UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For quarterly period ended June 30, 2014

 

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

 

For the transition period from ___________ to ___________

 

Commission file number 000-33933

 

SPORTS MEDIA ENTERTAINMENT CORP.

(Exact name of registrant as specified in its charter)

 

Nevada		88-0319470
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1 Tara Boulevard, Suite 200, Nashua, NH		03062
(Address of principal executive offices)		(Zip Code)

 

(877) 539-5644

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

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

 

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

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer (Do not check if a smaller reporting company)	¨	Smaller reporting company	x

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,073,750 shares of common stock, par value $0.001, were outstanding on August 6, 2014.

 

 

 

 

SPORTS MEDIA ENTERTAINMENT CORP.

FORM 10-Q

TABLE OF CONTENTS

 

			PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements			3
	Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013 (audited)			3
	Consolidated Statements of Operations (Unaudited)			4
	Consolidated Statement of Stockholders' Equity (Deficit) (Unaudited)			5
	Consolidated Statements of Cash Flows (Unaudited)			6
	Notes to Consolidated Financial Statements			7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			12
Item 4T.	Controls and Procedures			16
PART II - OTHER INFORMATION
Item 3.	Defaults Upon Senior Securities			17
Item 6.	Exhibits			17
Signatures				18

 

2

 

Item 1. Financial Statements.

 

Sports Media Entertainment Corp.
Consolidated Balance Sheets

 

				June 30,				December 31,
				2014				2013
				(Unaudited)
Assets
Current Assets
	Cash			$	3,138			$	6,475
	Other current assets (Note B)				4,746				3,293
		Total current assets			7,884				9,768
	Fixed assets (Note C)				44,183				44,183
	Accumulated depreciation				(41,414	)			(38,648	)
		Net fixed assets			2,769				5,535
		Total assets		$	10,653			$	15,303
Liabilities and Stockholders' Deficit
Current Liabilities
	Accounts payable & accrued expenses (Note D)			$	100,177			$	95,999
	Deferred revenue				4,188				6,128
	Accrued interest payable (Note E)				119,119				99,053
	Promissory notes (Note E)				358,408				345,144
	Convertible promissory notes (Note E)				174,527				145,200
		Total Current Liabilities			756,419				691,524
Commitments and contingencies
Stockholders' Deficit (Note F)
	Common stock, $0.001 par value 100,000,000 shares authorized; issued and outstanding 20,073,750 and 21,073,750 at June 30, 2014 and December 31, 2013, respectively				20,074				21,074
	Additional-paid-in-capital				2,317,124				2,286,722
	Accumulated deficit				(3,082,964	)			(2,984,017	)
		Total stockholders' deficit			(745,766	)			(676,221	)
		Total liabilities and stockholders' deficit		$	10,653			$	15,303

 

(The accompanying notes are an integral part of these financial statements)

 

3

 

Sports Media Entertainment Corp.
Consolidated Statements of Operations (Unaudited)

 

		Three Months Ended							Six Months Ended
		June 30,							June 30,
		2014				2013				2014				2013
Revenue		$	2,690			$	6,086			$	6,323			$	12,435
Operating expenses
General and administrative			11,844				48,123				40,009				63,505
Sales and marketing			12,750				10,482				13,081				14,864
Research and development			667				4,701				2,319				19,203
Total operating expenses			25,261				63,306				55,409				97,572
Loss from operations			(22,571	)			(57,220	)			(49,086	)			(85,137	)
Other Income and (Expense)
Interest expense			(25,685	)			(9,033	)			(49,861	)			(17,120	)
Total other income and expense			(25,685	)			(9,033	)			(49,861	)			(17,120	)
Earnings before taxes			(48,256	)			(66,253	)			(98,947	)			(102,257	)
Provision for income taxes			-				-				-				-
Net loss		$	(48,256	)		$	(66,253	)		$	(98,947	)		$	(102,257	)
Net (loss) per common share basic		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average common shares outstanding basic			21,073,750				21,053,613				21,073,750				20,988,682

