Accounts Receivable

 

Accounts receivable, net consisted of the following:

 

		November 30, 2012				August 31, 2012
Accounts receivable		$	449,770			$	590,785
Allowance for doubtful accounts			(80,000	)			(72,000	)
Accounts receivable, net		$	369,770			$	518,785

Allowance for Doubtful Accounts		Balance at Beginning of Fiscal Year				Charged to Operations				Write-offs, Net of Recoveries				Balance at End of Period
For three months ended November 30, 2012		$	72,000			$	10,767			$	2,767			$	80,000
For three months ended November 30, 2011			-				-				-				-

Property and Equipment

 

Property and equipment consisted of the following:

 

		November 30, 2012				August 31, 2012
		(Restated)
Software		$	771,666			$	771,666
Servers, computers, and other related equipment			198,924				198,924
Leasehold improvements			1,675				1,675
			972,265				972,265
Less accumulated depreciation and amortization			(322,718	)			(239,525	)
Property and equipment, net		$	649,547			$	732,740

Customer List

 

Customer list, net consisted of the following:

 

		November 30, 2012				August 31, 2012
Original cost		$	159,000			$	159,000
Less accumulated amortization			(22,085	)			(8,834	)
Customer list, net		$	136,915			$	150,166

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following:

 

		November 30, 2012				August 31, 2012
		(Restated)
Accounts payable		$	709,268			$	1,030,716
Accrued consulting fees			103,750				41,500
Accrued payroll			32,424				-
Accrued broadcaster commissions			28,525				28,870
Accrued interest			25,124				17,673
Credit card			3,887				4,282
Accounts payable and accrued expenses		$	902,978			$	1,123,041

Deferred Revenues

 

Deferred revenues consisted of the following:

 

		November 30, 2012				August 31, 2012
Balance due RL upon completion of special project, secured by a convertible promissory note		$	89,003			$	150,000
Customer deposits			-				7,805
Deferred revenues		$	89,003			$	157,805

		Fair Value Measurement Using
		Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Fair values as of November 30, 2012
Assets:
None		$	-			$	-			$	-			$	-
Total assets measured at fair value		$	-			$	-			$	-			$	-
Liabilities:
None		$	-			$	-			$	-			$	-
Total liabilities measured at fair value		$	-			$	-			$	-			$	-
Fair values as of November 30, 2012
Liabilities:
Convertible promissory notes		$	-			$	899,757			$	-			$	899,757
Derivative liabilities			-				334,027				-				334,027
Total liabilities measured at fair value		$	-			$	1,233,784			$	-			$	1,233,784

Accounts receivable		$	500,476
Prepaid expenses			35,100
Software			684,294
Security deposits			15,213
Accounts payable			(484,685	)
Related party payable – Michael Hill			(48,383	)
Related party payable – Aaron Gravitz			(42,553	)
Purchase price		$	659,462

Domain cost		$	58,500
Patent filing fees			12.600
Web and software design			10,000
Web hosting and related costs			6,272
Purchase price		$	87,372

Leases

 

The Company conducts its operations using leased office facilities in Santa Barbara, California.

 

The following is a schedule of future minimum lease payments under operating leases as of November 30, 2012:

 

For the Twelve Month Period Ending November 30,
2013		$	180,636
2014			82,792
2015			-
2016			-
2017			-
All future years			-
Total minimum lease payments		$	263,428

Legal Proceedings

 

The Company is potentially subject to various legal proceedings and claims arising in the ordinary course of its business. There are no pending legal proceedings against the Company as of the date of these financial statements.

 

7.      Income Taxes

 

The provision for income tax (expense) benefit consists of the following:

 

		For the Three Months Ended November 30,
		2012				2011
		(Restated)
Current
Federal		$	-			$	2,640
State and local			-				1,695
Total current income tax (expense) benefit			-				4,335
Deferred
Federal		$	(295,414	)		$	-
State and local			(130,330	)			-
Valuation allowance			425,744				-
Total deferred income tax (expense) benefit			-				-
Total income tax (expense) benefit		$	-			$	4,335

		For the Three Months Ended November 30,
		2012				2011
U.S. federal taxes at statutory rate			34	%			34	%
State taxes, net of federal benefit			15				15
Permanent differences			-				-
Change in valuation allowance			(49	)			(49	)
Change in rate			-				-
Other			-				-
Effective tax rate			-	%			-	%

