Attached files
file | filename |
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8-K/A - Sebring Software, Inc. | v209177_8ka.htm |
EX-99.2 - Sebring Software, Inc. | v209177_ex99-2.htm |
Sebring
Software, LLC
(a
development stage company)
Financial
Statements
Years
ended December 31, 2009 and 2008
and
for the Period from September 18, 2006
(Inception)
to December 31, 2009
Sebring
Software, LLC
(a
development stage company)
Index to
Financial Statements
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
1
|
|
Balance
Sheets
|
2
|
|
Statements
of Operations and Members’ Deficit
|
3
|
|
Statements
of Cash Flows
|
4
|
|
Notes
to Financial Statements
|
5
|
Report of Independent Registered
Public Accounting Firm
To the
Members of:
Sebring
Software, LLC
We have
audited the accompanying balance sheets of Sebring Software, LLC (a development
stage company) at December 31, 2009 and 2008, and the related statements of
operations and members' deficit, and cash flows for each of the two years in the
period ended December 31, 2009 and for the period from September 18, 2006
(inception) to December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sebring Software, LLC (a
development stage company) at December 31, 2009 and 2008 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2009 and for the period from September 18, 2006 (inception) to
December 31, 2009 in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company reported a net loss and cash used in operations in 2009
of $1,349,404 and $328,689, respectively, has a members' deficit of $2,916,999
at December 31, 2009 and through the date of this report has been in the
development stage with no revenues. These matters raise substantial
doubt about the Company’s ability to continue as a going
concern. Management’s plans as to these matters are also described in
Note 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/
Salberg & Company, P.A.
SALBERG
& COMPANY, P.A.
Boca
Raton, Florida
January
27, 2011
2295 NW
Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7328
Phone:
(561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com
• info@salbergco.com
Member
National Association of Certified Valuation Analysts • Registered with the
PCAOB
Member
CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit
Quality
Sebring
Software, LLC
(a
development stage company)
Balance
Sheets
December
31, 2009 and 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 35,505 | $ | 1,277 | ||||
Total
current assets
|
35,505 | 1,277 | ||||||
Software,
net
|
- | 366,678 | ||||||
Furniture
and equipment, net
|
1,285 | 913 | ||||||
Debt
issuance costs, net
|
- | 34,532 | ||||||
Deposits
|
1,000 | 1,000 | ||||||
Total
assets
|
$ | 37,790 | $ | 404,400 | ||||
LIABILITIES
AND MEMBERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 377,723 | $ | 247,761 | ||||
Accrued
payroll related liabilities
|
162,658 | 20,435 | ||||||
Accrued
interest payable
|
398,770 | 137,461 | ||||||
Current
portion notes payable
|
915,000 | 790,000 | ||||||
Total
current liabilities
|
1,854,151 | 1,195,657 | ||||||
Notes
payable, net of current portion
|
725,000 | 426,000 | ||||||
Notes
payable, related parties
|
375,638 | 350,338 | ||||||
Total
liabilities
|
2,954,789 | 1,971,995 | ||||||
Commitments
and contingencies (Note 7)
|
||||||||
Members'
deficit accumulated during development stage
|
(2,916,999 | ) | (1,567,595 | ) | ||||
Total
liabilities and members' deficit accumulated during development
stage
|
$ | 37,790 | $ | 404,400 |
The
accompanying notes are an integral part of these financial
statements.
2
Sebring
Software, LLC
(a
development stage company)
Statements
of Operations and Members’ Deficit
Year Ended
|
September 18, 2006
|
|||||||||||
December 31,
|
(inception) to
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
Operating
expenses:
|
||||||||||||
Employee
compensation and benefits
|
$ | 424,728 | $ | 423,874 | $ | 1,065,101 | ||||||
Impairment
expense
|
452,287 | - | 452,287 | |||||||||
General
& administrative expenses
|
204,243 | 578,745 | 916,574 | |||||||||
Total
operating expenses
|
1,081,258 | 1,002,619 | 2,433,962 | |||||||||
Loss
from operations
|
1,081,258 | 1,002,619 | 2,433,962 | |||||||||
Other
income (expense):
|
||||||||||||
Interest
expense
|
(268,146 | ) | (214,891 | ) | (483,037 | ) | ||||||
Net
loss
|
(1,349,404 | ) | (1,217,510 | ) | (2,916,999 | ) | ||||||
Members'
deficit accumulated during development stage, beginning of
period
|
(1,567,595 | ) | (350,085 | ) | - | |||||||
Members'
deficit accumulated during development stage, end of
period
|
$ | (2,916,999 | ) | $ | (1,567,595 | ) | $ | (2,916,999 | ) |
The
accompanying notes are an integral part of these financial
statements.
3
Sebring
Software, LLC
(a
development stage company)
Statements
of Cash Flows
Year Ended
|
September 18, 2006
|
|||||||||||
December 31,
|
(inception) to
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
Cash
from operating activities:
|
||||||||||||
Net
loss
|
$ | (1,349,404 | ) | $ | (1,217,510 | ) | $ | (2,916,999 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
402 | 184 | 586 | |||||||||
Impairment
expense
|
452,287 | - | 452,287 | |||||||||
Amortization
of debt issuance costs
|
34,532 | 105,468 | 140,000 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Deposits
|
- | - | (1,000 | ) | ||||||||
Accounts
payable and accrued liabilities
|
129,962 | 235,844 | 377,723 | |||||||||
Accrued
payroll related liabilities
|
142,223 | (12,530 | ) | 162,658 | ||||||||
Accrued
interest payable
|
261,309 | 136,284 | 398,770 | |||||||||
Net
cash used in operations
|
(328,689 | ) | (752,260 | ) | (1,385,975 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Software
development costs
|
(85,609 | ) | (277,312 | ) | (452,287 | ) | ||||||
Purchase
of furniture
|
(774 | ) | (567 | ) | (1,871 | ) | ||||||
Net
cash used in investing activities
|
(86,383 | ) | (277,879 | ) | (454,158 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Bank
overdraft
|
- | (1,534 | ) | - | ||||||||
Payment
of debt issuance costs
|
- | (140,000 | ) | (140,000 | ) | |||||||
Proceeds
from issuance of notes payable
|
449,300 | 1,187,950 | 2,030,638 | |||||||||
Repayment
of notes payable
|
- | (15,000 | ) | (15,000 | ) | |||||||
Proceeds
provided by financing activities
|
449,300 | 1,031,416 | 1,875,638 | |||||||||
Net
increase in cash
|
34,228 | 1,277 | 35,505 | |||||||||
Cash,
beginning of period
|
1,277 | - | - | |||||||||
Cash,
end of period
|
$ | 35,505 | $ | 1,277 | $ | 35,505 | ||||||
Supplemental
Disclosure of Cash Flow
Information:
|
||||||||||||
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
Taxes
paid
|
$ | - | $ | - | $ | - |
The
accompanying notes are an integral part of thesefinancial
statements.
4
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
1. ORGANIZATION,
NATURE OF BUSINESS AND GOING CONCERN
Organization – Sebring
Software, LLC (Sebring or Company) was originally organized in the state of
Florida on September 18, 2006 under the name of Riacom, LLC, which changed its
name to Sebring Software, LLC on January 19, 2007. The Company has
been in the development stage and its efforts through December 31, 2009 have
been principally devoted to organizational activities, raising capital, software
development and evaluating operational opportunities. Since its formation
the Company has not realized any revenues from its planned
operations.