 

(The accompanying notes are an integral part of these financial statements)

 

4

 

Sports Media Entertainment Corp.
Statement of Stockholders' Deficit
For the Six Months Ended June 30, 2014 (Unaudited) and Year Ended December 31, 2013

 

										Additional								Total
		Common Stock								paid-in				Accumulated				Stockholders'
		Shares				Amount				Capital				Deficit				Deficit
Balance, December 31, 2012			20,923,750				20,924				2,240,119				(2,808,451	)			(547,408	)
Issuance of common stock to CFO			150,000				150				20,805				-				20,955
Debt discount related to the beneficial conversion feature of convertible notes			-				-				25,798				-				25,798
Net Income (Loss)			-				-				-				(175,566	)			(175,566	)
Balance, December 31, 2013			21,073,750				21,074				2,286,722				(2,984,017	)			(676,221	)
Shares returned and canceled			(1,000,000	)			(1,000	)			1,000								-
Debt discount related to the beneficial conversion feature of convertible notes			-				-				29,402				-				29,402
Net Income (Loss)			-				-				-				(98,947	)			(98,947	)
Balance, June 30, 2014			20,073,750			$	20,074			$	2,317,124			$	(3,082,964	)		$	(745,766	)

 

(The accompanying notes are an integral part of these financial statements)

 

5

 

Sports Media Entertainment Corp.
Consolidated Statements of Cash Flows (Unaudited)

 

		Six Months Ended
		June 30,
		2014				2013
Cash flows from operating activities
Net loss		$	(98,947	)		$	(102,257	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation			2,766				3,312
Compensation expense on common stock issued for services			-				20,955
Interest expense - amortization of debt discount			29,402				-
Changes in operating accounts:
Other current assets			(1,453	)			1,699
Accounts payable and accrued expenses			4,178				4,354
Deferred revenue			(1,940	)			2,243
Accrued interest			20,066				17,120
Net cash used in operating activities			(45,928	)			(52,574	)
Cash flows from financing activities
Proceeds from promissory notes			13,264				29,500
Proceeds from convertible promissory notes			29,327				29,402
Net cash provided by financing activities			42,591				58,902
Increase (decrease) in cash			(3,337	)			6,328
Cash and cash equivalents at beginning of period			6,475				106
Cash and cash equivalents at end of period		$	3,138			$	6,434
Supplemental disclosures of cash flow information
Cash paid during the year for:
Taxes paid		$	-			$	-
Interest paid		$	-			$	-
Non-cash operating activities:
Value of Common Stock issued in exchange for services		$	-			$	20,955

 

(The accompanying notes are an integral part of these financial statements)

 

6

 

SPORTS MEDIA ENTERTAINMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

 

NOTE A - ORGANIZATION AND GOING CONCERN

 

Basis of Presentation

 

The unaudited financial statements of Sports Media Entertainment Corp. as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 as filed with the Securities and Exchange Commission as part of our Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

 

Organization

 

Our company’s name is Sports Media Entertainment Corp. (formerly known as Explore Anywhere Holding Corp.) (the "Company"). The Company was incorporated on April 3, 1996 in the State of Nevada as Jubilee Trading Corp. On March 3, 2002, the Company changed its name to PorFavor Corp. From inception until March 2010, we operated as a broker of structural wood materials. Then, our former CEO/President fell ill and the wood business deteriorated. As a result, the Company decided to change its business focus and look for other opportunities. In March 2010, the Company identified a target company in the area of computer monitoring software, known as ExploreAnywhere Inc. On February 4, 2011, ExploreAnywhere Inc. and its shareholders closed a Share Exchange Agreement with the Company, whereby the Company acquired all of the issued and outstanding shares of ExploreAnywhere Inc. from its shareholders in exchange for 2,613,750 shares of the Company's common stock with a fair market value of $1,163,120. The merger was accounted for as a purchase. Explore Anywhere, Inc. became a wholly-owned subsidiary of Explore Anywhere Holding Corporation engaged in the business of selling computer monitoring software, specializing in offering computer monitoring solutions for parents, corporations and educational facilities under the ExploreAnywhere name.

