.47

Securities Purchase Agreement dated June 11, 2015 between Elite Data Services, Inc. and LG Capital Funding, LLC (incorporated by reference to the Company's 8-K dated June 15, 2015)

 

 
40
 

 

10.48

6% Convertible Redeemable Note dated June 16, 2015 between Elite Data Services, Inc. and LG Capital Funding, LLC (incorporated by reference to the Company's 8-K/A dated July 6, 2015)

10.49

Securities Purchase Agreement dated June 16, 2015 between Elite Data Services, Inc. and LG Capital Funding, LLC (incorporated by reference to the Company's 8-K/A dated July 6, 2015)

10.50

6% Convertible Redeemable Note dated June 16, 2015 between Elite Data Services, Inc. and Adar Bays, LLC (incorporated by reference to the Company's 8-K/A dated July 6, 2015)

10.51

Securities Purchase Agreement dated June 16, 2015 between Elite Data Services, Inc. and Adar Bays, LLC (incorporated by reference to the Company's 8-K/A dated July 6, 2015

10.53

Registration Rights Agreement between Elite Data Services, Inc. and Tarpon Bay Partners, LLC dated July 14, 2015 (incorporated by reference to the Company's 8-K dated July 20, 2015)

10.54

$50,000 Promissory Note between Elite Data Services, Inc. and Tarpon Bay Partners, LLC dated July 14, 2015 (incorporated by reference to the Company's 10-Q for period ended June 30, 2015)

10.55

12% Convertible Note between Elite Data Services, Inc. and EMA Financial, LLC dated July 14, 2015 (incorporated by reference to the Company's 8-K dated July 20, 2015)

10.56

Securities Purchase Agreement between Elite Data Services, Inc. and EMA Financial, LLC dated July 14, 2015 (incorporated by reference to the Company's 8-K dated July 20, 2015)

10.57

Settlement and Stipulation Agreement dated July 21, 2015 by and between Elite Data Services, Inc. and Birch First Capital Fund, LLC and Birch First Advisors, LLC (incorporated by reference to the Company's 8-K dated July 27, 2015)

10.58

Amended and Restated Note dated July 21, 2015 by and between Elite Data Services, Inc. and Birch First Capital Fund, LLC (incorporated by reference to the Company's 8-K dated July 27, 2015)

10.59

Consulting and Advisory Agreement and New Note dated July 21, 2015 by and between Elite Data Services, Inc. and Birch First Advisors, LLC (incorporated by reference to the Company's 8-K dated July 27, 2015)

10.61

Separation and Settlement Agreement with Complete Release of all Claims dated June 15, 2015 between Elite Data Services, Inc. and Steven Frye (incorporated by reference as Exhibit 10.52 to the Registrant's 8-K/A filed July 6, 2015)

10.62

Addendum 2 to the Promissory Note dated June 15, 2015 between the Company and Steven Frye (incorporated by reference as Exhibit 10.53 to the Registrant's 8-K/A filed July 6, 2015)

10.63

Amended Securities Purchase Agreement between Elite Data Services, Inc. and H y H Investments, S.A. dated September 30, 2015 (incorporated by reference to the Registrant's 10-Q for the quarter ended June 30, 2015 filed on August 19, 2015)

10.64

Amended Promissory Note between Elite Data Services, Inc. and H y H Investments, S.A. dated September 30, 2015 (incorporated by reference to the Registrant's 10-Q for the quarter ended June 30, 2015 filed on August 19, 2015)

10.65

Amended Securities Purchase Agreement between Elite Data Services, Inc. and H y H Investments, S.A. dated September 30, 2015

10.66*

Strategic Vendor Placement Agreement by and between the Registrant and Lands End Resort dated May 15, 2015

10.67*

Consulting Contract between Elite Data Services, Inc. and Darryl Gomillion dated July 7, 2015

10.68*

Second Amendment to Securities Purchase Agreement between Elite Data Services, Inc. and H y H Investments dated November 20, 2015

10.8

Stock Warrant Agreement with Charles R. Cronin, Jr. (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q, dated July 22, 2011)

21.1

List of Subsidiaries

31.1**

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

31.2**

 

Certification of the registrant's 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)

101***

 

Interactive Data File (Form 10-Q for the quarterly period ended September 30, 2015 furnished in XBRL)

___________

* Filed herewith

 

** In accordance with SEC Release 33-8238, Exhibits 31.1 and 32.1 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.

 

 
41
 

  

SIGNATURES

 

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

 

ELITE DATA SERVICES, INC.

 

 

Date: November 23, 2015

By:

/s/ Charles Rimlinger

 

Charles Rimlinger

 

Chief Executive Officer

 

(Principal Executive Officer)

 

 

By:

/s/ Stephen Antol

 

Stephen Antol

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

  

 

44


EXHIBIT 10.66

 

STRATEGIC VENDOR PLACEMENT AGREEMENT

 

This Strategic Vendor Placement Agreement (the "Agreement") is dated as of the  15th  day of  May , 2015 ("Effective Date") and is made by and between  ELITE DATA SERVICES, INC.  (the "Company"), a Florida corporation with its principal place of business located at 4447 N. Central Expressway Ste 110-135 Dallas, TX 75205 and  LANDS END (the "SPV"), a resort property located in Roatan, Honduras. Hereinafter the Company and Vendor shall be referred to collectively as the "Parties."

 

RECITALS

 

WHEREAS, the Company purchased a license to operate One Hundred and Sixty Gaming Machines in Roatan, Honduras and seeks to enlist Lands End as a slot machine licensee hereafter referred to as a Strategic Placement Vendor ("SPV") who will permit gaming machines on its facility in exchange for a revenue share of the net profits per machine as defined herein;

 

AND WHEREAS, the Company is authorized to execute a revenue-sharing agreement in the form substantially set forth herein; and

 

AND WHEREAS, the revenue-sharing agreement shall be in substantially the following form and is effective when executed pursuant to the municipality of and regulatory authority of Honduras;

 

AND WHEREAS , the Company is willing to grant a sub-license subject to the terms and conditions set out in this agreement;

 

NOW THEREFORE, in consideration of the mutual promises, covenants and obligations contained herein, the parties agree as follows:

 

ARTICLE I. DEFINITIONS

 

Section 1.01 "Accounting Principles" means US generally accepted accounting principles.

 

Section 1.02 "Category of machines" Category of machines" means slot machines, video poker machines, and table and counter games. Class I refers to coin or ticket-operated slot machines, which are controlled by random-number generating computer chips that are set to return a percentage of the amount played to the player ("player win") and to keep a percentage for the casino ("casino win" or "hold"). Class II shall refer to video poker machines, which involve the programming of the video poker rules. Class III shall refer to pay tables, which allows an element of player skill to affect the outcome of a game.