Nature of Business –
Sebring intends to be a subscription based reseller of software to companies in
the automotive, manufacturing, aerospace, healthcare and financial services
industries. Sebring has developed “Adaptors” which allow the software
to be used by companies in North and South America and allows them to navigate
multiple enterprise applications used in their numerous operating units in a
single user interface so the users can gather and use their intercompany
business information more quickly and effectively.
Going Concern - The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company and its ability to meet its ongoing
obligations. The Company has a net loss of $1,349,404 and net cash used in
operations of $328,689 in 2009 and a negative working capital and members’
deficit accumulated during the development stage of $1,818,646 and $2,916,999,
respectively, at December 31, 2009. In addition, the Company has not
generated any revenues through December 31, 2009.
These
conditions, as well as the conditions noted below, were considered when
evaluating the Company’s liquidity and its ability to meet its ongoing
obligations. These financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the outcome of these uncertainties.
The
Company anticipates a funding agreement with Enerizon Partners Ltd (EPL) to fund
the company with an investment of $11 million in the form of convertible
preferred shares. EPL has since decided to increase this to $15 million and the
Company expects to receive this funding by February 15, 2011. In addition the
company is in discussions with other groups to fund an aggregate amount of $6
million during the month of February, 2011.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents -
The Company considers investments that have original maturities of three months
or less when purchased to be cash equivalents.
Use of Estimates in Financial
Statements - The presentation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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. Actual results
could differ from those estimates. Significant estimates during the period
covered by these financial statements include the valuation of software for
impairment analysis purposes and valuation of any beneficial conversion features
on convertible debt.
Fair value measurements and Fair
value of Financial Instruments - The Company adopted ASC Topic 820, Fair
Value Measurements. ASC Topic 820 clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair value
hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
5
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
Company did not identify any assets or liabilities that are required to be
presented on the balance sheets at fair value in accordance with ASC Topic
820.
Due to
the short-term nature of all financial assets and liabilities, their carrying
value approximates their fair value as of the balance sheet date.
Software - Costs incurred
in connection with the development of software products are accounted for in
accordance with the Financial Accounting Standards Board Accounting Standards
Codification ("ASC") 985 “Costs of Software to Be Sold,
Leased or Marketed.” Costs incurred prior to the establishment of
technological feasibility are charged to research and development expense.
Software development costs are capitalized after a product is determined to be
technologically feasible and is in the process of being developed for market.
Amortization of capitalized software development costs begins upon initial
product shipment. Capitalized software development costs are amortized over the
estimated life of the related product (generally thirty-six months), at the
greater of i) the straight-line method and ii) the ratio of the current gross
revenues for the software to the total of current and estimated future gross
revenues for the software. The Company evaluates its software assets for
impairment whenever events or change in circumstances indicate that the carrying
amount of such assets may not be recoverable. Recoverability of software
assets to be held and used is measured by a comparison of the carrying amount of
the asset to the future net undiscounted cash flows expected to be generated by
the asset. If such software assets are considered to be impaired, the
impairment to be recognized is the excess of the carrying amount over the fair
value of the software asset.
Software
maintenance costs are charged to expense as incurred. Expenditures for enhanced
functionality are capitalized. The cost of the software and the related
accumulated amortization are removed from the accounts upon retirement of the
software with any resulting loss being recorded in operations. No
amortization expense was recorded in the accompanying financial
statements.
Furniture and Equipment, net - Furniture and equipment are
capitalized at cost, net of accumulated depreciation. Depreciation is calculated
by using the straight-line method over the estimated useful lives of the assets,
which is three years for all categories. Repairs and maintenance are charged to
expense as incurred. Expenditures for betterments and renewals are capitalized.
The cost of furniture and equipment and the related accumulated depreciation are
removed from the accounts upon retirement or disposal with any resulting gain or
loss being recorded in operations.
Impairment of Long-Lived Assets
- The Company evaluates its long-lived assets for impairment whenever
events or change in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to the
future net undiscounted cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
the excess of the carrying amount over the fair value of the asset.
Debt issuance costs,
net – Costs such as commission and commitment fees of obtaining
debt financing are capitalized as debt issuance costs and amortized over the
term of the debt agreement on the effective interest method.
Income Taxes - As a limited
liability company, the Company does not incur income taxes. Instead, its
earnings are included in the members’ personal income tax returns and taxed
depending on their personal tax situations. The financial statements,
therefore, do not include a provision for income taxes.
6
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
Recent Accounting
Pronouncements - The following is a summary of recent authoritative
pronouncements that affect accounting, reporting, and disclosure of financial
information by the Company.
In
January 2010, the FASB issued Accounting Standard Update (ASU) No. 2010-06,
Improving Disclosures about Fair Value Measurements, which requires additional
disclosures about (1) the different classes of assets and liabilities
measured at fair value, (2) the valuation techniques and inputs used,
(3) the activity in Level 3 fair value measurements, and (4) the
transfers between Levels 1, 2 and 3. The new disclosures are effective for the
Company’s financial statements issued for interim and annual periods beginning
January 1, 2010. The Company early applied these disclosures in the accompanying
footnotes except for non-financial assets as provided in ASC
820-10-65.
Recently Adopted Accounting Standards
- The following is a summary of recent authoritative pronouncements that
were adopted in the attached financial statements by the Company.
ASC
820, “Fair Value
Measurements”: ASC 820 establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. ASC 820 applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this Statement does
not require any new fair value measurements. The statement was implemented for
the Company’s fiscal year end December 31, 2008, and interim periods beginning
January 1, 2008.
ASC
825, The Fair Value Option for
Financial Assets and Financial Liabilities:, The FASB issued ASC 825
which permits entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value. ASC 825 was implemented for the Company’s fiscal year end
December 31, 2008, and interim periods beginning January 1, 2008.
3. SOFTWARE
COSTS
Software
costs consisted of the following at December 31:
2009
|
2008
|
|||||||
Software
costs
|
$ | 452,287 | $ | 366,678 | ||||
Accumulated
amortization
|
- | - | ||||||
Impairment
|
(452,287 | ) | - | |||||
Software
costs, net
|
$ | - | $ | 366,678 | ||||
Capitalized
interest included in software costs was $55,733 and $27,483 at December 31, 2009
and 2008, respectively. There was no amortization expense in 2009 or
2008 since the Company had not yet offered the product for sale. The
Company begins amortization when it offers its products for sale at the greater
of i) the straight-line method over the expected life of three years and ii) the
ratio of the current gross revenues for the software to the total of
current and estimated future gross revenues for the software. As of
December 31, 2009, the Company determined that the software was impaired due to
insufficient funding available to secure the product rights or license rights
and market and sell the product (See Note 10).
4. FURNITURE
AND EQUIPMENT, NET
Furniture
and equipment consisted of the following at December 31:
2009
|
2008
|
|||||||
Furniture
and equipment
|
$ | 1,871 | $ | 1,097 | ||||
Accumulated
depreciation
|
(586 | ) | (184 | ) | ||||
Furniture
and equipment, net
|
$ | 1,285 | $ | 913 |
Depreciation
expense for 2009 and 2008 was $402 and $184, respectively.