 

On December 24, 2013, the Company changed its name to Sports Media Entertainment Corp. in anticipation of a future merger and in order for the Company name to more closely reflect the nature of the anticipated business activities.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

During the six months ended June 30, 2014 the Company recognized $6,323 of revenue. However, the Company incurred a net operating loss of $98,947. The Company has negative working capital of $748,535 as of June 30, 2014.

 

During the next 12 months, the Company’s foreseeable cash requirements will relate to the operations of its business, maintaining its good standing, making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with reviewing or investigating any potential business ventures. The Company may experience a cash shortfall and be required to raise additional capital. Historically, the Company has relied upon internally generated funds and funds from the sale of shares of stock and loans from its shareholders and private investors to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

7

 

The Company has a series of plans to mitigate the going concern:

 

Management expected to seek potential investors and other business opportunities from all known sources. Management’s efforts are ongoing to complete the development of new software products in order to bring these products currently in development to the marketplace.

 

Furthermore, management’s efforts are ongoing to enhance the Company’s Internet visibility towards potential customers through search engine optimization (SEO).

 

NOTE B - Other Current Assets

 

Other current assets as of June 30, 2014 and December 31, 2013 consists of sales being held by the Company's credit card processor and is a customary business practice.

 

Concentrations of credit risk

 

The Company performs ongoing credit evaluations of its customers. During the six months ended June 30, 2014, no customer accounted for more than 10% of revenue.

 

NOTE C - Fixed Assets

 

Fixed assets consisted of the following:

 

		June 30,				December 31,
		2014				2013
Computers and office equipment		$	29,818			$	29,818
Software			14,365				14,365
Total fixed assets			44,183				44,183
Accumulated depreciation			(41,414	)			(38,648	)
Fixed assets, net		$	2,769			$	5,535

 

During the three months ended June 30, 2014 and 2013, the Company recognized $1,383 and $1,656, respectively, in depreciation expense. During the six months ended June 30, 2014 and 2013, the Company recognized $2,766 and $3,312, respectively, in depreciation expense.

 

NOTE D - Accounts Payable & Accrued Expenses

 

At June 30, 2014, accounts payable and accrued expenses totaling $100,177 consisted of $38,683 of professional services, $37,064 of R&D services and $24,430 of trade payables. 

 

At December 31, 2013, accounts payable and accrued expenses totaling $95,999 consisted of $36,479 of professional services, $36,664 of R&D services and $22,856 of trade payables.

 

NOTE E - Promissory Notes

 

As of June 30, 2014, the Company had the following notes payable:

 

		Principle				Accrued Interest				Total
Convertible promissory notes		$	174,527			$	56,982			$	231,509
Non convertible promissory notes			358,408				62,137				420,545
Total		$	532,935			$	119,119			$	652,054

 

As of December 31, 2013, the Company had the following notes payable:

 

		Principle				Accrued Interest				Total
Convertible promissory notes		$	145,200			$	50,608			$	195,808
Non convertible promissory notes			345,144				48,445				393,589
Total		$	490,344			$	99,053			$	589,397

 

8

 

Convertible Promissory Notes

 

As of June 30, 2014, the Company had outstanding the following convertible promissory notes ("CPNs"):

 