 

Section 1.03 "Currency" means, unless otherwise indicated, all dollar amounts referred to in this Agreement are expressed in United States Dollars.

 

 
1
 

   

Section 1.04 "Distributor" means any person who sells, leases, or offers or otherwise provides, distributes, or services any slot machine or associated equipment for use or play of slot machines in Honduras. A manufacturer may be a distributor.

 

Section 1.05 "Designated slot machine gaming area" means the area or areas of a facility of a slot machine licensee in which slot machine gaming may be conducted in accordance with the provisions this Agreement.

 

Section 1.06 "Force Majure" shall mean the following events or circumstances, to the extent that the delay or otherwise adversely affect, the performance beyond reasonable control of the SPV, its agents and contractors, of their duties and obligations under this Agreement, or the performance by the Company of their respective duties under this Agreement to include: a) strikes, lockouts, labor disputes, failure of utilities, labor shortages or explosions; b) change in governmental requirements by any governmental authority, first effective after the date of his Agreement, c) acts of God, tornadoes, hurricanes, floods, sinkholes, fire and other casualties, landslides, earthquakes, epidemics, quarantine, pestilence, and/or abnormal inclement weather; d) acts of a public enemy, acts of war, terrorism, effects of nuclear radiation, blockades, insurrections, riots civil disturbances or national or internal calamities; e) any temporary restraining order, preliminary injunction or permanent injunction or mandamus or similar order.

 

Section 1.07 "Manufacturer" means any person who manufactures, builds, rebuilds, fabricates, assembles, produces, programs, designs, or otherwise makes modifications to any slot machine or associated equipment for use or play of slot machines in this state for gaming purposes. A manufacturer may be a distributor.

 

Section 1.08 "Master licensee" shall refer to the Company who holds the license to operate gaming machines in the designated distribution area.

 

Section 1.09 "Net Gaming revenue" is defined as slot machine revenues turnover minus customer winnings, bonuses, gaming taxes, license and sub-license fees not to include nonredeemable credits.

 

Section 1.10 "Nonredeemable credits" means slot machine operating credits that cannot be redeemed for cash or any other thing of value by a slot machine, kiosk, or the slot machine licensee and that are provided free of charge to patrons. Such credits do not constitute "nonredeemable credits" until such time as theyare metered as credit into a slot machine and recorded in the facility-based monitoring system.

 

Section 1.11 "Progressive system" means a computerized system linking slot machines in one or more licensed facilities within this jurisdiction and offering one or more common progressive payouts based on the amounts wagered.

 

Section 1.12 "Slot machine" means any mechanical or electrical contrivance, terminal that may or may not be capable of downloading slot games from a central server system, machine, or other device that, upon insertion of a coin, bill, ticket, token, or similar object or upon payment of any consideration whatsoever, including the use of any electronic payment system except a credit card or debit card unless authorized by the regulatory authority, is available to play or operate, the play or operation of which, whether by reason of skill or application of the element of chance or both, may deliver or entitle the person or persons playing or operating the contrivance, terminal, machine, or other device to receive cash, billets, tickets, tokens, or electronic credits to be exchanged for cash or to receive merchandise or anything of value whatsoever, whether the payoff is made automatically from the machine or manually. The term includes associated equipment necessary to conduct the operation of the contrivance, terminal, machine, or other device. Slot machines may use spinning reels, video displays, or both.

 

 
2
 

   

Section 1.13 "Slot machine facility" means the SPV's facility at which slot machines as permitted and approved by the regulatory municipality are lawfully offered for play.

 

Section 1.14 "Slot machine sub-licensee" means a SPV who holds a license issued by the Company pursuant to this Agreement that authorizes such person to possess a slot machine within its facilities and allows slot machine gaming.

 

Section 1.15 "Slot machine operator" means a person employed or contracted by the Company to conduct slot machine gaming at that licensed facility.

 

Section 1.16 "Slot machine revenues" means the total of all cash and property, except nonredeemable credits, received by the slot machine licensee from the operation of slot machines less the amount of cash, cash equivalents, credits, and prizes paid to winners of slot machine gaming.

 

Section 1.17 "Sub-Licensee" shall mean a third party operating a sub-license acquired from the Company as the Master Licensee;

 

Section 1.18 "SVP" shall mean the Strategic Placement Vendor pursuant to the Company's Strategic Placement Vendor Program as defined herein.

 

Section 1.19 "SPV Fees" shall mean the monthly percentage fees earned by the Licensor from the net gaming revenue generated from the Master Licensees and Sub-Licensees operations.

 

ARTICLE II. SUMMARY AND CONSIDERATION

 

Section 2.01 Compensation. The Company shall agree to contribute Six Percent (6%) (the "Compensation Percentage") of its net gaming revenues identified in and under the procedures of this Agreement, in return for which the SPV agrees that the Company will:

 

(a)

Only share that part of its revenue arising from the use of Gaming Machines exclusively on the SPV's property; and

 
(b)

Have full authorization and authority to select and provide the Slot Machines to the SPV with the sole authority to dictate and select the Category of Machines and the use of a Progressive System;

 

Section 2.02 Number of Machines Granted under Sub-License. The Company agrees to sub-license twenty-five (25) machines to be distributed at the SPV's facilities pursuant to the terms stated in this Agreement.

 

Section 2.03 Payment Made to SPV . For the purposes of determining the payments under this subsection, the SPV shall receive the compensation percentage as stated in this Section Paragraph 1 payable on the amount of service and registered machines located on the SPV's facility pursuant to this Agreement less the:

 

(a)

"Net Win" which shall mean the total amount wagered on each electronic game of chance, minus the total amount paid to players for winning wagers at such machines; and

 
(b)

"Taxes and Fees" which shall include the taxable value of the gaming machines, the regulatory governmental and legal fees, and the license and sub-license fees as stated herein.

 

 
3
 

   

Section 2.04 Licensing and Sub Licensing Fees. Licensing fees must be paid at the time of issuance of the sub-license payable at the sum of $1,000 per year or an equivalent of 2% of the Net Gaming Revenue per month, whichever amount is lower. This amount shall be deducted as a "pass-through" from the Net Gaming Revenue pursuant to the terms of this Agreement, which shall not exceed 2% of the Net Gaming Revenue per month. This Section shall have no effect on the Governmental Fees as described herein in Section 2.06(d).