		November 30, 2012				August 31, 2012
Deferred tax assets:
Net operating loss carryforwards		$	2,300,000			$	1,600,000
Tax credit carryforwards			-				-
Allowances and other			-				-
Depreciation and amortization			-				-
Total deferred tax assets			2,300,000				1,600,000
Deferred tax liabilities:
Depreciation and amortization			-				-
Total deferred tax liabilities			-				-
Valuation allowance			(2,300,000	)			(1,600,000	)
Net deferred tax assets		$	-			$	-

		November 30, 2012				August 31, 2012
Servers		$	147,049			$	147,049
Less: accumulated depreciation			(57,293	)			(43,062	)
Net assets under capital lease		$	89,756			$	103,987

		Payments
2013		$	119,966
2014			-
2015			-
2016			-
Total lease payments			119,966
Less: amount representing interest			(8,861	)
Present value of minimum lease payments		$	111,105

Balance, August 31, 2012		$	68,091
Advances from Factor			264,957
Fees charged by Factor			10,900
Total			343,948
Payments received from customers			(293,472	)
Balance, November 30, 2012		$	50,476

Creditor’s Notes, principal balance as of August 31, 2012		$	175,500
Conversion of a portion of December 28, 2011 Creditor’s Note to common stock			(28,500	)
Creditor’s Notes, principal balance as of February 28, 2013		$	147,000

		November 30,				August 31,
		2012				2012
Stock price		$	1.0843			$	3.1325
Effective conversion price		$	0.6908			$	1.1759
Convertible promissory notes balance outstanding		$	147,000			$	175,500
Actual outstanding shares of common stock			210,973				183,415
Shares issuable upon conversion, at actual price			212,789				149,248
% of outstanding common stock, at actual price			101	%			81	%
Shares issuable upon conversion, assuming 25% price decrease			283,719				198,997
% of outstanding common stock, assuming 25% price decrease			134	%			108	%
Shares issuable upon conversion, assuming 50% price decrease			425,578				298,496
% of outstanding common stock, assuming 50% price decrease			202	%			163	%
Shares issuable upon conversion, assuming 75% price decrease			851,156				596,991
% of outstanding common stock, assuming 75% price decrease			403	%			325	%

Vendor Note, principal balance as of August 31, 2012		$	-
Issuance of November 1, 2012 Vendor Note			140,000
Conversion of Vendor Note to common stock			-
Vendor Note, November 30, 2012		$	140,000

		November 30,				August 31,
		2012				2012
Stock price		$	1.0843			$	-
Effective conversion price		$	0.3615			$	-
Convertible promissory notes balance outstanding		$	140,000			$	-
Actual outstanding shares of common stock			210,973				-
Shares issuable upon conversion, at actual price			387,329				-
% of outstanding common stock, at actual price			184	%			-	%
Shares issuable upon conversion, assuming 25% price decrease			516,438				-
% of outstanding common stock, assuming 25% price decrease			245	%			-	%
Shares issuable upon conversion, assuming 50% price decrease			774,658				-
% of outstanding common stock, assuming 50% price decrease			367	%			-	%
Shares issuable upon conversion, assuming 75% price decrease			1,549,315				-
% of outstanding common stock, assuming 75% price decrease			734	%			-	%

Convertible promissory notes, principal balance as of August 31, 2012		$	475,000
Issuance of convertible promissory notes			250,000
Conversion of convertible promissory note to common stock			-
Convertible promissory notes, net, November 30, 2012		$	725,000

		Balance, November 30, 2012				Balance, August 31, 2012				Interest Expense - Accretion
RL Note, December 1, 2011, beneficial conversion feature		$	3,996			$	4,497			$	501
RL Note, December 1, 2011, valuation of detachable stock warrant			6,610				7,435				825
RL Note, January 27, 2012, beneficial conversion feature			2,141				2,390				249
RL Note, January 27, 2012, valuation of detachable stock warrant			3,566				3,980				414
RL Note, March 22, 2012, beneficial conversion feature			5,723				6,347				624
RL Note, March 22, 2012, valuation of detachable stock warrant			9,583				10,615				1,032
RL Note, June 18, 2012, beneficial conversion feature			2,523				2,772				249
RL Note, June 18, 2012, valuation of detachable stock warrant			4,236				4,650				414
RL Note, August 22, 2012, beneficial conversion feature			8,115				8,865				750
RL Note, August 22, 2012, valuation of detachable stock warrant			13,563				14,802				1,239
RL Note, September 4, 2012, beneficial conversion feature			13,749				-				1,251
RL Note, September 4, 2012, valuation of detachable stock warrant			22,711				-				2,064
		$	96,516			$	66,353			$	9,612