Date of:										Accrued				Total
Issuance		Maturity		Status		Principle				Interest				Outstanding
07/06/07		2/6/2009		Converted to stock		$	-			$	19,452			$	19,452
03/23/10		3/24/2011		Converted to stock			-				4,460				4,460
01/24/11		1/25/2012		In default			10,000				2,746				12,746
01/28/11		1/29/2012		Converted to stock			-				2,756				2,756
02/09/11		2/10/2012		In default			25,000				6,778				31,778
03/17/11		3/17/2012		In default			15,000				3,949				18,949
04/18/11		4/18/2012		In default			15,000				3,843				18,843
05/17/11		5/17/2012		In default			10,000				2,499				12,499
06/13/11		6/13/2012		In default			7,500				1,830				9,330
06/24/11		6/24/2012		In default			2,500				604				3,104
11/15/11		11/15/2012		In default			5,000				1,050				6,050
10/29/12		10/29/2013		In default			17,400				2,323				19,723
12/12/12		12/12/2013		In default			2,000				248				2,248
12/18/12		12/18/2013		In default			1,848				226				2,074
12/18/12		12/18/2013		In default			4,550				558				5,108
01/24/13		1/24/2014		In default			7,000				801				7,801
03/18/13		3/18/2014		In default			7,402				761				8,163
04/04/13		4/4/2014		In default			15,000				1,486				16,486
02/28/14		2/28/2015		Current			15,000				401				15,401
04/08/14		4/8/2015		Current			10,850				197				11,047
06/11/14		6/11/2015		Current			3,477				14				3,491
Total						$	174,527			$	56,982			$	231,509
Number of shares issuable upon exercise of the above debt at $0.05															4,630,180

 

From time to time the Company has issued CPNs all with identical terms, including a maturity date one year from the date of issuance, eight percent (8%) per annum interest rate, no requirement for any payments prior to maturity, and the right to convert the outstanding principle and interest in to into fully paid and non-assessable shares of the Company's common stock at a fixed conversion price of $0.05 per share upon default. The conversion privilege provides for net share settlement only. Pursuant to ASC 470-20-25-5, the Company determined that due to the market price of the Company's common stock being greater than the conversion price contained in each CPN on the commitment date, each CPN contained a beneficial conversion feature (“BCF”) with an intrinsic value in excess of the face amount of each CPN. The resulting discount to the Loan is recorded to interest expense upon default. The Company has not received notice from the holder of the defaulted notes to enforce collection. The Company communicates regularly with the holder who has not expressed a desire to force collection at this time.

 

Related to the CPN's above, during the three months ended June 30, 2014, the Company issued $14,327 of CPNs, recognized $15,000 of interest expense related to the BCF contained in CPN's falling into default and recognized $3,407 and $2,883 during the three months ended June 30, 2014 and 2013, respectively, of interest expense related to the stated interest rate contained in the CPNs.

 

During the six months ended June 30, 2014, the Company issued $29,327 of CPNs, recognized $29,402 of interest expense related to the BCF contained in CPN's falling into default and recognized $6,373 and $5,289 during the six months ended June 30, 2014 and 2013, respectively, of interest expense related to the stated interest rate contained in the CPNs.

 

9

 

Non Convertible, Unsecured Promissory Notes

 

As of June 30, 2014, the Company had outstanding the following non convertible, unsecured promissory notes ("UPNs"):

 