 

Section 2.05 Payment Distribution . For purposes of these payments, all calculations of amounts due shall be based upon the previous months activity of the gaming facility's machines. Payments due to the SPV pursuant to these terms shall be paid no later than twenty-five (25) days after the last day of each calendar month. Any payments due and owing from the Company in the month the SPV is approved, or the final month the Agreement is in force, shall reflect the net win, but only for the portion of the month the Agreement is in effect. The Parties agree that, after the effective date hereof, the Company shall provide gaming machines and shall make monthly payments as specified on the 5 th day of each month for the previous month's net win as stated herein.

 

Section 2.06 Term and Termination.

 

(a)

Term. The term of this Agreement shall commence on the Effective Date or the date in which machines are delivered to the SPV (whichever is later) and shall continue until terminated in accordance with the provisions of this Section. Each Site License granted during the Term of this Agreement shall survive termination of the Agreement.

 
(b)

Termination by the Company. The Company may terminate this Agreement, with or without cause, upon five (5) days written notice to the SPV and seek to transfer and remove the sub-license from the operating facility in addition to its gaming machines without breach of this Agreement. Reasons in which could trigger such event, include, but are not limited to:

 

 

(i)

The SPV declares in a sworn writing that a Force Majeure Event has occurred and the material effects of such Force Majeure Event continue in existence for more than sixty (60) days.

 

 

 

(ii)

The SPV materially breaches any provision of this Agreement applicable to it and fails to cure such breach within thirty (30) days after its receipt of written notice of such breach.

 

 

 

(iii)

The SPV (i) files a voluntary petition in bankruptcy; (ii) shall have filed against it an involuntary petition in bankruptcy which is not vacated within thirty (30) days thereafter; (iii) makes an assignment for the benefit of creditors; (iv) files a petition or an answer seeking an arrangement with creditors, or takes advantage of any insolvency law to protect itself against creditors; (v) applies for or consents to the appointment of a receiver or trustee of all or a substantial part of its assets; or (vi) has entered against it in any court of competent jurisdiction an order, judgment, or decree appointing a receiver of all or a substantial part of its assets, and such order, judgment or decree continues unstayed and in effect for any period of thirty (30) or more consecutive days.

 

 

 

(iv)

The SPV sells or otherwise disposes of all or substantially all of its business or assets to a third party; or control or ownership of the other Party is transferred to a third party resulting in an assignment or other transfer of a material right or obligation arising under this Agreement to that third party.

 

 
4
 

  

 

(v)

The SPV or any of its agents is found to be cheating or stealing;

 

 

 

(vi)

The SPV or any of its agents is found to be cheating or stealing;

 

 

 

(vii)

The SPV fails to follow the Company's protocols and work with the Company's agent for collecting pay-outs of the machines;

 

 

 

(viii)

The regulatory authority do not approve and/or retracts prior approval in the designated slot machine gaming area as defined herein;

 

 

 

(ix)

The revenues generated at the SVP's facility are below par at the sole discretion of the Company's Board of Directors;

 

 

 

(x)

Or any other reason that the Company so elects.

 

Section 2.07 Term and Termination.

 

 

(a)

Term. The term of this Agreement shall commence on the Effective Date or the date in which machines are delivered to the SPV (whichever is later) and shall continue until terminated in accordance with the provisions of this Section. Each Site License granted during the Term of this Agreement shall survive termination of the Agreement.

 

 

 

(b)

Termination by the Company. The Company may terminate this Agreement, with or without cause, upon five (5) days written notice to the SPV and seek to transfer and remove the sub-license from the operating facility in addition to its gaming machines without breach of this Agreement. Reasons in which could trigger such event, include, but are not limited to:

 

 

(i)

The SPV declares in a sworn writing that a Force Majeure Event has occurred and the material effects of such Force Majeure Event continue in existence for more than sixty (60) days.

 

 

 

(ii)

The SPV materially breaches any provision of this Agreement applicable to it and fails to cure such breach within thirty (30) days after its receipt of written notice of such breach.

 

 

 

(iii)

The SPV (i) files a voluntary petition in bankruptcy; (ii) shall have filed against it an involuntary petition in bankruptcy which is not vacated within thirty (30) days thereafter; (iii) makes an assignment for the benefit of creditors; (iv) files a petition or an answer seeking an arrangement with creditors, or takes advantage of any insolvency law to protect itself against creditors; (v) applies for or consents to the appointment of a receiver or trustee of all or a substantial part of its assets; or (vi) has entered against it in any court of competent jurisdiction an order, judgment, or decree appointing a receiver of all or a substantial part of its assets, and such order, judgment or decree continues unstayed and in effect for any period of thirty (30) or more consecutive days.

 

 
5
 

  

 

(iv)

The SPV sells or otherwise disposes of all or substantially all of its business or assets to a third party; or control or ownership of the other Party is transferred to a third party resulting in an assignment or other transfer of a material right or obligation arising under this Agreement to that third party.

 

 

 

(v)

The SPV or any of its agents is found to be cheating or stealing;

 

 

 

(vi)

The SPV fails to follow the Company's protocols and work with the Company's agent for collecting pay-outs of the machines;

 

 

 

(vii)

The regulatory authority do not approve and/or retracts prior approval in the designated slot machine gaming area as defined herein;

 

 

 

(viii)

The revenues generated at the SVP's facility are below par at the sole discretion of the Company's Board of Directors;

 

 

 

(ix)

Or any other reason that the Company so elects.

 

 

(c)

Termination by the SPV. The SPV may not terminate this Agreement, with or without cause for two (2) years upon the signing of this Agreement unless:

 

 

(i)

The Company (a) files a voluntary petition in bankruptcy; (b) shall have filed against it an involuntary petition in bankruptcy which is not vacated within thirty (30) days thereafter; (c) makes an assignment for the benefit of creditors; (d) files a petition or an answer seeking an arrangement with creditors, or takes advantage of any insolvency law to protect itself against creditors; (e) applies for or consents to the appointment of a receiver or trustee of all or a substantial part of its assets; or (f) has entered against it in any court of competent jurisdiction an order, judgment, or decree appointing a receiver of all or a substantial part of its assets, and such order, judgment or decree continues unstayed and in effect for any period of thirty (30) or more consecutive days.

 

 

 

(ii)

The Company sells or otherwise disposes of all or substantially all of its business or assets to a third party; or control or ownership of the other Party is transferred to a third party resulting in an assignment or other transfer of a material right or obligation arising under this Agreement to that third party.

 

 

 

(iii)

The Company materially breaches any provision of this Agreement applicable to it and fails to cure such breach within thirty (30) days after its receipt of written notice of such breach.

 

 

 

(iv)

The regulatory authority does not approve and/or retracts prior approval in the designated slot machine gaming area as defined herein.

