Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SPOT MOBILE INTERNATIONAL LTD. (913659) 10-K published on Mar 21, 2012 at 5:16 pm
Reporting Period: Oct 30, 2011
The Company may require a financial or corporate restructuring.
As a result of ongoing litigation and more specifically, the awarding of two judgments against the Company in favor of creditor parties in the amounts of $434,000 and $1,323,000 respectively, and the significant interest continuing to accrue on these outstanding amounts, the Company may be forced to restructure itself to reduce or refinance existing debt. This restructure could include among other things, the sale of assets, an insolvency proceeding, a plan of liquidation or a privatization of the Company. It is our intention to engage restructuring and investment banking professionals to assist in this process. There can be no assurance that the Company will be successful in any of its restructuring efforts and the outcome may have a material negative impact on the value of our stock and the ability to trade in our stock.
LV Administrative Services, Inc. Litigation On June 6, 2011, we received a notice from LV Administrative Services, Inc., as administrative and collateral agent for Valens Offshore SPV II, Corp., Valens U.S. SPV I, LLC, Laurus Master Fund, Ltd. (In Liquidation) (collectively, the “Creditor Parties”) under that certain Master Security Agreement, dated February 24, 2010, executed by the Company and Mr. Prepaid, our wholly-owned subsidiary, and a Secured Term Note, dated February 24, 2010, issued by the Company in favor of the Creditor Parties that we were in default under such loan documents for failure to pay scheduled interest payments and failure to provide certain financial reports. On July 12, 2011, we received further notice from the Creditor Parties regarding the acceleration of all amounts due under their senior secured note and demanding payment of $ 1,323,366. On July 15, 2011, the Creditor Parties filed a lawsuit against the Company and Mr. Prepaid in the Supreme Court of the State of New York seeking summary judgment due to our failure to pay the amounts due under the senior secured note and seeking to enforce their rights and remedies under our loan documents. On December 6, 2011, the trial court issued a judgment against Spot Mobile International, Ltd. in the amount of $1,323,366, which was the loan amount. Prior to the judgment and in connection with a proposed settlement of the dispute between the Creditor Parties and the Company, the Company delivered a good faith deposit in the amount of $200,000 in this matter, which remains in escrow. The Court denied the Company’s request to allow its claims to proceed in that same case as a setoff of the loan amount, but granted leave to file the claim separately. On February 22, 2012, the Company filed a separate suit in U.S. District Court in the Southern District of New York to assert its counterclaim of damages against the Creditor Parties, a principal of the Creditor Parties and the Company’s former CEO. The complaint alleges, among other things, Breach of Contract, Breach of Fiduciary Duty and Fraud in the defendants’ actions leading up to, during and subsequent to, the 2009 reverse merger of Rapid Link, Blackbird and Mr. Prepaid. The Company is seeking no less than $3,000,000 in damages from the defendants in the lawsuit.
Concurrent with the signing of the new carrier agreement on February 14, 2012, Spot Mobile Corp, executed a Secured Convertible Note financing agreement (the “Convertible Notes”) in the principal amount of up to $2,000,000 in favor of an affiliate of the existing Secured Note lender. The Convertible Notes have a term of 24 months and outstanding principal is to accrue interest at the rate of 8.00% per year. Principal and interest owed under the Convertible Notes is convertible at any time into a combination of voting preferred and voting common shares of Spot Mobile Corp. at a conversion ratio to be fixed within 90 days of the issuance of the Convertible Notes based on the equity value of the Company, measured just prior to the issuance of the Convertible Notes, as determined by an independent business valuation. Based on the valuation, the Convertible Notes are convertible into equity constituting up to 95% of the capital stock of Spot Mobile Corp. Principal in the amount of $500,000 was outstanding and owed to the lender under the Secured Convertible Note at March 20, 2012.
The Secured Note lender notified Spot Mobile Corp. that as of February 14, 2012 it would not provide additional debt funding under the terms of the Secured Note and that all future funding only would be made under the terms of the Convertible Note financing agreement. Principal in the amount of $1,290,000 was outstanding and owed to the lender under the Secured Note at March 20, 2012.
Management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) for the company. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
As required by Rule 13a-15(b) under the Exchange Act, our management evaluated the effectiveness of our internal controls and procedures (as defined by Rule 13a-15(e) and 15d-15(e) under the Exchange Act). In making this assessment, our management used the criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Matthew Liotta has been a member of our Board of Directors since June 2011. Mr. Liotta currently serves as Chief Executive Officer for PodPonics, LLC, a company he founded in 2010. Mr. Liotta was the Chief Technology Officer and a director of Rapid Link Incorporated (our predecessor) from October 2008 through August 2009. In 2004, Mr. Liotta founded One Ring Networks, Inc. (“One Ring”), a hybrid fiber and fixed access carrier and an alternative access provider in the U.S. In 2008, Rapid Link Incorporated acquired One Ring. Prior to founding One Ring, Mr. Liotta was the chief executive officer of Montara Software, a content management and portal software company, from 2002 through 2004. Prior to that, Mr. Liotta was the portal engineering manager for DevX. Mr. Liotta has also served as a software architect for a variety of companies in San Francisco and Atlanta.