Date of:										Accrued				Total
Issuance		Maturity		Status		Principle				Interest				Outstanding
03/09/10		3/31/2011		In default		$	7,500			$	2,587			$	10,087
12/03/10		12/4/2011		In default			10,000				2,860				12,860
12/29/10		12/30/2011		In default			7,500				2,102				9,602
04/08/11		4/8/2012		In default			7,500				1,938				9,438
06/02/11		6/2/2012		In default			10,000				2,464				12,464
06/28/11		6/28/2012		In default			6,500				1,564				8,064
07/01/11		7/1/2012		In default			6,500				1,560				8,060
07/21/11		7/21/2012		In default			2,000				471				2,471
07/26/11		7/26/2012		In default			7,500				1,759				9,259
08/05/11		8/5/2012		In default			8,500				1,975				10,475
08/08/11		8/8/2012		In default			8,500				1,969				10,469
08/24/11		8/24/2012		In default			5,000				1,141				6,141
09/13/11		9/13/2012		In default			7,500				1,678				9,178
10/04/11		10/4/2012		In default			7,500				1,644				9,144
10/06/11		10/6/2012		In default			2,250				492				2,742
10/17/11		10/17/2012		In default			10,000				2,163				12,163
11/02/11		11/2/2012		In default			5,000				1,064				6,064
11/07/11		11/7/2012		In default			5,000				1,059				6,059
11/15/11		11/15/2012		In default			3,000				630				3,630
11/28/11		11/28/2012		In default			4,500				932				5,432
12/07/11		12/7/2012		In default			3,500				718				4,218
12/27/11		12/27/2012		In default			5,500				1,104				6,604
01/19/12		1/19/2013		In default			12,500				2,447				14,947
02/23/12		2/23/2013		In default			5,000				940				5,940
03/02/12		3/3/2013		In default			10,000				1,863				11,863
03/09/12		3/10/2013		In default			12,500				2,310				14,810
04/17/12		4/18/2013		In default			10,000				1,762				11,762
05/03/12		5/4/2013		In default			12,500				2,159				14,659
05/22/12		5/23/2013		In default			7,500				1,264				8,764
06/04/12		6/5/2013		In default			9,500				1,574				11,074
06/11/12		6/12/2013		In default			8,500				1,395				9,895
04/03/12		4/4/2013		In default			3,800				681				4,481
07/02/12		7/3/2013		In default			3,500				558				4,058
07/11/12		7/12/2013		In default			9,500				1,497				10,997
07/23/12		7/24/2013		In default			6,500				1,007				7,507
08/14/12		8/15/2013		In default			5,000				751				5,751
09/04/12		9/5/2013		In default			6,000				873				6,873
09/13/12		9/14/2013		In default			500				72				572
10/05/12		10/6/2013		In default			3,500				486				3,986
10/15/12		10/16/2013		In default			5,250				717				5,967
12/07/12		12/8/2013		In default			4,000				500				4,500
12/20/12		12/21/2013		In default			5,000				610				5,610
12/30/12		12/30/13		In default			2,879				345				3,224
02/25/13		02/25/14		In default			10,000				1,074				11,074
04/01/13		04/01/14		In default			13,500				1,346				14,846
05/01/13		05/01/14		In default			1,000				93				1,093
06/27/13		06/27/14		In default			5,000				403				5,403
08/15/13		08/15/14		Current			5,000				350				5,350
09/11/13		09/11/14		Current			3,500				224				3,724
11/12/13		11/12/14		Current			4,500				227				4,727
12/30/13		12/30/14		Current			4,500				180				4,680
12/31/13		12/31/14		Current			13,965				554				14,519
06/30/14		06/30/15		Current			13,264				-				13,264
Total						$	358,408			$	62,137			$	420,545

 

From time to time the Company has issued UPNs all with identical terms, including a maturity date one year from the date of issuance, eight percent (8%) per annum interest rate and no requirement for any payments prior to maturity. The Company has made no repayments of the above UPNs.

 

10

 

During the six months ended June 30, 2014, the company issued $13,264 of UPNs.

 

During the three months ended June 30, 2014 and 2013, the Company recognized $6,883 and $6,150, respectively of interest expense related to the UPNs above.  During the six months ended June 30, 2014 and 2013, the Company recognized $13,692 and $11,830, respectively of interest expense related to the UPNs above.

 

The total amount of convertible and non convertible promissory note principle and accrued interest in default was $575,851 as of June 30, 2014.