7
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
5. DEBT
ISSUANCE COSTS, NET
Debt
issuance costs consisted of the following at December 31:
2009
|
2008
|
|||||||
Debt
issuance costs
|
$ | 140,000 | $ | 140,000 | ||||
Accumulated
amortization
|
(140,000 | ) | (105,468 | ) | ||||
Debt
issuance costs, net
|
$ | - | $ | 34,532 |
Amortization
expense for 2009 and 2008 was $34,532 and $105,468, respectively. The
debt issuance costs were amortized over the original terms of the promissory
notes (See “Note Modifications" in Note 6).
6.
NOTES AND CONVERTIBLE NOTES PAYABLE
The
Company has financed its operation mainly through the issuance of notes
payable. The notes payable are as follows at December
31:
8
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
2009
|
2008
|
|||||||
Convertible
notes payable to related and unrelated parties bearing interest at a rate
of 12%, principal payable on March 1, 2011 and interest payable quarterly
in cash or common stock at Company option using conversion terms
below. If the Company is merged with or acquired by a public
company (public event) during the term of the note, then on the first day
of each month, starting with the 7th full month following the public
event, the lender shall have the right to (a) receive payment equal to
one-sixth of the principal outstanding or (b) convert the monthly
principal amount as follows: Note is convertible at the lesser of (1) 75%
of the price per share paid by investors in the next equity financing
after the note was issued, or (2) either (a) if the Company has forty-five
million or more shares issued and outstanding then $0.75 per share or (b)
if the Company has less than forty-five million shares issued and
outstanding then a price per share determined by dividing 45,000,000 by
the product of the number of shares issued and outstanding after the
closing of a Public Event multiplied by $0.75. Upon conversion
of any portion of principal or accrued interest the lender will receive an
equal number of warrants to purchase common stock. For any portion of the
note not converted, the lender will receive warrants equal to 25% of the
quantity the lender would have received had they converted. In event of
default with respect to principal payment, as liquidated damages, the
lender will receive an additional warrant to purchase such number of
shares as equals the number of shares issuable upon exercise of a warrant
issued under the 25% provision above. The warrants contain
piggy-back registration rights, however, if the warrant shares have not
been registered on or before June 1, 2011 and a public event, as defined,
has occurred, the Company will use its best efforts to file a registration
statement as soon as practicable thereafter and use commercially
reasonable efforts to cause the registration statement to become effective
on or before September 1, 2011. In the event the Company fails
to register the warrant shares on or before June 1, 2011, the lender will
be entitled, as liquidated damages, to an additional warrant to purchase
such number of shares as equals 2% of the number of warrant shares that
may be purchased under all of the lenders warrants multiplied by the
number of full months that the registration statement is
delayed. All warrants shall have an exercise price that is 110%
of the conversion price and shall be exercisable for 5 years from the
warrant issuance date.
|
$ | 1,100,638 | $ | 776,338 | ||||
Convertible
notes payable bearing interest at a rate of 12%. Principal payable on June
30, 2009. Interest payable every six months. The
note and accrued interest are convertible at 75% of the price per share
paid by investors in the next equity financing and such conversion rights
will expire 60 days after such equity financing. The holder
also has the right to 100% warrant coverage with an exercise price of 110%
of the next $4 million equity round. Notes are in default as of December
31, 2009.
|
40,000 | 40,000 | ||||||
Convertible
notes payable bearing interest at a rate of 12%. Principal
payable in September 2010. Interest payable every six
months. Note is convertible at 75% of the price per equity
interest paid by investors in the next equity financing and such
conversion rights will expire 60 days after such equity
financing. The holder also has the right to 100% warrant
coverage with an exercise price of 110% of the next $4 million equity
round. In default as of September 30, 2010.
|
100,000 | - | ||||||
Secured
convertible notes payable to one lender dated March 2008 and July 2008 and
maturing March 17, 2009, bearing interest at 12% (20% default rate),
secured by substantially all assets of the Company, convertible at 75% of
the price of a future offering or into Company membership interests of
4.5% on a fully-diluted basis. On March 17, 2009 (default date)
the Company defaulted on payments and a forbearance agreement was executed
on September 9, 2009. The forbearance modified the note to 20%
compounded interest on principal and accrued interest starting at the
default date and extended the maturity date to the earlier of April 13,
2010 or 5 days after a defined financing with 25% due and the remainder
due on April 13, 2010. In 2010, the Company defaulted on
the Forbearance agreement and on October 1, 2010 the Company executed a
settlement agreement. Under the settlement a new secured
non-convertible note was made consolidating the prior $750,000 convertible
promissory notes plus all accrued interest plus estimated legal costs of
the lender for a new note balance of $1,170,718. The note is
secured by substantially all assets of the Company and bears interest at
12% (20% default rate). One-third of outstanding principal and interest is
due every 120 days with all principal and interest due on or before the
480th day of this Note which is January 24, 2012. The lender
was also granted a 16% membership interest, on a fully-diluted basis, in
the Company. Additionally, the lender is granted a 1% equity interest on
issued and outstanding equity interests for each 120 days that any amount
is outstanding on this Note.
|
750,000 | 750,000 | ||||||
Non-convertible
note payable dated February 18, 2009, bearing 12% interest payable plus an
origination fee of $2,500, due March 2009. In default for
non-payment as of December 31, 2009.
|
25,000 | - | ||||||
Total
notes payable
|
2,015,638 | 1,566,338 | ||||||
Notes
payable, related parties
|
(375,638 | ) | (350,338 | ) | ||||
Current
portion of notes payable
|
(915,000 | ) | (790,000 | ) | ||||
Notes
payable, net of current portion
|
$ | 725,000 | $ | 426,000 |
9
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
Note
Modifications
The above
descriptions of the first group of convertible notes due March 1, 2011 and the
respective classifications as current or non-current liabilities reflect the
terms under modified note agreements issued in May 2010 in accordance with ASC
470-10 "Short Term Obligations Expected to be Refinanced". Original
notes were issued during 2007, 2008 and 2009 with due dates of one-year from the
note date and conversion terms at a 25% discount from any future equity offering
price. No beneficial conversion values were originally recorded at the note
dates since the conversion features were considered contingent and no value
disclosed since such value could not be computed at the notes
dates. At December 31, 2009 and 2008, $776,338 and $378,388,
respectively, was considered in default under the terms of the original
notes. Such default was cured for all these notes upon the
modifications in May 2010. There was no other accounting effect for the
modification which occurred in May 2010.
In total,
for all above notes, there was $841,338 and $378,388 in default at December 31,
2009 and 2008, respectively of which $776,338 was cured through note
modifications in May 2010.
7. COMMITMENTS
AND CONTINGENCIES
Advisor agreement -
The Company entered into an agreement with a Swiss Corporation, (the advisor) to
assist the Company in raising capital. At the completion of an equity
financing, the agreement calls for compensation to the vendor of ten percent
(10%) of total gross cash proceeds of funds raised, non-accountable expense
allowance of 3%, and the issuance of five year warrants equal to 10% of the
shares of the common stock issued with an exercise price of 110% of the market
value. If there is a debt financing, the advisor is to be paid (i) 6%
of consideration received by the company, non-accountable expense allowance of
1%, (ii) 3% of any revolving credit line, (iii) 2% of any credit enhancement
instrument, and (iv) 10% of any revenue-producing contract, fee-sharing
arrangement, licensing, royalty or similar agreement.