2013		$	287,000
2014			-
2015			725,000
Thereafter			-
		$	1,012,000

Derivatives embedded within convertible notes payable, August 31, 2012		$	86,115
Initial valuation of derivative, November 1, 2012 convertible note payable			190,927
Initial valuation of derivative, on November 20, 2012, associated with May 24, 2012 convertible note payable			63,083
Revaluation of derivative embedded within December 28, 2011 convertible note payable			(74,052	)
Revaluation of derivative embedded within May 24, 2012 convertible note payable			(21,119	)
Revaluation of derivative embedded within November 1, 2012 convertible note payable			89,073
Derivatives embedded within convertible notes payable, November 30, 2012		$	334,027

		November 30,				November 1,
		2012				2012
Expected life (in years)			0.10				0.10
Balance of note outstanding		$	140,000			$	140,000
Stock price		$	1.0843			$	1.5663
Effective conversion price		$	0.3615			$	0.6627
Shares issuable upon conversion			387,329				211,273
Risk-free interest rate			0.18	%			0.18
Expected volatility			61.83	%			61.83
Expected dividend yield			-

		November 30,				November 20,
		2012				2012
Expected life (in years)			0.25				0.28
Balance of note outstanding		$	78,500			$	78,500
Stock price		$	1.0800			$	1.3200
Effective conversion price		$	0.7200			$	0.7200
Shares issuable upon conversion			116,566				105,138
Risk-free interest rate			0.08	%			0.08	%
Expected volatility			61.83	%			61.83	%
Expected dividend yield			-				-

		November 30,
		2012
Expected life (in years)			0.1
Balance of note outstanding		$	26,000
Stock price		$	1.0800
Effective conversion price		$	0.7200
Shares issuable upon conversion			36,111
Risk-free interest rate			0.08	%
Expected volatility			61.83	%
Expected dividend yield			-

Stock Based Compensation

Stock-based compensation expenses related to all employee and non-employee stock-based awards for the three months ended November 30, 2012 and 2011 are as follows:

 

		For the Three Months Ended November 30,
		2012				2011
Stock-based compensation expenses:
Marketing and sales		$	17,667			$	-
Product development			35,333				-
Other			26,500				-
Total stock-based compensation, recorded in costs and expenses		$	79,500			$	-

		Number of Shares				Weighted- Average Grant-Date Fair Value
Unvested at August 31, 2012			-			$	0.00
Granted			-				0.00
Vested			-				0.00
Canceled			-				0.00
Unvested at November 30, 2012			-			$	0.00
Expected to vest after November 30, 2012			-			$	0.00

		Number of Shares				Weighted- Average Grant-Date Fair Value (1)
Unvested at August 31, 2012			1,508,750			$	0.00
Granted			-				0.53
Vested			(150,000	)			0.53
Canceled			-				0.00
Unvested at November 30, 2012			1,358,750			$	0.53
Expected to vest after November 30, 2012			1,358,750			$	0.53

___________

		For the Three Months Ended November 30,
		2012				2011
Denominator
Weighted-average common shares outstanding used in computing basic and diluted net loss per share			239,256,736				50,273,400
Net loss per share attributable to common shareholders, basic and diluted		$	(0.00	)		$	(0.00	)

		For the Three Months Ended November 30,
		2012				2011
Convertible promissory notes (1)			245,000,000				-
Series A Preferred Stock (2)			23,251,841				-
RL convertible promissory notes (3)			***				-
Warrants to purchase RL common stock (4)			***				-
Total quantifiable common stock equivalents			268,251,841				-

_____________

		For the Three Months Ended  November 30,
		2012				2011
Sales		$	-			$	18,226
Operating Expenses			-				(28,997	)
Other Income & Expenses			-				(1,978	)
Income Tax Benefit			-				4,335
Net Loss From Discontinued Operations		$	-			$	(8,414	)

Impact of the Restatement

 

		As of November 30, 2012
Balance Sheet Data:		As Previously Reported				Adjustment				As Restated
Property and equipment		$	312,803			$	659,462			$	972,265
Accumulated depreciation			(102,902	)			(219,816	)			(322,718	)
Accounts payable			1,056,847				(153,869	)			902,978
Derivatives embedded within convertible debts			54,027				280,000				334,027
Convertible debts			131,273				140,000				271,273
Continent royalty payable			-				801,565				801,565
Accumulated deficit			2,077,325				628,050				2,705,375