 

NOTE F - Stockholder's Equity

 

On June 18, 2012, the Board of Directors entered into a Restricted Stock Award Agreement (the "Award") with its now former President and CEO, Bryan Hammond, pursuant to which the Company agreed to issue One million (1,000,000) shares of its common stock to Mr. Hammond. The Award was subject to a substantial risk of forfeiture and vests only upon the realization of significantly greater revenues whereby for every $1,000,000 in revenue recognized, 20% or 200,000 shares vest. On April 10, 2014, Mr. Hammond returned said shares to the treasury and their issuance has been canceled. The Company recorded the original issuance and subsequent return at par value.

 

NOTE G - Net Loss Per Share

 

During the three and six months ended June 30, 2014 and 2013, the Company recorded a net loss. Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has not included the effects of convertible debt on net loss per share for the past two fiscal years because to do so would be antidilutive.

 

Following is the computation of basic and diluted net loss per share for the three and six months ended June 30, 2014 and 2013:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2014				2013				2013				2012
Basic and Diluted EPS Computation
Numerator:
Loss available to common stockholders'		$	(48,256	)		$	(66,253	)		$	(98,947	)		$	(102,257	)
Denominator:
Weighted average number of common shares outstanding			21,073,750				21,053,613				21,073,750				20,988,682
Basic and diluted EPS		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
The weighted average shares listed below were not included in the computation of diluted losses per share because to do so would have been antidilutive for the periods presented:
Convertible promissory notes			4,307,439				3,467,360				4,177,014				3,346,647

 

11

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report contains forward-looking statements including statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes” or similar language. These forward-looking statements involve risks, uncertainties and other factors. All forward-looking statements included in this quarterly report are based on information available to us on the date hereof and speak only as of the date hereof. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. The factors discussed elsewhere in this quarterly report are among those factors that in some cases have affected our results and could cause the actual results to differ materially from those projected in the forward-looking statements.

 

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report.

 

Overview

 

The Company is engaged in the business of selling computer monitoring software solutions for parents, corporations and educational facilities under the ExploreAnywhere name.

 

On December 24, 2013, the Company changed its name to Sports Media Entertainment Corp. in anticipation of a future merger and in order for the Company name to more closely reflect the nature of the anticipated business activities.

 

Principal Products

 

We are currently in the business of selling computer monitoring software, and currently sell two cloud based computer software monitoring products, Spybuddy 2013 and Keylogger PRO 2013 (collectively, the "Software").

 

SpyBuddy 2013 is an internet spy software and computer monitoring product that allows users to secretly monitor all areas of a PC, tracking every action down to the last keystroke and the last file deleted. Unlike other computer monitoring and Internet spy software products, SpyBuddy 2013 monitoring software is virtually undetectable and exceptionally easy-to-use.

 

Keylogger Pro 2013 is the latest release of our award winning Keylogger. Keylogger Pro will silently record keystrokes typed on any keyboard layout (English, Russian, Chinese, Arabic, etc), as well as all passwords, emails, chats and social network activity typed by users of a computer. Keylogger Pro will also take high resolution screen shots of user activity allowing someone to see exactly what the user is seeing. Further, Keylogger Pro records all applications/programs used and how long the programs were used for.

 

Both Spybuddy 2013 and Keylogger PRO 2013 share the same software code, this means that the two are technically the same product, but where Keylogger PRO 2013 is an “economy” version that does not have all of the Spybuddy 2013 features. Both Spybuddy 2013 and Keylogger PRO 2013 are only compatible with the Windows operating systems XP, Vista, and 7.

 

Both products are sold on a subscription basis with an upfront, one-year license fee. Spybuddy 2013 is offered at $69.99 and Keylogger PRO 2013 is offered at $39.99. The Company offers a 7 day satisfaction guarantee or a full refund.

 

Results of Operations

 

Three and Six Months Ended June 30, 2014 Compared With the Three and Six Months Ended June 30, 2013.