Immediately
following receipt by the Company of bridge financing, the advisor is to receive
9% of the Company. In the event the advisor fails to secure a minimum
of $20 million on a firm underwriting basis during the term of this agreement,
the advisor shall return any of those advisor shares received for
cancellation. No shares were earned or issued as of the date of this
report.
The
Company paid the vendor $140,000 under this agreement in 2008 which was recorded
as debt issue costs and is being amortized over the debt term.
Lender Contingency -
As discussed in Note 6, under an October 1, 2010 secured promissory note, a
lender is granted a 1% equity interest on issued and outstanding equity
interests for each 120 days that any amount is outstanding.
Management agreement
– On June 3, 2010, the Company entered into three year management agreements
with three key members of management. The agreements commit the
Company to pay a combined total of $519,000 per year in base salary, $2,400 a
month in three auto allowances, and stock compensation as determined by the
Board of Directors. One of the agreements also requires one of the
management team members to receive 1 million shares of restricted common stock
which were issued in 2010.
8. MEMBER
EQUITY
There
were no equity contributions to the Company since inception. All
funding occurred through member loans to the Company. Accordingly,
members’ deficit accumulated during the development stage represents accumulated
deficit of the Company since inception.
9. RELATED
PARTIES
At
December 31, 2009 and 2008 there were $375,638 and $350,338 due to members of
the Company under promissory notes due on March 1, 2011 (see Note
6).
10
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
10. CONCENTRATIONS
License Concentration - The
Company entered into an agreement with a Germany-based Company (licensor) to
license its technology under a non-exclusive licensing agreement. The
Company intends to resell that licensor's software product as adapted by the
Company for its potential North and South American territory
customers. The license agreement was executed but does not become
effective until the Company pays a prepaid royalty fee to the licensor of
$150,000. This payment has not been made
to-date. Royalties due under the agreement are based on a percentage
of gross revenues.
Concentration of Credit Risk -
The Company maintains its cash accounts in certain financial
institutions. The amounts on deposit with the institutions are
insured through the Federal Deposit Insurance Corporation (FDIC) in the amount
of $250,000 per entity per institution. The Company had no uninsured
balances at December 31, 2009 or 2008. The Company has not
experienced any losses on such accounts.
11. SUBSEQUENT
EVENTS
Stock For Legal Services - In
January 2010 the Company executed a legal services agreement and committed to
pay $37,500 cash and 50,000 shares of post-reorganization common stock valued at
$37,500 which was the estimated value of services. Since there was no other
indication of value of post-reorganization common stock the shares were valued
at the $37,500 value of services and recorded as a liability until such time
when the reorganization is completed and such shares can be issued.
Investment Pursuant to Recapitalization -
On September 17, 2010, Sebring purchased 69,376,450 common shares and 15,475,416
common shares of Sumotext, Inc. ("Sumotext") for an aggregate purchase price of
$350,000. The 15,475,416 were distributed immediately to various
services providers (see Consulting Shares below). The remaining
69,376,450 shares represent approximately 81% of the issued and outstanding
shares of Sumotext. The Company also incurred $101,000 of transaction costs
which were expensed immediately. This transaction was considered an
interim transaction in contemplation of the reverse recapitalization described
below. Accordingly, the $350,000 purchase price has been deferred as an asset
entitled "Investment pursuant to recapitalization" as of September 17, 2010 and
such amount is reclassified on October 25, 2010 pursuant to the recapitalization
and cancellation of such 69,376,450 shares as discussed below.
Loans and Promissory Notes - As
described below, in 2010, the Company recorded liabilities for an aggregate of
$797,000 under various types of loans and promissory notes as
follows:
In 2010
through October 2010 the Company issued $195,000 of convertible promissory notes
for cash. These convertible notes payable bear interest at a rate of
12%, and principal is payable on March 1, 2011 and
interest payable quarterly in cash or common stock at Company option using
conversion terms below. If
the Company is merged with or acquired by a public company (public event) during
the term of the note, then on the first day of each month, starting with the 7th
full month following the public event, the lender shall have the right to (a)
receive payment equal to one-sixth of the principal outstanding or (b) convert
the monthly principal amount as follows: Note is convertible at the lesser of
(1) 75% of the price per share paid by investors in the next equity financing
after the note was issued, or (2) either (a) if the Company has forty-five
million or more shares issued and outstanding then $0.75 per share or (b) if the
Company has less than forty-five million shares issued and outstanding then a
price per share determined by dividing 45,000,000 by the product of the number
of shares issued and outstanding after the closing of a Public Event multiplied
by $0.75. Upon conversion of any portion of principal or accrued
interest the lender will receive an equal number of warrants to purchase common
stock. For any portion of the note not converted, the lender will receive
warrants equal to 25% of the quantity the lender would have received had they
converted. In event of default with respect to principal payment, as liquidated
damages, the lender will receive an additional warrant to purchase such number
of shares as equals the number of shares issuable upon exercise of a warrant
issued under the 25% provision above. The warrants contain piggy-back
registration rights, however, if the warrant shares have not been registered on
or before June 1, 2011 and a public event, as defined, has occurred, the Company
will use its best efforts to file a registration statement as soon as
practicable thereafter and use commercially reasonable efforts to cause the
registration statement to become effective on or before September 1,
2011. In the event the Company fails to register the warrant shares
on or before June 1, 2011, the lender will be entitled, as liquidated damages,
to an additional warrant to purchase such number of shares as equals 2% of the
number of warrant shares that may be purchased under all of the lenders warrants
multiplied by the number of full months that the registration statement is
delayed. All warrants shall have an exercise price that is 110% of
the conversion price and shall be exercisable for 5 years from the warrant
issuance date.
11
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
During
2010 the Company received non-interest bearing advances of $125,000 which were
recorded as loans payable.
On May
10, 2010 the Company converted $178,531 of accounts payable for legal services
into a $140,000 promissory note bearing interest at 12% and due May 12,
2011. The Company recognized a gain on settlement of
$38,531.
In
September and October 2010 the Company executed $432,000 of new non-convertible
promissory notes for funds borrowed to finance the September 17, 2010
transaction discussed above and in October 2010 issued $140,000 of promissory
notes to fund operating expenses. The notes bear interest at 6% and
mature on December 31, 2011.
Redemption of Member Interests
- On October 22, 2010 the Company redeemed the 39.9% member interests of
one of it members in exchange for a secured promissory note for
$100,000. The note bears interest at 7% and was due November 1,
2010. The note is secured by the redeemed equity interests which are
held in escrow until the note is paid. The payment of principal and
interest was made in November 2010.
Settlement Agreement with Creditor -
On October 1, 2010 the Company executed a settlement agreement with a
note holder. Under the settlement a new secured note was made
consolidating the prior $750,000 promissory notes plus all accrued interest plus
estimated legal costs of the lender for a new note balance of
$1,170,718. The note bears interest at 12% (20% default rate)
One-third of outstanding principal and interest is due every 120 days with all
principal and interest due on or before the 480th day of this Note which is
January 24, 2012. The lender was also granted a 16% membership
interest, on a fully-diluted basis, in the Company. Additionally, the lender is
granted a 1% equity interest on issued and outstanding equity interests for each
120 days that any amount is outstanding on this Note. The Company
recorded $108,553 of settlement expense related to the Note and $40,101 of
settlement expense related to the 16% membership interest. The value
of the membership interest was based upon the value of members’ interest
redeemed in the same time period for $100,000 described in Redemption of Member
Interests note above.