 

 
6
 

 

 

(d)

Government Approval and Legal Fees. The SPV understands and acknowledges that the Company warrants and represents that it will proceed, upon signatures of this Agreement, to seek governmental approvals for the SVP to become an authorized Slot machine facility. This amount, which shall include legal fees, shall be deducted as a "pass-through" from the Net Gaming Revenue pursuant to the terms of this Agreement, and shall be considered a gross expense first priority lien that shall be paid off immediately on the net proceed of gaming revenues.

 

 

 

(e)

No Further Action. If neither party has canceled this Agreement after the term date as defined in Article Two Paragraph 6(C), then this Agreement shall automatically renew with the same provisions and terms as herein stated.

 

Section 2.08 Relationship of the Parties. The relationship between the Company and SPV is that of independent contractors. Neither party, nor its agents and employees, shall under any circumstances be deemed an agent or representative of the other and neither shall have authority to act for and/or bind the other in any way, or represent that it is in any way responsible for acts of the other. This Agreement does not establish a joint venture, agency or partnership between the parties.

 

Section 2.09 No Competition. So long as the SPV retains the Gaming Machines as a Slot machine facility, it may not engage in any other form of agreement with any other person or corporation to put Slot Machines on their premises. If the SPV retains its own license or sub-license with a different distributor or manufacturer while the terms of this Agreement are in effect, the damages shall be equivalent to 16% of the net wins as defined here payable from the SPV's gross profits of such gaming machines.

 

Section 2.10 Warranties and Representations by the Company to the SPV. The Company represents and warrants to the SPV that each of the following statements is true and accurate as of the Closing, except as otherwise indicated herein or in the Exhibits referenced herein:

 

(a)

Organization. The Company is an organization duly organized and validly existing under the laws of Florida in the United States of America, and has all requisite power and authority to enter into and performs its obligations under this Agreement.

   
(b)

Adverse Agreement. The Company is not a party to any agreement, document or instrument that has a material adverse effect on the ability of the Company to carry out its obligations under this Agreement.

   
(c)

License to Operate. The Company warrants that upon signature of this Agreement it shall be responsible for obtaining the legal authority for the SPV to allow Gaming Machines on its property. If in the event approval is not granted, this Agreement shall be void and rescinded.

   
(d)

Production of Machines. The Company warrants that it shall provide the specified number of machines as stated herein to the SPV's facility.

 

 
7
 

  

(e)

Routine Maintenance of Gaming Machines. The Company shall be responsible for all routine maintenance of the gaming machines.

   
(f)

Collection of Machine Revenues. The Company and/or its designated agents, consultant, and other parties which shall be stated in Schedule One annexed hereto shall be solely responsible for all collection of machines revenues from the machine.

   
(g)

Revenue Sharing and Accounting. The Company shall be responsible for providing to the SPV a monthly statement with the SPV's monthly revenue sharing as specifically defined in Article Two Paragraph 3 in conjunction with other relevant provisions stated hereto to the SPV and shall be responsible for the accounting that shall be available publically as represented in the Company's quarterly financial statements and/ or provided quarterly to each SPV. This shall not mean to replace a monthly accounting statement that shall show SPV its shared revenues.

 

Section 2.11 Warranties and Representations by the SVP to the Company. The SVP represents and warrants to the Company that each of the following statements is true and accurate as of the Closing, except as otherwise indicated herein or in the Exhibits referenced herein:

 

(a)

Organization. The SVP is an organization duly organized and validly existing under the laws of Honduras, and has all requisite power and authority to enter into and performs its obligations under this Agreement.

   
(b)

Adverse Agreement. The SPV is not a party to any agreement, document or instrument that has a material adverse effect on the ability of the SPV to carry out its obligations under this Agreement.

   
(c)

Security. The SPV shall be responsible for the security of the machines on its facility property, which reasonably protect from assaults, robberies, and other acts of vandalism. In no event shall the Company be liable for the SPV's damages relating to any assaults or security breaches relating hereto and SPV shall hold the Company harmless for any breaches of security.

   
(d)

Utilities. The SPV shall be responsible for the utilities and providing such utilities such as electricity of the machines operation. Failure to provide the requisite utilities based on lack of payment of conservation shall be deemed a breach of this Agreement with the penalty being a $100 per day fine. The cure period as set forth in this Paragraph shall be 3 (three) days. This Paragraph in no way should be deemed to include any reasonable event such as power outages or electricity shorts or construction or any other reasonable event.

 

Section 2.12 Indemnification. The SVP shall hold the Company harmless for all injuries and related claims that result from defective chairs and furnitures, slip and fall, and other injuries that could possibly result by a gaming machine operator when at the SVP's facility.

 

Section 2.13 Installation . At the Company's sole election may it proceed to offer construction services for the installation of gaming machines if agreed to by the Company and SPV. If this is negotiated, this shall be a separate agreement and shall constitute an additional agreement in which the Company receives such installation costs through the net proceeds at a lower percentage discounted rate or a gross one time fee that shall be paid as a first priority lien through the net generated revenues that are passed through or any other arrangement the Parties both mutually agree.

 

Section 2.14 Damages to Gaming Machines . In the event that the any of the gaming machines are damaged due to negligence, the SVP shall be responsible for its replacement costs.

 

 
8
 

   

ARTICLE III. GAMING REGULATORY CONTROLS

 

Section 3.01 General. The operation of a gaming distribution is subject to pervasive regulation under the laws, rules and regulations of the municipality of Honduras and the Roatan. The Company's mission is to assist in the implementation of gaming laws by providing declarations of public policy designed to ensure that gaming is conducted honestly, competitively and free of criminal and corruptive elements. Since the continued growth and success of gaming is dependent upon public confidence, gaming laws protect gaming consumers and the viability and integrity of the gaming industry, including prevention of cheating and fraudulent practices. Therefore, in accordance with this objective, the SPV shall adhere to, and the Company shall be responsible to:

 

 

·

Establish and maintain responsible accounting practices and procedures that will be subject, from time to time, to change; and

 

·

Maintain effective controls over their financial practices, including establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues; and

 

·

Maintain systems for reliable record keeping; and

 

·

Maintain strict compliance with various laws, regulations and required minimum internal controls pertaining to gaming; and

 

·

Make appropriate investigations to determine if there has been any violation of laws or regulations; and

 

·

Review the character and fitness of participants in gaming operations and make determinations regarding their suitability or qualification for licensure; and

 

·

Establish and collect fees and/or taxes; and

 

·

Collect and review reports and information submitted by participants in gaming operations; and

 

·

Enforce gaming laws and impose disciplinary sanctions for violations, including fines and penalties; and

 

·

Review and approve transactions, such as acquisitions or change-of-control transactions of gaming industry participants, securities offerings and debt transactions engaged in by such participants.