 

 

F-27

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		For the Three Months Ended November 30, 2012
Statement of Operations Data:		As Previously Reported				Adjustment				As Restated
Costs of revenues – Depreciation			-				95,547				95,547
Costs of revenues - Other			155,657				(44,118	)			111,539
Gross profit (loss)			31,530				(51,429	)			(19,899	)
Loss from continuing operations			(559,878	)			(51,429	)			(611,307	)
Other expenses – Interest expense			(88,089	)			(175,566	)			(263,655	)
Other expenses – Change in fair value of derivatives			95,171				(89,073	)			6,098
Other expenses			7,082				(264,639	)			(257,557	)
Net loss			(552,796	)			(316,068	)			(868,864	)
Deemed dividend			-				(50,927	)			(50,927	)
Net loss attributable to common shareholders			(552,796	)			(366,995	)			(919,791	)

		For the Three Months Ended November 30, 2012
Cashflow Data:		As Previously Reported				Adjustment				As Restated
Net loss		$	(552,796	)		$	316,068			$	(868,864	)
Operating activities – Depreciation and amortization			41,490				54,954				96,444
Operating activities – Remeasurement of derivative liability			95,171				(89,073	)			(6,098	)
Operating activities – Accretion			68,267				175,566				243,833
Operating activities – Accounts payable and accrued expenses			(76,538	)			(3,525	)			(80,063	)

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our Form 10-K/A filed with the Securities and Exchange Commission on June 4, 2013 and all subsequent filings. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to, those described under “Risk Factors” included in Part II, Item IA of this report.

Overview

 

StreamTrack, Inc. (“StreamTrack,” or the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through the RadioLoyalty TM  Platform (the “Platform”) to over 1,100 internet and terrestrial radio stations and other broadcast content providers.

 

Our business model is focused on the following core principles:

 

1.

We barter with audio content providers, namely internet and terrestrial radio stations, to obtain control and management of their desktop advertising opportunity (“Ad Inventory”). We also routinely purchase any Ad Inventory the content providers have not previously given to us by barter.

2.

In exchange for the Ad Inventory, we pay for all internet and mobile streaming costs associated with the broadcaster’s content that is streamed through our platform. We barter in order to scale our business. The end result of the barter is that we aggregate Ad Inventory from our broadcasters that management believes can reach substantial size while maintaining a primarily fixed cost structure for our hardware, content delivery, labor and other costs, respectively.

3.	We re-broadcast original audio broadcast content through the Platform in a streaming media format in desktop and mobile environments. By re-broadcasting we ensure that we do not pay any royalties. Royalties are the responsibility of our broadcasters. This is a substantial advantage for us as many of our competitors pay royalties of up to 70% of revenues generated from licensed broadcast content.
4.	We serve advertisements (“Ads”) within the Platform in audio, display and video formats in a desktop environment and display ads in a mobile environment using our RadioLoyalty TM  Apps.

5.

Ads are served by our automated systems based on geography and demographics data, among others.

6.

The primary technology that makes our Platform unique in the industry is that we are able to re-broadcast audio content with geographically targeted Ads that replace Ads served within an original broadcast targeting a listener in a certain geography. By having this capability we can also choose to replace audio Ads that do not generate as high of Ad revenues with video-based Ads that generate much higher Ad revenues. In effect, we make the broadcaster’s original broadcast capable of delivering Ads that are geographically targeted throughout a global broadcast marketplace while also utilizing video Ads and our proprietary video in-stream technology to increase advertising rates.

7.	All of our primary technology that supports the Platform is automated and capable of operating in a live environment. Audio content is streamed, Ads are targeted and served, audio Ads are replaced as needed and video Ads replace audio Ads, as desired and when possible.

 

Advertising revenue constitutes the majority of our total revenue, representing 77.6% of total revenue for the three months ended November 30, 2012. We anticipate this trend will continue and our revenues will be generated primarily from advertising. Our advertising revenue for the three months ended November 30, 2012 was almost entirely derived from advertising delivered on desktop devices.