Reverse recapitalization - On
October 25, 2010, (the "transaction date") pursuant to the terms of an Exchange
and Reorganization Agreement between the Sumotext, a publicly-held company,
Sebring and the members of Sebring, Sumotext acquired all of the membership
interests of Sebring in exchange for 18,729,098 shares of the Sumotext common
stock and the assumption of certain Sebring LLC liabilities.
Pursuant
to the terms of the Exchange, Sebring caused Sumotext to cancel 69,376,450
shares of the Sumotext common stock that had been acquired by Sebring on
September 17, 2010 in contemplation of this reverse
recapitalization. Concurrent with the reverse recapitalization,
Sumotext had spun-off all its prior assets, liabilities and operations to a
company controlled by a shareholder of Sumotext.
This
transaction resulted in Sebring Software, LLC becoming a wholly-owned subsidiary
of the Company and the Company intends to carry on Sebrings business as its sole
line of business.
Since the
spin-off was contemplated as part of the transaction and occurred on the
transaction date of October 25, 2010, and since the members of Sebring Software,
LLC obtained an approximate 53% voting interest and Board and management control
in Sumotext, the transaction is deemed to be a reverse recapitalization with a
public shell. However, since control was obtained of the shell on September 17,
2010 and the acquisition occurred on October 25, 2010, the transaction will be
accounted for as a combination of entities under common control. The
historical operations of the Company will be those historical operations of
Sebring, and those of Sumotext from the September 17, 2010 date when the
entities became under common control.
12
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements
December
31, 2009 and 2008
Consulting Shares - The
Company entered into several agreements with service providers which included
post-reorganization stock for services. The commitment in aggregate was for
1,875,000 common shares plus 1.5% of fully-diluted shares just
post-merger. Upon the closing of the Securities Purchase Agreement
discussed above, the above committed shares plus additional shares, aggregating
15,475,416, was issued as prepayment pursuant to the pending closing
of the reverse recapitalization transaction which closed on October 25,
2010. The value of these shares, $63,853 was recorded as a prepaid
asset (Included in the $350,000 Investment pursuant to recapitalization) at
September 30, 2010 and portions expensed or deferred based on the terms of the
agreements on or after October 25, 2010.
Shares Grant to Officer- The
Company committed to issue the Chief Financial Officer 1,000,000 shares of
common stock if he fulfills certain duties. Once those duties are complete
the company will recognize the expense of those shares based on their fair
market value and the terms under which the shares vest.
13
Sebring
Software, LLC
(a
development stage company)
Financial
Statements
Nine
Months Ended September 30, 2010 and 2009
and
the Period from September 18, 2006
(Inception)
to September 30, 2010
Sebring
Software, LLC
(a
development stage company)
Index to
Financial Statements
Page
|
||
Balance
Sheets
|
2
|
|
Statements
of Operations and Members’ Deficit – Unaudited
|
3
|
|
Statements
of Cash Flows – Unaudited
|
4
|
|
Notes
to Financial Statements – Unaudited
|
5
|
Sebring
Software, LLC
(a
development stage company)
Balance
Sheets
September 30, 2010
|
December 31, 2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 5,549 | $ | 35,505 | ||||
Loans
to officers and shareholders
|
87,193 | - | ||||||
Other
current assets
|
6,000 | - | ||||||
Total
current assets
|
98,742 | 35,505 | ||||||
Investment
pursuant to recapitalization
|
350,000 | - | ||||||
Furniture
and equipment, net
|
1,656 | 1,285 | ||||||
Deposits
|
1,000 | 1,000 | ||||||
Total
assets
|
$ | 451,398 | $ | 37,790 | ||||
LIABILITIES
AND MEMBERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 346,528 | $ | 377,723 | ||||
Accrued
payroll related liabilities
|
374,485 | 162,658 | ||||||
Accrued
interest payable
|
649,999 | 398,770 | ||||||
Current
portion of notes payable
|
1,925,000 | 915,000 | ||||||
Loans
payable
|
80,000 | - | ||||||
Notes
payable, related parties
|
375,638 | - | ||||||
Total
current liabilities
|
3,751,650 | 1,854,151 | ||||||
Notes
payable, net of current portion
|
432,000 | 725,000 | ||||||
Notes
payable, related parties
|
- | 375,638 | ||||||
Total
liabilities
|
4,183,650 | 2,954,789 | ||||||
Commitments
and contingencies (Note 7)
|
||||||||
Members'
deficit accumulated during development stage
|
(3,732,252 | ) | (2,916,999 | ) | ||||
Total
liabilities and members' deficit accumulated during development
stage
|
$ | 451,398 | $ | 37,790 |
The
accompanying notes are an integral part of these unaudited financial
statements.
2
Sebring
Software, LLC
(a
development stage company)
Statements
of Operations and Members’ Deficit – Unaudited
Nine Months
|
September 18, 2006
|
|||||||||||
Ended September,
|
(inception) to
|
|||||||||||
2010
|
2009
|
September 30, 2010
|
||||||||||
Operating
expenses:
|
||||||||||||
Employee
compensation and benefits
|
$ | 264,622 | $ | 295,671 | $ | 1,329,723 | ||||||
Impairment
expense
|
- | - | 452,287 | |||||||||
General
& administrative expenses
|
299,402 | 172,097 | 1,215,976 | |||||||||
Total
operating expenses
|
564,024 | 467,768 | 2,997,986 | |||||||||
Loss
from operations
|
(564,024 | ) | (467,768 | ) | (2,997,986 | ) | ||||||
Other
income (expense):
|
||||||||||||
Interest
expense
|
(251,229 | ) | (197,931 | ) | (734,266 | ) | ||||||
Net
loss
|
(815,253 | ) | (665,699 | ) | (3,732,252 | ) | ||||||
Members'
deficit accumulated during development stage, beginning of
period
|
(2,916,999 | ) | (1,567,595 | ) | - | |||||||
Members'
deficit accumulated during development stage, end of
period
|
(3,732,252 | ) | (2,233,294 | ) | (3,732,252 | ) |
The
accompanying notes are an integral part of these unaudited financial
statements.