 

Section 3.02 Duties of Parties. The Parties acknowledge that each has a duty to assist in the effective gaming controls and shall maintain a dealing of good faith in effort to this effect.

 

ARTICLE IV. MISCELLANEOUS

 

Section 4.01 Counterparts. This Agreement may be signed in counterparts and the Agreement, together with its counterpart signature pages, shall be deemed valid and binding on each party when duly executed by all parties. Facsimile and electronically scanned signatures shall be deemed valid and binding for all purposes.

 

Section 4.02 Entire Agreement. The Agreement constitutes the full and complete understanding of the Parties hereto with respect to the subject matter covered herein and supersedes all prior oral or written understandings and agreements with respect thereto.

 

 
9
 

 

Section 4.03 Notice. Any notice or permitted hereunder shall be given in a certified writing (unless otherwise specified herein) and shall be deemed personally or sent by certified or registered mail, postage prepaid, or by private courier, with written verification of delivery, or by effectively given on the earliest of the seventh business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail. All notices shall be delivered:

 

If to the Company:

Elite Data Services, Inc.

4447 N. Central Expressway

Suite 110-135

Dallas, TX 75205

(972) 885-3981 (phone)

Attn: Board of Directors

Email: info@edscompanies.com

 

With copies to:

Jeffrey Stein

JMS Law Group, PLLC

98C Old Country Road #233

Plainview, NY 11803

(516) 422-6285 (phone)

Attn: Jeffrey Stein

Email: jstein@jmslg.com

 

If to SVP:

Lands End Resort

[ADDRESS RESERVED]

Chris Schroeder, Operations Manager

chris@landsendroatan.com

 

 
10
 

   

Section 4.04 No Transferability . This license may not be assigned by the SVP to anyone other than than SVP and its facility.

 

Section 4.05 Registered SVP Contact . Chris Schroder, the Operations Manager, shall be the registered SVP contact. Notice of change may be submitted by the SVP at any time if this contact is to change.

 

The Company

 

 

Elite Data Services, Inc.

By:

/s/ Charles Rimlinger

Name:

Charles Rimlinger

Title:

Chief Executive Officer

SVP

 

 

Lands End Resort

By:

/s/ Pablo Garcia Garcia

Name:

Pablo Garcia

Title:

General Manager

 

 

11


 

EXHIBIT 10.67

 

CONSULTING AGREEMENT

 

This Consulting Agreement (the "Agreement") is made and effective July 7, 2015,

 

BETWEEN:

Darryl Gomillion (the "Consultant"), an individual domiciled in Texas, with his principal residence at:

 

 

 

10526 Dawn Drive

Dallas, Texas 75228, United States

 

 

AND:

Elite Data Services, Inc. (the "Company"), a company organized and existing under the laws of the Florida with its head office located at:

 

 

 

4447 N. Central Expressway Ste 110-135,

Dallas, Texas, 75205, United States

 

In the event of a conflict in the provisions of any attachments hereto and the provisions set forth in this Agreement, the provisions of such attachments shall govern.

 

In consideration of the foregoing and of the mutual promises set forth herein, and intending to be legally bound, the parties hereto agree as follows:

 

1. Recitals

 

 

a.

Consultant has expertise in the area of the Company's business and is willing to provide consulting services to the Company and travel to Roatan to begin the the needed research and development for gaming machine implementation.

 

 

 

b.

The Company is willing to engage Consultant as an independent contractor, and not as an employee, on the terms and conditions set forth herein.

 

 

 

c.

The Company desires to obtain the services of Consultant by means of services provided by Consultant's employees dispatched by Consultant to provide services to Company hereunder ("Agents"), on its own behalf and on behalf of all existing and future Affiliated Companies (defined as any corporation or other business entity or entities that directly or indirectly controls, is controlled by, or is under common control with the Company), and Consultant desires to provide consulting services to the Company upon the following terms and conditions.

  

2. Services

 

 

a.

Consultant agrees to perform for Company the services listed in the Scope of Services section in Exhibit A, attached hereto and executed by both Company and Consultant. Such services are hereinafter referred to as "Services." Company agrees that consultant shall have ready access to Company's staff and resources as necessary to perform the Consultant's services provided for by this contract, and shall provide Consultant with a laptop computer in which is the Company's property and shall be returned to the Company upon commencement of the Consulting period or before if either party terminates this Agreement.

 

 
1
 

 

3. Consulting Period

 

3.1. Basic Term

 

The Company hereby retains the Consultant and Consultant agrees to render to the Company those services described in Exhibit A for the period (the "Consulting Period") commencing on the date of this Agreement and ending upon the earlier of six months (the "Term Date"), and (ii) the date the Consulting Period is terminated in accordance with Section 7. The Company shall pay the Consultant the compensation to which it is entitled under Section 5 through the end of the Consulting Period, and, thereafter, the Company's obligations hereunder shall end.

 

3.2. Renewal

 

Subject to Section 7, the Consulting Period may be renewed for an additional six month period (upon consent of both parties) on the Term Date and on each anniversary thereof. Either party's right to terminate the Consulting Period, instead of renewing the Agreement, shall be with or without cause.

  

4. Duties and Responsibilities

 

 

a.

Consultant hereby agrees to provide and perform for the Company those services set forth on Exhibit A attached hereto. Consultant shall devote its best efforts to the performance of the services and to such other services as may be reasonably requested by the Company and hereby agrees to provide services to the Company, including working towards necessary approvals, evaluating the region for applicable gaming machines, research and development.

 

 

 

b.

Consultant shall use its best efforts to comply with, and to ensure that Lands End is in compliance with, all policies and practices regarding the use of facilities at which services are to be perform hereunder and Lands End has agreed to house Consultant at their expense during the term of this Agreement. Consultant shall be professional and respectful during this period and represent the Company professionally and dutifully.

 

 

 

c.

Consultant may obtain, upon prior written consent from the Company, for the benefit of the Company, as an intended third-party beneficiary thereof, prior to the performance of any services hereunder by any of the Agents, the written agreement of Agent to be bound by terms no less restrictive than the terms of Sections 2, 5, 6, and 7 of this Agreement.

 

 

 

e.

Personnel supplied by Consultant to provide services to Company under this Agreement will be deemed Consultant's employees or agents and will not for any purpose be considered employees or agents of Company. Consultant assumes full responsibility for the actions of such personnel while performing services pursuant to this Agreement, and shall be solely responsible for their supervision, daily direction and control, provision of employment benefits (if any) and payment of salary (including all required withholding of taxes).