 

We deliver content on mobile devices through our RadioLoyalty TM  app but we do not currently generate significant mobile advertising revenues. Management believes that mobile advertising represents an opportunity for the Company in the next coming years and on an ongoing basis. Management expects the mobile advertising market will grow at substantial rates in the coming years. However, many challenges exist in this market. We believe these challenges will be solved primarily with new technologies. We believe our current technologies and other technology under development will solve some of these challenges. By solving these challenges we will be able to monetize the mobile listenership we are growing today.

 

We are also continuing development of WatchThis™, a patent-pending merchandising in-stream technology to provide web-based and IP television streaming services with a unique e-commerce advertising capability. The technology is functional in a local environment. Our development efforts are currently focused on technical issues associated with operating the technology in a live streaming environment. If and once the technology is functional in a live streaming environment, management plans to use the in-video advertising method technology to create a video encode with keywords that tag frames with corresponding merchandise within video content. These tags would communicate with our advertising database to deliver the highest paying advertiser in real-time. Consumers would be able to view this content, select tagged products within the content, and complete purchases throughout the broadcast. We anticipate deploying this service by December 31, 2013.

 

 

4

---

 

 

Key Metrics:

 

We track listener hours because we believe it is the best key indicator of the growth of our business with Platform. Revenues from advertising through our Platform represented substantially all of revenues for the three months ended November 30, 2012. We also track the number of active users on our Platform as well as the RadioLoyalty TM  app as indicators of the size and quality of our audience, which are particularly important to potential advertisers.Additionally, the Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2013. The Company expects those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. Once these products are launched we will determine key indicators of growth for those products.

 

We calculate actual listener hours using our internal analytics systems. Some of our competitors do not always calculate their listener hours in the same way we do. As a result, their stated listener hours may not represent a truly comparable figure.

 

Player launches are defined as the number of individual times the UniversalPlayer™ was launched.

 

Registered users are defined as the number of users who have signed up for an account with us in order to access our broadcasters’ content and to earn loyalty points. The number of registered users may overstate the number of actual unique individuals who have signed up for an account with us in order to earn loyalty points, as an individual may register for, and use, multiple accounts under unique registration information. This is in breach of our terms and conditions but we may not be able to effectively manage and authenticate registration information in order to ensure each user is a unique individual. We define registered users as those who have signed up with us to receive loyalty points. We calculate this by the number of submissions we receive from users signing up for our loyalty service.

 

We calculate listener hours as follows. When the UniversalPlayer TM  is launched a session is created - this is considered the listener's start time. At one minute following the launch of the UniversalPlayer TM , we record that as 1 minute of listening time. If a session lasts between 1 and 59 seconds, we record that as 30 seconds of listening time. At ten-minute intervals following the session being created, we count each 10 minute period as listening time. So for example, if a user launched the UniversalPlayer TM  at 11:00am, we will recognize 1 minute of listening time at 11:01, then 10 minutes of listening time at 11:10, 20 minutes at 11:20, etc.

 

Events are user interactions such as a 10 minute interval, clicking song like/dislike, sharing what they are listening to, checking the news through our news app in the player, etc. The last event we see for the user is considered the end of their session. We then take that time minus the time the session started to determine how long the session is. So for example, if a user launched the UniversalPlayer TM  at 11am, and liked a song at 11:07am, but exited the player at 11:09am, we would recognize that as 7 minutes of listening.

 

 

5

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Comparison of the Three Months Ended November 30, 2012 and 2011

Revenue		For the Three Months Ended November 30,
		2012				2011
Revenue
Advertising
Video		$	61,867				-
Display			83,436				-
Lead generation			190,281				-
Other			40,841				-
Total			376,425				-
Services			108,612				-
Total revenue		$	485,037			$	-

Revenues for the three months ended November 30, 2012 totaled $485,037. We did not operate our current business model during the three months ended November 30, 2011. We generated substantial revenues from video, audio and display advertising placements utilizing our RadioLoyalty TM Platform and the listenership from over 1,100 of our radio broadcasters. We also currently generate revenues from our services related to integration of our technology with our customer’s advertising systems and related infrastructure, call center operations, list creation services and advertising. Upon the acquisition of Rightmail, we also began generating lead generation revenues. We anticipate generating additional advertising revenues from our expanded internet product portfolio during the year ending August 31, 2013.