3
Sebring
Software, LLC
(a
development stage company)
Statements
of Cash Flows – Unaudited
Nine months
|
September 18, 2006
|
|||||||||||
ended September 30,
|
(inception) to
|
|||||||||||
2010
|
2009
|
September 30, 2010
|
||||||||||
Cash
from operating activities:
|
||||||||||||
Net
loss
|
$ | (815,253 | ) | $ | (665,699 | ) | $ | (3,732,252 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
484 | 274 | 1,070 | |||||||||
Impairment
expense
|
- | - | 452,287 | |||||||||
Amortization
of debt issuance costs
|
- | 34,532 | 140,000 | |||||||||
Gain
on debt settlement
|
(38,531 | ) | - | (38,531 | ) | |||||||
Changes
in assets and liabilities:
|
||||||||||||
Other
current assets
|
(6,000 | ) | - | (6,000 | ) | |||||||
Deposits
|
- | - | (1,000 | ) | ||||||||
Accounts
payable
|
147,335 | 106,792 | 525,058 | |||||||||
Accrued
payroll liabilities
|
211,827 | 135,677 | 374,485 | |||||||||
Accrued
interest payable
|
251,229 | 191,094 | 649,999 | |||||||||
Net
cash used in operating activities
|
(248,909 | ) | (197,330 | ) | (1,634,884 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Loans
to officers and shareholders
|
(87,193 | ) | - | (87,193 | ) | |||||||
Investment
pursuant to recapitalization
|
(350,000 | ) | - | (350,000 | ) | |||||||
Software
development costs
|
- | (85,609 | ) | (452,286 | ) | |||||||
Purchase
of furniture
|
(854 | ) | - | (2,726 | ) | |||||||
Net
cash used in investing activities
|
(438,047 | ) | (85,609 | ) | (892,205 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Payment
of debt issuance costs
|
- | - | (140,000 | ) | ||||||||
Proceeds
from issuance of notes payable
|
657,000 | 339,300 | 2,687,638 | |||||||||
Repayment
of notes payable
|
(15,000 | ) | ||||||||||
Proceeds
provided by financing activities
|
657,000 | 339,300 | 2,532,638 | |||||||||
Net
increase (decrease) in cash
|
(29,956 | ) | 56,361 | 5,549 | ||||||||
Cash,
beginning of period
|
35,505 | 1,277 | - | |||||||||
Cash,
end of period
|
$ | 5,549 | $ | 57,638 | $ | 5,549 | ||||||
Supplemental disclosure of cash flow
information
|
||||||||||||
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
Taxes
paid
|
$ | - | $ | - | $ | - | ||||||
Supplemental disclosure of non-cash financing
activities
|
||||||||||||
Account
payable satisfied with note payable
|
$ | 178,531 | $ | - | $ | - |
The
accompanying notes are an integral part of these unaudited financial
statements.
4
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
1. BASIS
OF PRESENTATION, ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
Basis of Presentation– The accompanying
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules and
regulations of the United States Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations. It is management's opinion, however, that all
material adjustments (consisting of normal recurring adjustments) have been made
which are necessary for a fair financial statement presentation. The results for
the interim period are not necessarily indicative of the results to be expected
for the year. For further information, refer to the audited financial
statements and footnotes of the company for the years
ending December 31, 2009 and 2008.
Organization – Sebring
Software, LLC (Sebring or Company) was originally organized in the state of
Florida on September 18, 2006 under the name of Riacom, LLC, which changed its
name to Sebring Software, LLC on January 19, 2007. The Company has
been in the development stage and its efforts through December 31, 2009 have
been principally devoted to organizational activities, raising capital, and
evaluating operational opportunities. Since its formation the Company has
not realized any revenues from its planned operations.
Nature of Business –
Sebring intends to be a subscription based reseller of software to companies in
the automotive, manufacturing, aerospace, healthcare and financial services
industries. Sebring has developed “Adaptors” which allow the software
to be used by companies in North and South America and allows them to navigate
multiple enterprise applications used in their numerous operating units in a
single user interface so the users can gather and use their intercompany
business information more quickly and effectively.
Going Concern - The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company and its ability to meet its ongoing
obligations. The Company has a net loss of $815,253 and net cash used in
operations of $248,909 for the nine months ended September 30, 2010 and a
negative working capital and members’ deficit accumulated during the
development stage of $3,652,908 and $3,732,252, respectively, at September 30,
2010. In addition, the Company has not generated any revenues through
September 30, 2010.
These
conditions, as well as the conditions noted below, were considered when
evaluating the Company’s liquidity and its ability to meet its ongoing
obligations. These financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the outcome of these uncertainties.
The
Company anticipates a funding agreement with Enerizon Partners Ltd (EPL) to fund
the company with an investment of $11 million in the form of convertible
preferred shares. EPL has since decided to increase this to $15 million and the
Company expects to receive this funding by February 15, 2011. In addition the
company is in discussions with other groups to fund an aggregate amount of $6
million during the month of February, 2011.
2. SOFTWARE
COSTS
Software
costs consisted of the following:
September
30, 2010
|
December
31, 2009
|
|||||||
Software
costs
|
$ | 452,287 | $ | 452,287 | ||||
Accumulated
amortization
|
- | - | ||||||
Impairment
|
(452,287 | ) | (452,287 | ) | ||||
Software
costs, net
|
$ | - | $ | - |
5
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
Capitalized
interest included in software costs was $55,733 at both September 30, 2010 and
December 31, 2009. There was no amortization expense prior to
impairment in 2009 since the Company had not yet offered the product for
sale.
3. FURNITURE
AND EQUIPMENT, NET
Furniture
and equipment consisted of the following:
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Furniture
and equipment
|
$ | 2,726 | $ | 1,871 | ||||
Accumulated
depreciation
|
(1,070 | ) | (586 | ) | ||||
Furniture
and equipment, net
|
$ | 1,656 | $ | 1,285 |
Depreciation
expense for the nine months ended September 30, 2010 and 2009 and the period
September 18, 2006 (inception) through September 30, 2010 was $484, $274 and
$1,070, respectively.
4. INVESTMENT PURSUANT TO
RECAPITALIZATION
On
September 17, 2010, Sebring purchased 69,376,450 common shares and 15,475,416
common shares of Sumotext, Inc. ("Sumotext") for an aggregate purchase price of
$350,000. The 15,475,416 were distributed immediately to various
services providers (see Consulting Shares below). The remaining
69,376,450 shares represent approximately 81% of the issued and outstanding
shares of Sumotext. The Company also incurred $101,000 of transaction costs
which were expensed immediately. This transaction was considered an
interim transaction in contemplation of the reverse recapitalization described
below. Accordingly, the $350,000 purchase price has been deferred as an asset
entitled "Investment pursuant to recapitalization" as of September 17, 2010 and
such amount is reclassified on October 25, 2010 pursuant to the recapitalization
and cancellation of such 69,376,450 shares as discussed below.
5.
NOTES AND CONVERTIBLE NOTES PAYABLE
The
Company has financed its operation mainly through the issuance of notes
payable. The notes payable are as follows at September 30, 2010 and
December 31, 2009:
6
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Convertible
notes payable to related and unrelated parties bearing interest at a rate
of 12%, principal payable on March 1, 2011 and
interest payable quarterly in cash or common stock at Company option
using conversion terms below. If
the Company is merged with or acquired by a public company (public event)
during the term of the note, then on the first day of each month, starting
with the 7th full month following the public event, the lender shall have
the right to (a) receive payment equal to one-sixth of the principal
outstanding or (b) convert the monthly principal amount as follows: Note
is convertible at the lesser of (1) 75% of the price per share paid by
investors in the next equity financing after the note was issued, or (2)
either (a) if the Company has forty-five million or more shares issued and
outstanding then $0.75 per share or (b) if the Company has less than
forty-five million shares issued and outstanding then a price per share
determined by dividing 45,000,000 by the product of the number of shares
issued and outstanding after the closing of a Public Event multiplied by
$0.75. Upon conversion of any portion of principal or accrued
interest the lender will receive an equal number of warrants to purchase
common stock. For any portion of the note not converted, the lender will
receive warrants equal to 25% of the quantity the lender would have
received had they converted. In event of default with respect to principal
payment, as liquidated damages, the lender will receive an additional
warrant to purchase such number of shares as equals the number of shares
issuable upon exercise of a warrant issued under the 25% provision
above. The warrants contain piggy-back registration rights,
however, if the warrant shares have not been registered on or before June
1, 2011 and a public event, as defined, has occurred, the Company will use
its best efforts to file a registration statement as soon as practicable
thereafter and use commercially reasonable efforts to cause the
registration statement to become effective on or before September 1,
2011. In the event the Company fails to register the warrant
shares on or before June 1, 2011, the lender will be entitled, as
liquidated damages, to an additional warrant to purchase such number of
shares as equals 2% of the number of warrant shares that may be purchased
under all of the lenders warrants multiplied by the number of full months
that the registration statement is delayed. All warrants shall
have an exercise price that is 110% of the conversion price and shall be
exercisable for 5 years from the warrant issuance date.
