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