Costs of Revenue		For the Three Months Ended November 30,
		2012				2011
Costs of revenues
Media network		$	175,049				-
Depreciation			95,547
Colocation hosting services			77,457				-
Broadcaster fees			45,344				-
Other			111,539				-
Total costs of revenue		$	504,936			$	-

Costs of revenues for the three months ended November 30, 2012 totaled $504,936. We did not operate our current business model during the three months ended November 30, 2011. We incurred substantial media network costs associated with the distribution of our content across a variety of advertising networks. Our costs of distributing our content will proportionally decrease dramatically as we reach scale. In order to operate the RadioLoyalty TM online broadcasting platform, RadioLoyalty TM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We operate a substantial technology center at our offices in Santa Barbara, California but also utilize a contracted facility in Los Angeles, California, to support our operations and ensure our systems and content delivery maintain our service level agreements. We refer to these costs as colocation services. Our advertising sales arrangements with over 1,100 RadioLoyalty TM broadcasters facilitate us paying the broadcasters a monthly revenue sharing fee in exchange for advertising inventory around their content and listenership. We refer to these costs as broadcaster commissions in the event that we purchase the ad inventory.  Other costs of sales include depreciation associated with the computer servers at our two colocation facilities, streaming costs, adserving costs, call center operation costs, and various application technologies that support our primary product offerings.

 

 

6

---

 

Operating Expenses		For the Three Months Ended November 30,
		2012				2011
Operating expenses
Marketing and sales		$	122,584				-
Officer compensation			108,817				-
Product development			105,801				-
Rents			46,542
Consultants			45,672
Professional fees			42,793
Travel and entertainment			33,346
Other			85,853				-
Total operating expenses		$	591,408			$	-

Operating expenses for the three months ended November 30, 2012 totaled $591,408. We did not operate our current business model during the three months ended November 30, 2011. Marketing and sales costs incurred were primarily related to the labor costs of employing our sales force. Our sales force markets our internet products on a daily basis. Officer compensation related to accrued but primarily unpaid salaries for our two primary executives officers. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio and the WatchThis TM technology. We expect these costs to increase in the current fiscal year. Rents were primarily related to four leases we are obligated under for our Santa Barbara, California office. Professional fees included accounting, auditing and legal fees associated with public company matters. Travel and entertainment was associated with ongoing business development and investor relations activities. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

Other Expense (Income)		For the Three Months Ended November 30,
		2012				2011
		(Restated)
Other expense (income)
Interest expense		$	(263,655	)		$	-
Change in fair value of derivatives			6,098				-
Total other expense (income)		$	(257,557	)		$	-

 

Other expense and income for the three months ended November 30, 2012 totaled $(257,557). We did not operate our current business model during the three months ended November 30, 2011. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit. We also recorded the accretion of the Royalty of $35,566 and accretion of various debt discounts associated with our convertible promissory notes of $175,566. The accretion is a result of the amortization of debt discounts to the convertible promissory notes over the term of the convertible promissory notes. Debt discounts recorded during the three months ended November 30, 2012 represented the beneficial conversion feature, warrants to purchase stock, and derivative liability associated with the convertible promissory notes. The original value of the derivative liability was recorded as a debt discount. As a result of the derivative classification, the debt discount had to be re-measured as of the reporting date. The re-measurement resulted in an decrease to the derivative liabilities of $95,171. If the convertible promissory notes issued to the Creditor remain outstanding at any time subsequent to the six-month anniversary of the date the convertible promissory notes were issued, a derivative liability exists and will have to be measured as of each reporting date.

 

 

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Provision for Income Taxes

 We did not generate profits for the three months ended November 30, 2012. As a result, no provision for income taxes was recorded. For the three months ended November 30, 2011, we recorded a tax benefit of $4,335.

Net Loss Attributable to Common Shareholders		For the Three Months Ended November 30,
		2012				2011
Net loss attributable to common shareholders
Net loss		$	(919,791	)		$	(8,414	)

 

We generated a net loss attributable to common shareholders of $919,791 for the three months ended November 30, 2012 for the reasons set forth above. We did not operate our current business model during the three months ended November 30, 2011.

 

Liquidity and Capital Resources

 

As of November 30, 2012 we had cash totaling $63,196, which consisted of cash funds held at major financial institutions. We had net a working capital deficit of $1,411,510 as of November 30, 2012, compared to a net working capital of $975,490 as of August 31, 2012.  Our principal uses of cash during the three months ending November 30, 2012 were funding our operations as described below.

 

Going Concern

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  .  For the three months ended November 30, 2012, the Company recorded a net loss of $868,864. The net loss, along with the November 30, 2012 working capital deficit of $1,411,510 indicates that the Company may have difficulty continuing as a going concern.