 

 
2
 

 

5. Compensation, Benefits and Expenses

 

5.1. Compensation

 

In consideration of the services to be rendered hereunder, including, without limitation, services to any Affiliated Company, Consultant shall be paid Four Thousand Dollars ($4,000), payable at the time and pursuant to the procedures regularly established, and as they may be amended, by the Company during the course of this Agreement. Services provided at Lands End will be paid by Lands End under a separate Agreement and Company shall not be responsible for services rendered specifically for Lands End not in the furtherance of the SPV Agreement.

 

5.2. Benefits

 

Other than the compensation specified in this 5.1, neither Consultant nor its Agents shall be entitled to any direct or indirect compensation for services performed hereunder.

 

5.3. Expenses

 

The Company shall pay for Consultant's travel expenses to Roatan in the performance of the duties hereunder in accordance with the Company's general policies, as they may be amended from time to time during the course of this Agreement.

 

6. Termination of Consulting Relationship

 

6.1. By the Company or the Consultant

 

At any time after six months, either the Company or the Consultant may terminate, without liability, the Consulting Period for any reason, with or without cause, by giving seven days advance written notice to the other party.

 

6.2. Termination Due to Bankruptcy, Receivership

 

The Consulting Period shall terminate and the Company's obligations hereunder (including the obligation to pay Consultant compensation under Section 5 shall cease upon the occurrence of: (i) the appointment of a receiver, liquidator, or trustee for the Company by decree of competent authority in connection with any adjudication or determination by such authority that the Company is bankrupt or insolvent; (ii) the filing by the Company of a petition in voluntary bankruptcy, the making of an assignment for the benefit of its creditors, or the entering into of a composition with its creditors; or (iii) any formal action of the Board to terminate the Company's existence or otherwise to wind up the Company's affairs.

 

 
3
 

    

7. Termination Obligations

 

Consultant hereby acknowledges and agrees that all property, including, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, the Macbook Pro laptop computer and other documents, or materials, or copies thereof, Proprietary Information, and equipment furnished to or prepared by Consultant or its Agents in the course of or incident to its rendering of services to the Company, including, without limitation, records and any other materials pertaining to Invention Ideas belong to the Company and shall be promptly returned to the Company upon termination of the Consulting Period. Following termination, neither Consultant nor any of its Agents will retain any written or other tangible material containing any Proprietary Information.

 

8. Assignment; Successors and Assigns

 

Consultant agrees that it will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Consultant's rights be subject to encumbrance or the claims of creditors. Any purported assignment, transfer, or delegation shall be null and void. Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties or assets, or the assignment by the Company of this Agreement and the performance of its obligations hereunder to any successor in interest or any Affiliated Company. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, legal representatives, successors, and permitted assigns, and shall not benefit any person or entity other than those enumerated above.

 

9. Place of work

 

Consultant's services will be rendered in Roatan at Lands End pursuant to the Strategic Vendor Placement Agreement between the Company and Lands End, but Consultant will, on request, come to Company's address, or such other places designated by Company to meet with representatives of Company.

 

10. Time Devoted to Work

 

In the performance of the services, the aforesaid services and the hours Consultant is to work on any given day will be entirely within Consultant's control and Company will rely upon Consultant to put in such number of hours as is reasonably necessary to fulfill the spirit and purpose of this contract. This arrangement will probably take about days of work per week although there undoubtedly will be some weeks during which Consultant may not perform any services at all or, on the other hand, may work practically the full week.

 

 
4
 

    

11. Confidential Information

 

Each party hereto ("Such Party") shall hold in trust for the other party hereto ("Such Other Party"), and shall not disclose to any non-party to the Agreement, any confidential information of such Other Party. Confidential information is information which relates to Such Other Party's research, development, trade secrets or business affairs, but does not include information which is generally known or easily ascertainable by non-parties of ordinary skill in computer systems design and programming.

 

Consultant hereby acknowledges that during the performance of this contract, the Consultant may learn or receive confidential Company information and therefore Consultant hereby confirms that all such information relating to the client's business will be kept confidential by the Consultant, except to the extent that such information is required to be divulged to the consultant's clerical or support staff or associates in order to enable Consultant to perform Consultant's contract obligation.

 

a)

Consultant agrees not to disclose or use, except as required in Consultant's duties, at any time, any information disclosed to or acquired by Consultant during the term of this contract. Consultant shall disclose promptly to Company all inventions, discoveries, formulas, processes, designs, trade secrets, and other useful technical information and know-how made, discovered, or developed by Consultant (either alone or in conjunction with any other person) during the term of this contract. Consultant agrees that he shall not, without the written consent of Company, disclose to third parties or use for his own financial benefit or for the financial or other benefit of any competitor of Company, any information, data, and know-how, manuals, disks, or otherwise, including all programs, decks, listings, tapes, summaries of any papers, documents, plans, specifications, or drawings.

b)

Consultant shall take all reasonable precautions to prevent any other person with whom Consultant is or may become associated from acquiring confidential information at any time.

c)

Consultant agrees that all confidential information shall be deemed to be and shall be treated as the sole and exclusive property of Company.

d)

Upon termination of this contract, Consultant shall deliver to Company all drawings, manuals, letters, notes, notebooks, reports, and all other materials (including all copies of such materials), relating to such confidential information which are in the possession or under the control of Consultant. Consultant shall sign secrecy agreements provided by Company.

 

12. Services for Others

 

Inasmuch as Consultant will acquire or have access to information which is of a highly confidential and secret nature, it is expected that Consultant will not perform any services for any other person or firm without Company's prior written approval, with the exception of Lands End as mutually agreed hereon.

 

 
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13. Status of Consultant

 

Consultant is an independent contractor and neither Consultant nor Consultant's staff is or shall be deemed to be employed by Client. Company is hereby contracting with Consultant for the services described on Exhibit A and Consultant reserves the right to determine the method, manner and mean by which the services will be performed. Consultant is not required to perform the services during a fixed hourly or daily time and if the services are performed at the Company's premises, then Consultant's time spent at the premises is to be at the discretion of the Consultant; subject to the Company's normal business hours and security requirements.

 

14. Company Representative

 

Sarah Myers shall represent the Company during the performance of this contract with respect to the services and deliverables as defined herein and has authority to execute written modifications or additions to this contract.

 

15. Disputes

 

Any disputes that arise between the parties with respect to the performance of this contract shall be submitted to binding arbitration in the State of Tennessee, to be determined and resolved by said Association under its rules and procedures in effect at the time of submission and the parties hereby agree to share equally in the costs of said arbitration.