|
$ | 1,245,638 | $ | 1,100,638 | ||||
Convertible
notes payable bearing interest at a rate of 12%, Principal payable on June
30, 2009. Interest payable every six months. The
note and accrued interest are convertible at 75% of the price per share
paid by investors in the next equity financing and such conversion rights
will expire 60 days after such equity financing. The holder
also has the right to 100% warrant coverage with an exercise price of 110%
of the next $4 million equity round. Notes are in default as of December
30, 2009 and September 30, 2010.
|
40,000 | 40,000 | ||||||
Convertible
notes payable bearing interest at a rate of 12%. Principal
payable in September 2010. Interest payable every six
months. Note is convertible at 75% of the price per equity
interest paid by investors in the next equity financing and such
conversion rights will expire 60 days after such equity
financing. The holder also has the right to 100% warrant
coverage with an exercise price of 110% of the next $4 million equity
round. In default as of September 30, 2010.
|
100,000 | 100,000 | ||||||
Secured
convertible notes payable to one lender dated March 2008 and July 2008 and
maturing March 17, 2009, bearing interest at 12% (20% default rate),
secured by substantially all assets of the Company, convertible at 75% of
the price of a future offering or into Company membership interests of
4.5% on a fully-diluted basis. On March 17, 2009 (default date)
the Company defaulted on payments and a forbearance agreement was executed
on September 9, 2009. The forbearance modified the note to 20%
compounded interest on principal and accrued interest starting at the
default date and extended the maturity date to the earlier of April 13,
2010 or 5 days after a defined financing with 25% due and the remainder
due on April 13, 2010. In 2010, the Company defaulted on
the Forbearance agreement and on October 1, 2010 the Company executed a
settlement agreement. Under the settlement a new secured
non-convertible note was made consolidating the prior $750,000 convertible
promissory notes plus all accrued interest plus estimated legal costs of
the lender for a new note balance of $1,170,718. The note is
secured by substantially all assets of the Company and bears interest at
12% (20% default rate). One-third of outstanding principal and interest is
due every 120 days with all principal and interest due on or before the
480th day of this Note which is January 24, 2012. The lender
was also granted a 16% membership interest, on a fully-diluted basis, in
the Company. Additionally, the lender is granted a 1% equity interest on
issued and outstanding equity interests for each 120 days that any amount
is outstanding on this Note.
|
750,000 | 750,000 | ||||||
Non-convertible
notes payable dated in September 2010, bearing 6% interest with principal
and interest due December 31, 2011. Notes issued in connection
with the September 17, 2010 transaction as described in the Investment
Pursuant to Recapitalization disclosure.
|
432,000 | - | ||||||
Non-convertible
note payable dated February 18, 2009, bearing 12% interest payable plus an
origination fee of $2,500, due March 2009. In default for
non-payment as of December 31, 2009 and September 30,
2010.
|
25,000 | 25,000 | ||||||
Non-convertible
note payable dated May 10, 2010 bearing interest at 12% due May 12,
2011. Note issued in settlement of $178,531 accounts
payable.
|
140,000 | - | ||||||
Total
notes payable
|
2,732,638 | 2,015,638 | ||||||
Notes
payable, related parties – current
|
(375,638 | ) | - | |||||
Notes
payable, related parties – non-current
|
- | (375,638 | ) | |||||
Current
portion of notes payable
|
(1,925,000 | ) | (915,000 | ) | ||||
Notes
payable, net of current portion
|
$ | 432,000 | $ | 725,000 |
7
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
Note
Modifications
The above
descriptions of the first group of convertible notes due March 1, 2011 and the
respective classifications as current or non-current liabilities reflect the
terms under modified note agreements issued in May 2010 in accordance with ASC
470-10 "Short Term Obligations Expected to be Refinanced". Original
notes were issued during 2007, 2008 and 2009 with due dates of one-year from the
note date and conversion terms at a 25% discount from any future equity offering
price. No beneficial conversion values were originally recorded at the note
dates since the conversion features were considered contingent and no value
disclosed since such value could not be computed at the notes
dates. At December 31, 2009, $776,338 was considered in default under
the terms of the original notes. Such default was cured for all these
notes upon the modifications in May 2010. There was no other accounting effect
for the modification which occurred in May 2010.
In total,
for all above notes, there was $841,338 in default at December 31, 2009 of which
$776,338 was cured through note modifications in May 2010.
On May
10, 2010 the Company converted $178,531 of accounts payable for legal services
into a $140,000 promissory note bearing interest at 12% and due May 12,
2011. The Company recognized a gain on settlement of
$38,531.
6.
LOANS PAYABLE
During
2010 the Company received unsecured, non-interest bearing advances of $80,000
which were recorded as loans payable.
8
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
7. COMMITMENTS
AND CONTINGENCIES
Advisor Agreement -
The Company entered into an agreement with a Swiss Corporation, (the advisor) to
assist the Company in raising capital. At the completion of an equity
financing, the agreement calls for compensation to the vendor of ten percent
(10%) of total gross cash proceeds of funds raised, non-accountable expense
allowance of 3%, and the issuance of five year warrants equal to 10% of the
shares of the common stock issued with an exercise price of 110% of the market
value. If there is a debt financing, the advisor is to be paid (i) 6%
of consideration received by the company, non-accountable expense allowance of
1%, (ii) 3% of any revolving credit line, (iii) 2% of any credit enhancement
instrument, and (iv) 10% of any revenue-producing contract, fee-sharing
arrangement, licensing, royalty or similar agreement.
Immediately
following receipt by the Company of bridge financing, the advisor is to receive
9% of the Company. In the event the advisor fails to secure a minimum
of $20 million on a firm underwriting basis during the term of this agreement,
the advisor shall return any of those advisor shares received for
cancellation. No shares were earned or issued as of the date of this
report.
The
Company paid the vendor $140,000 under this agreement in 2008 which was recorded
as debt issue costs and is being amortized over the debt term.
Lender Contingency -
As discussed in Note 6, under an October 1, 2010 secured promissory note, a
lender is granted a 1% equity interest on issued and outstanding equity
interests for each 120 days that any amount is outstanding.
Management Agreement
– On June 3, 2010, the Company entered into three year management agreements
with three key members of management. The agreements commit the
Company to pay a combined total of $519,000 per year in base salary, $2,400 a
month in three auto allowances, and stock compensation as determined by the
Board of Directors. One of the agreements also requires one of the
management team members to receive 1 million shares of restricted common stock
which were issued in 2010.
Stock For Legal
Services - In January 2010 the Company executed a legal services
agreement and committed to pay $37,500 cash and 50,000 shares of
post-reorganization common stock valued at $37,500 which was the estimated value
of services. Since there was no other indication of value of post-reorganization
common stock the shares were valued at the $37,500 value of services and
recorded as a liability until such time when the reorganization is completed and
such shares can be issued.