Management is confident but cannot guarantee that additional capital can be raised in order to repay debts and continue operations. During the fiscal year ending August 31, 2013, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others of $180,636, $175,500, $128,535, respectively. Normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Additionally, the Company is currently in default on its capital lease. If the Company defaults on this capital lease, the lessor may decide to take back its equipment. If that occurred then the Company would likely need to lease third party servers in order to continue operating its business. Since inception and through November 30, 2012, the Company has successfully raised a significant amount of capital. Additionally, the Company anticipates launching several new product offerings launching in the second quarter of its fiscal year ending August 31, 2013. The Company expects those products to be profitable but notes that it will require significant capital for product development and ultimately commercially deployment. However, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan in order to reach break-even and become profitable.  If the Company is unable to become profitable, the Company could be forced to modify its business operations or possibly cease operations entirely.  Management cannot provide any assurances that the Company will be successful in its operations.  The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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Working Capital Related Party Financing

The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. Once the Company’s track record is more established and results of operations are profitable, then external sources of capital should become more readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

Our Indebtedness

As of November 30, 2012, we had issued a total of $1,012,000 in convertible promissory notes that remained outstanding as of that date.. We also owe significant balances under a lease agreement for computer servers, and significant balances are owed to the two primary executives that operate our business.

As of November 30, 2012, the conversion price of a total of $147,000 Creditor Notes is based upon a 39% discount to lowest five days closing prices of the Company’s common stock over the ten-day period prior to conversion. As a result, the lower the stock price at the time the Creditor converts the Creditor Notes, the more common shares the Creditor will receive.

To the extent the Creditor converts the Creditor Notes and then sells its common stock, the market price of the common stock may decrease due to the additional shares in the market. This could allow the Creditor to receive greater amounts of common stock upon conversion. The sale of each share of common stock could further depress the stock price.

Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Creditor would be issued upon conversion. The table below details the number of shares of the Company’s common stock the Creditor would be issued, if the Creditor elected to convert the Creditor Notes to common shares on each reporting date.

The shares issuable upon conversion of the Creditor Notes may result in substantial dilution to the interests of the Company’s other shareholders. In this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way, the investor could sell more than the 9.99% limit while never holding more than the limit.

 

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The table below details the number of shares issuable to the Creditor, without regard to the 9.99% limitation, in the event the share price decreases 25%, 50% or 75% from the stock price as of each date set forth below.

		November 30,				August 31,
		2012				2012
Stock price		$	1.0843			$	3.1325
Effective conversion price		$	0.6908			$	1.1759
Convertible promissory notes balance outstanding		$	147,000			$	175,500
Actual outstanding shares of common stock			210,973				183,415
Shares issuable upon conversion, at actual price			212,789				149,248
% of outstanding common stock, at actual price			101	%			81	%
Shares issuable upon conversion, assuming 25% price decrease			283,719				198,997
% of outstanding common stock, assuming 25% price decrease			134	%			108	%
Shares issuable upon conversion, assuming 50% price decrease			425,578				298,496
% of outstanding common stock, assuming 50% price decrease			202	%			163	%
Shares issuable upon conversion, assuming 75% price decrease			851,156				596,991
% of outstanding common stock, assuming 75% price decrease			403	%			325	%

As of November 30, 2012, the conversion price of the $140,000 Vendor Note is based upon a 50% discount to lowest five days bid prices of the Company’s common stock over the five-day period prior to conversion. As a result, the lower the stock price at the time the Vendor converts the Vendor Note, the more common shares the Vendor will receive.

To the extent the Vendor converts the Vendor Note and then sells its common stock, the common stock may decrease due to the additional shares in the market. This could allow the Vendor to receive greater amounts of common stock upon conversion. The sale of each share of common stock further depresses the stock price.

Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Vendor would be issued upon conversion. The table below details the number of shares of the Company’s common stock the Vendor would be issued, if the Vendor elected to convert the Vendor Note to common shares on each reporting date.

The shares issuable upon conversion of the Vendor Note may result in substantial dilution to the interests of the Company’s other shareholders.

 

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The table below details the number of shares issuable to the Vendor in the event the share price decreases 25%, 50% or 75% from the stock price as of each date set forth below.