 

The final arbitration decision shall be enforceable through the courts of the state of Consultant's address or any other state in which the Company resides or may be located. In the event that this arbitration provision is held unenforceable by any court of competent jurisdiction, then this contract shall be as binding and enforceable as if this Section 18 were not a part hereof.

 

16. Taxes

 

Any and all taxes, except income taxes, imposed or assessed by reason of this contract or its performance, including but not limited to sales or use taxes, shall be paid by the Client. Consultants shall be responsible for any taxes or penalties assessed by reason of any claims that Consultant is an employee of Company and Company and Consultant specifically agree that Consultant is not an employee of Client.

 

 
6
 

   

17. Liability

 

Consultant warrants to Company that the material, analysis, data, programs and services to be delivered or rendered hereunder, will be of the kind and quality designated and will be performed by qualified personnel. Special requirements for format or standards to be followed shall be attached as an additional Exhibit and executed by both Company and Consultant. Consultant makes no other warranties, whether written, oral or implied, including without limitation, warranty of fitness for purpose or merchantability. In no event shall Consultant be liable for special or consequential damages, either in contract or tort, whether or not the possibility of such damages has been disclosed to Consultant in advance or could have been reasonably foreseen by Consultant, and in the event this limitation of damages is held unenforceable then the parties agree that by reason of the difficulty in foreseeing possible damages all liability to Company shall be limited to $500 as liquidated damages and not as a penalty.

  

18. Non-Competition

 

If this Consulting Agreement with the Company terminates for any reason, the Consultant will not, for a period of two years from the date of termination, have any business dealings whatsoever, either directly or indirectly through associates with any customer or client of the Company or its subsidiaries or any person or firm with whom the Consultant has made contact in connection with his consulting activities for the Company; and the Consultant will keep in strictest confidence, both during the term of this Agreement and subsequent to termination of this Agreement, and will not during the term of this Agreement or thereafter disclose or divulge to any person, firm or corporation, or use directly or indirectly, for his own benefit or the benefit of others, any information which in good faith and good conscience ought to be treated as confidential information including, without limitation, information relating to the software developed by the Company, information as to sources of, and arrangements for, hardware supplied to customers or clients of the Company, submission and proposal procedures of the Company, customer or contact lists or any other confidential information or trade secrets respecting the business or affairs of the Company which the Consultant may acquire or develop in connection with or as a result of the performance of his services hereunder. In the event of an actual or threatened breach by the Consultant of the provisions of this paragraph, the Company shall be entitled to injunctive relief restraining the Consultant from the breach or threatened breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from the Consultant.

 

19. Enforceable

 

The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of the Consultant against the Company whether predicated on this Agreement or otherwise.

 

20. Representations and Warranties

 

Consultant represents and warrants (i) that Consultant has no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with Consultant's undertaking this relationship with the Company, (ii) that the performance of the services called for by this Agreement do not and will not violate any applicable law, rule or regulation or any proprietary or other right of any third party, (iii) that Consultant will not use in the performance of his responsibilities under this Agreement any confidential information or trade secrets of any other person or entity and (iv) that Consultant has not entered into or will enter into any agreement (whether oral or written) in conflict with this Agreement.

 

 
7
 

   

21. Injunctive Relief

 

The Consultant acknowledges that disclosure of any Confidential Information by him will give rise to irreparable injury to the Company or the owner of such information, inadequately compensable in damages. Accordingly, the Company or such other party may seek and obtain injunctive relief against the breach or threatened breach of the foregoing undertakings, in addition to any other legal remedies which may be available. The Consultant further acknowledges and agrees that in the event of the termination of this Agreement his experience and capabilities are such that he can obtain a consulting arrangement or employment in business activities which are either (1) of a different or non-competing nature with his activities as a consultant for the Company, or (2) are carried on in a different geographic location; and that the enforcement of a remedy hereunder by way of injunction will not prevent him from earning a reasonable livelihood.

 

The Consultant further acknowledges and agrees that the covenants contained herein are necessary for the protection of the Company's legitimate business interests and are reasonable in scope and content.

  

22. Complete Agreement

 

This agreement contains the entire agreement between the parties hereto with respect to the matters covered herein. No other agreements, representations, warranties or other matters, oral or written, purportedly agreed to or represented by or on behalf of Consultant by any of its employees or agents, or contained in any sales materials or brochures, shall be deemed to bind the parties hereto with respect to the subject matter hereof. Company acknowledges that it is entering into this Agreement solely on the basis of the representations contained herein.

 

23. Indemnification

 

Consultant hereby indemnifies and agrees to defend and hold harmless the Company from and against any and all claims, demands and actions, and any liabilities, damages or expenses resulting there from, including court costs and reasonable attorneys' fees, arising out of or relating to the services performed by Consultant under this Agreement or the representations and warranties made by Consultant pursuant to Sections 2 and 4 hereof. Consultant's obligations under Section 4 hereof shall survive the termination, for any reason, of this Agreement.

 

24. Attorney's Fees

 

Should either party hereto, or any heir, personal representative, successor or assign of either party hereto, resort to litigation to enforce this Agreement, the party or parties prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to recover its or their reasonable attorneys' fees and costs in such litigation from the party or parties against whom enforcement was sought.

 

 
8
 

   

25. Non-waiver

 

No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by an executive officer of the Company or other person duly authorized by the Company.

  

26. Applicable Law

 

Consultant shall comply with all applicable laws in performing Services but shall be held harmless for violation of any governmental procurement regulation to which it may be subject but to which reference is not made in Exhibit A. This Agreement shall be construed in accordance with the laws of the Tennessee.

 

27. Severability; Enforcement

 

If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. It is the intention of the parties that the covenants contained in Sections 6 and 7 shall be enforced to the greatest extent (but to no greater extent) in time, area, and degree of participation as is permitted by the law of that jurisdiction whose law is found to be applicable to any acts allegedly in breach of these covenants. It being the purpose of this Agreement to govern competition by Consultant anywhere throughout the world , these covenants shall be governed by and construed according to that law (from among those jurisdictions arguably applicable to this Agreement and those in which a breach of this Agreement is alleged to have occurred or to be threatened) which best gives them effect

 

28. Scope of Agreement

 

If the scope of any of the provisions of the Agreement is too broad in any respect whatsoever to permit enforcement to its full extent, then such provisions shall be enforced to the maximum extent permitted by law, and the parties hereto consent and agree that such scope may be judicially modified accordingly and that the whole of such provisions of this Agreement shall not thereby fail, but that the scope of such provisions shall be curtailed only to the extent necessary to conform to law.

 

 
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29. Notices

 

All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or mailed, postage prepaid, by certified or registered mail, return receipt requested, and addressed to the Company at:

 

Elite Data Services, Inc.