 

Revenue

 

Revenue decreased $3,396 to $2,690 during the three months ended June 30, 2014 compared to $6,086 during the three months ended June 30, 2013. Revenue decreased $6,112 to $6,323 during the six months ended June 30, 2014 compared to $12,435 during the six months ended June 30, 2013. The decrease in revenue is the result of fewer subscriptions due to the Software not being compatible with Windows 8.

 

12

 

Operating Expenses

 

A summary of our operating expense for the three and six months ended June 30, 2014 and 2013 follows:

 

		Three Months Ended
		June 30,								Increase /				Percentage
		2014				2013				(Decrease)				Change
Operating expense
General and administrative			11,844				27,168			$	(15,324	)			-56	%
Sales and marketing			12,750				10,482				2,268				22	%
Research and development			667				4,701				(4,034	)			-86	%
Stock compensation			-				20,955				(20,955	)
Total operating expense		$	25,261			$	63,306			$	(17,090	)			-27	%

 

		Six Months Ended
		June 30,								Increase /				Percentage
		2014				a2013				(Decrease)				Change
Operating expense
General and administrative			40,009				42,550			$	(2,541	)			-6	%
Sales and marketing			13,081				14,864				(1,783	)			-12	%
Research and development			2,319				19,203				(16,884	)			-88	%
Stock compensation			-				20,955				(20,955	)
Total operating expense		$	55,409			$	97,572			$	(42,163	)			-43	%

 

General and Administrative

 

General and administrative costs include costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. The three month decrease is due to timing of audit fees in 2013 being recognized in Q2 compared to Q1 in 2014. The six month decrease is due to procuring less expensive accounting and SEC filing service providers.

 

Sales and Marketing

 

Sales and marketing costs include costs to promote our products primarily via online methods. These costs decreased slightly during the six months ended June 30, 2014 due to efforts to contain costs.

 

Research and Development

 

Research and development (“R&D”) costs represent direct costs incurred in our efforts to maintain continuous development of the Spybuddy and Keylogger PRO products. These costs decreased significantly primarily due to efforts to contain costs and postpone upgrades.

 

Other Income (Expense)

 

Other income and expense for the three and six months ended June 30, 2014 and 2013 follows:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2014				2013				2014				2013
Other Income (Expense)
Finance charges		$	(394	)		$	-			$	(394	)		$	-
Interest expense			(10,291	)			(9,033	)			(20,065	)			(17,120	)
Interest expense related to debt discount			(15,000	)			-				(29,402	)			-
Total other income (expense)		$	(25,685	)		$	(9,033	)		$	(49,861	)		$	(17,120	)

 

13

 

Interest expense increased $16,652 to $25,685 during the three months ended June 30, 2014 compared to $9,033 during the three months ended June 30, 2013. Interest expense increased $32,741 to $49,861 during the six months ended June 30, 2014 compared to $17,120 during the six months ended June 30, 2013. Interest expense includes expense associated with the stated interest rate of our outstanding notes payable and accretion of the debt discount related to the BCF of our convertible promissory notes. Interest expense increased due to maintaining higher loan balances in 2014 compared to 2013. Interest expense related to the debt discount increased due to the maturation and default of certain convertible promissory notes.

 

Liquidity and Capital Resources

 

Our available working capital and capital requirements will depend upon numerous factors, including the sale of Spybuddy and Keylogger PRO software, the timing and cost of commercialization efforts, the cost of further developing Spybuddy and Keylogger PRO, the status of our competitors, our ability to establish collaborative arrangements with other organizations, and our ability to attract and retain key employees. 

 

From inception to June 30, 2014, we have incurred an accumulated deficit of $3,082,964. This loss has been incurred through a combination of intangible asset impairment of $1,341,884, professional fees and expenses supporting our plans to develop our business and brand our services as well as continued operating losses.

 

At June 30, 2014, the Company had current assets of $7,884 compared to accounts payable and accrued expenses of $100,177. During the six months ended June 30, 2014, the Company had revenue of $6,323 and loss from operations of $49,086. The Company has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability. To finance our operations, we are currently pursuing additional funds through equity or debt financing or a combination thereof. The Company currently has no commitments to obtain any such financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.