 

		November 30,				August 31,
		2012				2012
Stock price		$	1.0843			$	-
Effective conversion price		$	0.3615			$	-
Convertible promissory notes balance outstanding		$	140,000			$	-
Actual outstanding shares of common stock			210,973				-
Shares issuable upon conversion, at actual price			387,329				-
% of outstanding common stock, at actual price			184	%			-	%
Shares issuable upon conversion, assuming 25% price decrease			516,438				-
% of outstanding common stock, assuming 25% price decrease			245	%			-	%
Shares issuable upon conversion, assuming 50% price decrease			774,658				-
% of outstanding common stock, assuming 50% price decrease			367	%			-	%
Shares issuable upon conversion, assuming 75% price decrease			1,549,315				-
% of outstanding common stock, assuming 75% price decrease			734	%			-	%

Factoring

The Company utilizes an independent third party to factor its accounts receivables (the “Factor”). The Factor provides advances to the Company on balances owed from its customers. The Factor only provides cash advances on accounts receivable balances it has approved and will not provide cash advances in excess of 70% of the balance of all approved accounts receivable balances. The Factor accepts payments from the Company’s customers that are associated with the approved accounts receivable balances. An interest charge equal to approximately 3% of the rolling balance owed to the Factor is charged to the Company, on an annualized basis. This financing arrangement is recourse. The balance owed to the Factor is secured by all of the Company’s assets. The balance outstanding as of November 30, 2012 was $50,476.

 

Capital Expenditures

 

Based on current estimates, we believe that our anticipated capital expenditures will be adequate to implement our current plans.

 

 

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Historical Trends

 

The following table summarizes our cash flow data for the three months ended November 30, 2012 and 2011.

 

	For the Three Months Ended November 30,
	2012					2011
Net cash provided by (used in) operating activities of continuing operations		$	(452,754	)		$	-
Net cash (used in) investing activities of continuing operations			-				-
Net cash provided by financing activities of continuing operations			288,515				-
Net cash provided by discontinued operations			-				-

Cash flow used by operating activities of continuing operations totaled $452,754 for the three months ended November 30, 2012, compared to $0 used for the three months ended November 30, 2011. We did not operate our current business model during the three months ended November 30, 2011. Operating cash flow was negative during the three months ended November 30, 2012 as we began operations and continued the expansion of our advertising within the RadioLoyalty TM and WatchThis™ Platforms.

Cash flow used by investing activities of continuing operations totaled $0 for the three months ended November 30, 2012, as compared to $0 used in the three months ended November 30, 2011. We did not make investments in additional assets during either reporting period.

Cash flow provided by financing activities of continuing operations totaled $288,515 for the three months ended November 30, 2012, compared to $0 used for the three months ended November 30, 2011.  We did not operate our current business model during the three months ended November 30, 2011. We raised substantial capital through the issuance of convertible promissory notes during the three months ended November 30, 2012.

Item 3.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of November 30, 2012.  This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are currently effective to ensure that all material information required to be filed in the quarterly report on Form 10-Q has been made known to them.

 

 

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For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seg.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure, controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon an evaluation conducted for the period ended November 30, 2012, our Chief Executive Officer and Chief Financial Officer as of November 30, 2012, and as of the date of this Report, have concluded that as of the end of the periods covered by this report, they have identified no material weakness of Company internal controls.

 

Corporate expenses incurred are processed and paid by the officers of the Company.  The current number of transactions is not sufficient to justify the retaining of additional accounting personnel.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.  Based on its evaluation, our management concluded that, as of November 30, 2012, our internal control over financial reporting was effective.

 

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report.

 

Changes in Internal Controls over Financial Reporting

 

We have not yet made any changes in our internal controls over financial reporting 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.

 

 

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PART II. OTHER INFORMATION

  

Item 1.  LEGAL PROCEEDINGS

The Company is not, currently, party to any legal proceeding.  

 

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

Item 3.  DEFAULTS UPON SENIOR SECURITEIES

 

The Company is currently in default on approximately $104,500 in convertible debts and $111,150 in capital leases. The Company is working with the creditors in order to resolve the default. No default penalties have been assessed by the creditors as of the date of this report.

 

Item 4.  MINE SAFETY DISCLOSURES

 

None

 

Item 5.  OTHER INFORMATION

 

None

 

 

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Item 6. EXHIBITS

 

(a) Exhibits:

 

Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 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

_______________

** 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.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	STREAMTRACK, INC.
Date: June 21, 2013	By:	/s/ Michael Hill
	Name:	Michael Hill
	Title:	Chairman of the Board of Directors, Chief Executive Officer, President, and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

 

 

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