4447 N. Central Expressway Ste 110-135

Dallas, Texas, 75205, United States

 

or to the Consultant at:

 

10526 Dawn Drive

Dallas, TX 75228

 

Notice of change of address shall be effective only when done in accordance with this Section.

  

30. Assignment

 

This Agreement may not be assigned by either party without the prior written consent of the other party. Except for the prohibition on assignment contained in the preceding sentence, this Agreement shall be binding upon and inure to the benefits of the heirs, successors and assigns of the parties hereto.

 

 
10
 

   

IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first above written.

 

THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

 

COMPANY

CONSULTANT

 

 

/s/ Sarah Myers

 

/s/ Darryl Gomillion

 

Sarah Myers

 

Darry Gomillion

 

President, COO

 

 

 

 
11
 

 

EXHIBIT A

Scope of Services

 

Business Advisory towards Gaming Implementation

 

1.

Capital Advisory

2.

Demographic Advisory for Roatan

3.

Gaming Machine at SPV location

4.

Types of machines

5.

Engineering of machines

6.

SPV Implementation

 

a.

SPV operations

 

7.

Restructuring and turnaround

 

a.

Transaction Advisory Services

b.

Sampling and measuring

c.

Risk Assessment

d.

Internal Controls

 

8.

Education and Research

 

a.

Strategy Solutions

 

 

i.

Technology Solutions

 

ii.

Market and Development

 

iii.

Branding advice

 

iv.

SPV Education for internal controls

 

v.

Evaluate competition

 

vi.

Assist with legal approval

 

vii.

Assist with taxation and municipality requirements

 

9.

Assisting the Company on all needed aspects of development as requested and required

 

 

12


EXHIBIT 10.68

 

SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This Amendment (the "Amendment") dated as of date of the last signature as set forth below (the "Effective Date"), is made and entered into by and between H y H Investments, Sociedad Anonima (the "Seller") and Elite Data Services Inc. (the "Purchaser" which shall include its assigns).

 

RECITALS

 

WHEREAS , the Purchaser and the Seller entered into a Securities Purchase Agreement (the "Agreement") dated April 4, 2015 (the "Agreement") which was modified on June 30, 2015 ("1 st Amendment") to restate the effective date of the Agreement to April 6, 2016 ("Amended Agreement"). The Amended Agreement for purposes of this Amendment shall be referred to as the "Agreement."

 

WHEREAS , the Purchaser and Seller entered into a related Promissory Note dated April 6, 2015 (the "Original Note") which was replaced by the Restated Convertible Promissory Note (the "Restated Note") which modified the effective date of the Restated Note to April 6, 2016. This Restated Note for purposes of this Amendment shall be referred to as the "Note" in accordance with this Agreement.

 

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

 

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

 

1.

The Purchaser shall hereby be assigned by Elite Data Services, Inc. to:

 

 

Elite Holdings, S.A., a wholly owned subsidiary incorporated on behalf of Elite Data Services Inc. (the "Purchaser") with such subsidiary on a jointly and severally liable basis with Purchaser so as to comply with the regulatory authority of the Republic of Honduras.

 

2.

Section 3.1(b) of the Agreement is hereby amended and restated in its entirety to remove any required approvals on part of the Seller and shall hereafter be and read as follows:

 

 

Authorization; Enforcement . The Seller and EMBM have the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder or thereunder. The execution and delivery of this Agreement by the Seller and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Seller and no further consent or action is required by the Seller. This Agreement has been (or upon delivery will be) duly executed by the Seller and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and general principles of equity. The Seller is not in violation of any of the provisions of its certificate or articles of incorporation, by-laws or other organizational or charter documents.

 

 
1
 

 

1.

Section 3.1(f) of the Agreement is hereby amended and restated in its entirety to remove any required approvals on part of the Seller and shall hereafter by and read as follows:

 

 

No Conflicts. The execution, delivery and performance of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Seller's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Seller debt or otherwise) or other understanding to which the Seller is a party or by which any property or asset of the Seller is bound or affected, or (iii) result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Seller is subject (including federal and state securities laws and regulations), or by which any property or asset of the Seller is bound or affected; except in the case of each of clauses (ii) and (iii), such as has not had or could not reasonably be expected to result in a Material Adverse Effect.

  

2.

Section 4.4 is hereby added to the Agreement and shall hereafter be and read as follows:

 

 

4.4 Permitted Use . So long as Purchaser is current in its payment obligation, upon good faith payment, Purchaser shall have the right to operate gaming machines permitted under the license and proceed with the use of the license as owner of EMBM with full power and authority to contract, license, sub-license, loan, lease, enter into contract or any other business venture in which entitle Purchaser to the benefit of the license on behalf of the Corporation so long as Purchaser is in good standing upon payment obligation.

 

3.

Section 4.5 is hereby added to the Agreement and shall hereafter be and read as follows:

 

 

4.5 Transfer of Ownership EMBM Shares . Upon full payment of the Purchase Price, the shares of EMBM will be assigned to the Purchaser. This section shall place no restriction or limitation on Section 4.4.

 

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

 

 
2
 

 

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

 

PURCHASER

 

Elite Holdings, Sociedad Anonima

on behalf of Elite Data Services, Inc.

 

By:

/s/ Charles Riminger

Name: Charles Rimlinger

Title: Chief Executive Officer

   

Dated:

November 20, 2015

 

 

SELLER

 

H y H Investments, Sociedad Anonima

 

By:

/s/ Wilson Stevenson

Wilson Stevenson

Owner

   

Dated:

October 29, 2015

 

  

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EXHIBIT 31.1

 

RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

I, Charles Rimlinger, 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.

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

 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

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

 

(a)

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

 

(b)

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

 

 

Date: November 23, 2015

By:

/s/ Charles Rimlinger

 

Charles Rimlinger

 

Chief Executive Officer

 

 

EXHIBIT 31.2

 

RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

I, Stephen Antol, 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.

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

 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

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

 

(a)

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

 

(b)

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

 

 

Date: November 23, 2015

By:

/s/ Stephen Antol

 

Stephen Antol

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

EXHIBIT 32.1

 

CERTIFICATION OF 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

 

In connection with the Quarterly Report of Elite Data Services, Inc. (the "Company") on Form 10-Q for the nine-month period ended September 30, 2015, filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.

 

 

 

Date: November 23, 2015

By:

/s/ Charles Rimlinger

 

 

Charles Rimlinger

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

By:

/s/ Stephen Antol

 

 

Stephen Antol

Chief Financial Officer

(Principal Financial and Accounting Officer)