 

Net cash used by operating activities was $45,928 during the six months ended June 30, 2014 as compared to $52,574 during the six months ended June 30, 2013.

 

Net cash provided by financing activities was $42,591 during the six months ended June 30, 2014 as compared to $58,902 during the six months ended June 30, 2013.

 

Plan of Operation for the Next Twelve (12) Months

 

Our ability to continue operations will be dependent upon the successful completion of additional long-term or permanent equity financing, the support of creditors and shareholders, and, ultimately, the achievement of profitable operations. There can be no assurances that we will be successful, which would in turn significantly affect our ability to be successful in our business plan. If not, we will likely be required to reduce operations or liquidate assets. We will continue to evaluate our projected expenditures relative to our available cash and to seek additional means of financing in order to satisfy our working capital and other cash requirements.

 

As of June 30, 2014, the company owed $652,054 in principal and accrued interest under a series of unsecured promissory notes issued to two (2) lenders. Interest accrues on these notes at the rate of 8% per annum. The notes do not require us to make any interim interest payments. As of the date of the filing of this quarterly report, sixty-three (63) of the notes, totaling $575,851 in principal and accrued interest, have already matured but have not been repaid. We therefore are technically in default on these notes, although neither of the lenders have sent us a notice of default. The remaining notes mature at various dates through June 30, 2015. We currently do not have the resources to repay any of these notes. Failure to acquire the resources to repay these notes could result in either or both of the lenders taking legal action against us for repayment of the notes. This debt could therefore result in the company going out of business.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

14

 

Critical Accounting Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain Note B of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies require us to make critical accounting estimates, as defined below.

 

A critical accounting estimate is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:

 

·	we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
·	different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

 

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

 

Our most critical accounting estimates include:

 

·	the assessment of recoverability of long-lived assets, which impacts operating expenses when we record impairments or accelerate depreciation; and
·	the recognition and measurement of current and deferred income taxes, which impact our provision for taxes.

 

Below, we discuss these policies further, as well as the estimates and judgments involved.

 

Income Taxes

 

Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

 

When accounting for Uncertainty in Income Taxes, first, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company’s utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

15

 

Recently Issued Accounting Pronouncements

 

We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We have no material off-balance sheet transactions.

 

Item 4T. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2014 that our disclosure controls and procedures were effective such that the information required to be disclosed in our United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

16

 

PART II - OTHER INFORMATION

 

Item 3. Defaults Upon Senior Securities.

 

Please refer to the financial statement footnotes, "Note E - Promissory Notes". The Company is currently in default on $575,851 of principal and accrued interest. During the three months ended June 30, 2014, $37,829 of principle and accrued interest of notes payable matured and fell into default.

 

Item 6. Exhibits.

 

Exhibit No.		Identification of Exhibit
31.1*		Certification of Brenden Garrison, Interim Chairman, President, Chief Executive Officer of Sports Media Entertainment Corp., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Justin Frere, Chief Financial Officer of Sports Media Entertainment Corp., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Brenden Garrison, Interim Chairman, President, Chief Executive Officer of Sports Media Entertainment Corp., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Justin Frere, Chief Financial Officer of Sports Media Entertainment Corp., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.INS **		XBRL Instance Document
101.SCH **		XBRL Taxonomy Extension Schema Document
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

_____________

*  Filed Herewith

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

17

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	SPORTS MEDIA ENTERTAINMENT Corp.
Date: August 8, 2014	By	/s/ Brenden Garrison
		Brenden Garrison, Interim Chairman, President and Chief Executive Officer (Principal Executive Officer) and Secretary
	By	/s/ Justin Frere
		Justin Frere, Chief Financial Officer (Principal Financial Officer, and Principal Accounting Officer)

 

 

18

---