8. RELATED
PARTIES
There was
$375,638 due to members of the Company at both September 30, 2010 and December
31, 2009 under promissory notes due on March 1, 2011 (see Note
5).
9. MEMBER
EQUITY
Consulting Shares - The
Company entered into several agreements with service providers which included
post-reorganization stock for services. The commitment in aggregate was for
1,875,000 common shares plus 1.5% of fully-diluted shares just
post-merger. Upon the closing of the Securities Purchase Agreement on
September 17, 2010, the above committed shares plus additional shares,
aggregating 15,475,416, was issued as prepayment pursuant to the
pending closing of the reverse recapitalization transaction which closed on
October 25, 2010. The value of these shares, $63,853 was recorded as
a prepaid asset (included in “Investment Pursuant to Recapitalization”) as of
September 30, 2010 and portions expensed or deferred based on the terms of the
agreements on or after October 25, 2010.
10. CONCENTRATIONS
License Concentration - The
Company entered into an agreement with a Germany-based Company (licensor) to
license its technology under a non-exclusive licensing agreement. The
Company intends to resell that licensor's software product as adapted by the
Company for its potential North and South American territory
customers. The license agreement was executed but does not become
effective until the Company pays a prepaid royalty fee to the licensor of
$150,000. This payment has not been made through the date of this
report. Royalties due under the agreement are based on a percentage
of gross revenues.
9
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
Concentration of Credit Risk -
The Company maintains its cash accounts in certain financial
institutions. The amounts on deposit with the institutions are
insured through the Federal Deposit Insurance Corporation (FDIC) in the amount
of $250,000 per entity per institution. The Company had no uninsured
balances at September 30, 2010 or December 31, 2009. The Company has
not experienced any losses on such accounts.
11. SUBSEQUENT
EVENTS
Redemption of Member Interests
- On October 22, 2010 the Company redeemed the 39.9% member interests of
one of its members in exchange for a secured promissory note for
$100,000. The note bears interest at 7% and was due November 1,
2010. The note is secured by the redeemed equity interests which are
held in escrow until the note is paid. The payment of principal and
interest was made in November 2010.
Settlement Agreement with Creditor -
On October 1, 2010 the Company executed a settlement
agreement. Under the settlement a new secured note was made
consolidating the prior $750,000 promissory notes plus all accrued interest plus
estimated legal costs of the lender for a new note balance of
$1,170,718. The note bears interest at 12% (20% default rate)
One-third of outstanding principal and interest is due every 120 days with all
principal and interest due on or before the 480th day of this Note which is
January 24, 2012. The lender was also granted a 16% membership
interest, on a fully-diluted basis, in the Company. Additionally, the lender is
granted a 1% equity interest on issued and outstanding equity interests for each
120 days that any amount is outstanding on this Note. The Company
recorded $108,553 of settlement expense related to the Note and $40,101 of
settlement expense related to the 16% membership interest. The value
of the membership interest was based upon the value of members’ interest
redeemed in the same time period for $100,000 described in Redemption of Member
Interests note above.
Reverse Recapitalization - On
October 25, 2010, (the "transaction date") pursuant to the terms of an Exchange
and Reorganization Agreement between the Sumotext, a publicly-held company,
Sebring and the members of Sebring, Sumotext acquired all of the membership
interests of Sebring in exchange for 18,729,098 shares of the Sumotext common
stock and the assumption of certain Sebring LLC liabilities.
Pursuant
to the terms of the Exchange, Sebring caused Sumotext to cancel 69,376,450
shares of the Sumotext common stock that had been acquired by Sebring on
September 17, 2010 in contemplation of this reverse
recapitalization. Concurrent with the reverse recapitalization,
Sumotext had spun-off all its prior assets, liabilities and operations to a
company controlled by a shareholder of Sumotext.
This
transaction resulted in Sebring Software, LLC becoming a wholly-owned subsidiary
of the Company and the Company intends to carry on Sebrings business as its sole
line of business.
Since the
spin-off was contemplated as part of the transaction and occurred on the
transaction date of October 25, 2010, and since the members of Sebring Software,
LLC obtained an approximate 53% voting interest and Board and management control
in Sumotext, the transaction is deemed to be a reverse recapitalization with a
public shell. However, since control was obtained of the shell on September 17,
2010 and the acquisition occurred on October 25, 2010, the transaction will
be accounted for as a combination of entities under common
control. The historical operations of the Company will be those
historical operations of Sebring, and those of Sumotext from the September 17,
2010 date when the entities became under common control.
Shares Grant to
Officer- The Company committed to issue the Chief Financial
Officer 1,000,000 shares of common stock if he fulfills certain
duties. Once those duties are complete the company will recognize the expense of
those shares based on their fair market value and the terms under which the
shares vest.
10
Sebring
Software, LLC
(a
development stage company)
Notes
to Financial Statements - Unaudited
For
the nine months ended September 30, 2010
Loans and Promissory Notes - As
described below, subsequent to September 30, 2010, the Company recorded
liabilities for an aggregate of $235,000 under various types of loans and
promissory notes as follows:
In
October 2010 the Company issued a $50,000 convertible promissory note for
cash. This convertible note payable bear interest at a rate of 12%,
and principal is payable on March 1, 2011 and
interest payable quarterly in cash or common stock at Company option using
conversion terms below. If
the Company is merged with or acquired by a public company (public event) during
the term of the note, then on the first day of each month, starting with the 7th
full month following the public event, the lender shall have the right to (a)
receive payment equal to one-sixth of the principal outstanding or (b) convert
the monthly principal amount as follows: Note is convertible at the lesser of
(1) 75% of the price per share paid by investors in the next equity financing
after the note was issued, or (2) either (a) if the Company has forty-five
million or more shares issued and outstanding then $0.75 per share or (b) if the
Company has less than forty-five million shares issued and outstanding then a
price per share determined by dividing 45,000,000 by the product of the number
of shares issued and outstanding after the closing of a Public Event multiplied
by $0.75. Upon conversion of any portion of principal or accrued
interest the lender will receive an equal number of warrants to purchase common
stock. For any portion of the note not converted, the lender will receive
warrants equal to 25% of the quantity the lender would have received had they
converted. In event of default with respect to principal payment, as liquidated
damages, the lender will receive an additional warrant to purchase such number
of shares as equals the number of shares issuable upon exercise of a warrant
issued under the 25% provision above. The warrants contain piggy-back
registration rights, however, if the warrant shares have not been registered on
or before June 1, 2011 and a public event, as defined, has occurred, the Company
will use its best efforts to file a registration statement as soon as
practicable thereafter and use commercially reasonable efforts to cause the
registration statement to become effective on or before September 1,
2011. In the event the Company fails to register the warrant shares
on or before June 1, 2011, the lender will be entitled, as liquidated damages,
to an additional warrant to purchase such number of shares as equals 2% of the
number of warrant shares that may be purchased under all of the lenders warrants
multiplied by the number of full months that the registration statement is
delayed. All warrants shall have an exercise price that is 110% of
the conversion price and shall be exercisable for 5 years from the warrant
issuance date.
In
October 2010 the Company executed $140,000 in promissory notes to fund operating
expenses. The notes bear interest at 6% and mature on December 31,
2011. The company also received $45,000 in non-interest bearing
advances in November and December 2010.
11