Adaptive Medias, Inc.
(the “Company”, “we,” “us”, and “our”) is filing this Amendment No. 1 on Form
10-K/A (the “Amendment No. 1”) to its Annual Report on Form 10-K for the year ended December 31, 2015, originally
filed with the Securities and Exchange Commission (“SEC”) on April 14, 2016 (the “Original Filing”). The
purpose of this Amendment No. 1 is to replace in its entirety the disclosures and financial statements As contained in Part II,
Part III, and Part IV of the Original Filing. Although this Amendment No. 1 continues to speak as of the date of the Original
Filing, this Amendment No. 1 does not reflect any events that occurred at a date subsequent to the filing of the Original Filing.
Pursuant to Rule 12b-15
under the Securities Exchange Act of 1934, as amended, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley
Act of 2002, filed and furnished, respectively, as exhibits to the Original Filing have been re-executed and re-filed as of the
date of this Amendment No. 1 and are included as exhibits hereto.
PART
I
Item
1. Business
Introduction
Adaptive
Medias, Inc. is a technology company based in Irvine, CA that focuses on providing digital video and mobile solutions for publishers,
video content owners who need an easy, efficient, centralized solution for video content management, delivery, syndication and
one of the only end-to-end monetization platforms driven by programmatic algorithms. The platform offers an HTML5 (Fully Responsive)/Flash-friendly
video player but is player agnostic and provides premium content for publishers who need digital video to offer to their audiences
or to supplement their video libraries. Through its core platform and technology Adaptive Medias enables its customers to provide
their audiences with mobile experiences and premium video content and to monetize those audiences by serving and optimizing relevant
brand advertisements while maintaining the user experience.
History
The
Company was organized on August 7, 2007 under the laws of the State of Nevada, as Fashion Net, Inc. whose business was to act
as a fashion marketing/consulting company for specialty apparel goods. On June 30, 2010, the Board of Directors determined to
change the direction of the Company’s business to develop a search and recommendation engine for mobile web sites and native
mobile applications. In connection with this change of direction, on April 12, 2010, the Company changed its name to “Mimvi,
Inc.”
Adaptive
Media Acquisition and Merger
On
July 1, 2013 (the “Closing Date”), Mimvi, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”)
whereby the Company’s wholly owned subsidiary, Adaptive Media Acquisition Co., Inc., an Oregon corporation, merged with
and into Adaptive Media, Inc., an Oregon corporation (“Adaptive Media”) formed on May 14, 2012, Adaptive Media was
engaged in the business of Internet, mobile, and video advertising (the “Merger”). On the Closing Date, the parties
executed all documents and filed the Plan of Merger with the Oregon Secretary of State. Upon consummation of the Merger, the Adaptive
Media shareholders were issued 1,116,667 shares of common stock, par value $0.001 per share, of Mimvi constituting approximately
29.9% of the outstanding stock of the Company, and Mimvi shareholders retained approximately 70.1% of the Company.
Following
the Merger, the Company changed its name to Adaptive Medias, Inc. on November 6, 2013 in order to better and more fully emphasis
the Company’s mission of providing a complete, end-to-end supply-side platform for mobile, desktop video and online display
advertising and the wind-down of the former Mimvi initiatives. In connection with the name change, effective on November 19, 2013,
the Company’s ticker symbol was changed to ADTM.
Ember
Acquisition and Merger
On
December 4, 2013, the Company, entered into an Agreement and Plan of Merger whereby the Company’s wholly owned subsidiary,
Ember Acquisition Co., Inc., a Delaware corporation, merged with and into Ember, Inc., a Delaware corporation (“Ember”).
Upon consummation of the Merger, the Ember shareholders were issued 233,334 shares of common stock, constituting approximately
5.3% of the outstanding stock of the Company. The Merger caused Ember to become a wholly owned subsidiary of the Company. The
Ember acquisition included ad-server and real-time-bidding technology and the employment of Ember’s engineers.
Media
Graph Acquisition and Merger
On
July 15, 2014, the Company executed a Stock Purchase Agreement (the “Agreement”) with OneScreen, Inc., a Delaware
corporation (“OneScreen”), Media Graph, Inc., a Nevada corporation and OneScreen’s spun-off former subsidiary
(“Media Graph”), and the shareholders of Media Graph (the “Selling Shareholders”), effective June 30,
2014, whereby the Company acquired certain assets of OneScreen, which immediately prior thereto were held by Media Graph, in exchange
for 5,000,000 shares of the Company’s common stock (the “Acquisition”). On July 15, 2014, the parties to the
Agreement executed the First Amendment to the Stock Purchase Agreement (the “Amendment”), which (i) amended the effective
date of the Agreement to July 15, 2014, (ii) limited the scope of Section 5.04 of the Agreement to apply only to the Restricted
Selling Shareholders, as defined in the Amendment, and (iii) added the Selling Shareholders as a signatory to the Agreement.
Reverse
Stock Split
On
April 14, 2014, the shareholders of the Company authorized its Board of Directors to effectuate a reverse stock split, in the
Board’s discretion (the “Reverse Stock Split”), which was ultimately declared effective by the Board of Directors
as of the close of business on July 14, 2014. As a result of the Reverse Stock Split, every 30 issued and outstanding shares of
the Company’s common stock was changed and converted into one share of common stock. Following the Reverse Stock Split,
the Company continues to have 300,000,000 shares of common stock authorized for issuance, but the number of outstanding shares
of the Company’s common stock was reduced from 192,364,735 shares to 6,412,225 shares. As required by the Financial Accounting
Standards Board’s (FASB”) Accounting Standards Codification (“ASC”) Topic 260-10-55-12 “
Earnings
per Share
” all share and per-share computations presented in this Annual Report on Form 10-K and the accompanying consolidated
financial statements are based on the new number of shares after the Reverse Stock Split.
Changes
in Leadership
On
September 20, 2015, the Board of Directors (the “Board”) of Adaptive Medias, Inc. the company appointed the Company’s
interim CEO, John B. Strong, as the Company’s permanent Chief Executive Officer and Chairman of the Board.
Industry
Overview
Consumers
and audiences are increasingly watching video on mobile devices:
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According
to eMarketer two-thirds of the U.S. population watches digital video and the time spent watching digital video is growing
aggressively (+56% year over year).
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Cisco
projects that in four years, 75% of the world’s mobile traffic will be video.
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Advertisers
and marketers are following this growth.
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According
to eMarketer the share of US cross-device digital video ad campaigns rose from just 17% to 51% between the first quarter of
2014 and the fourth quarter of 2014.
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eMarketer
also estimates that mobile ad spending will reach $64 billion during 2015 with a target of $158 billion by 2018.
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Business
Overview
Adaptive
Medias, Inc. focuses on providing digital video and mobile technology and service solutions for publishers and content owners
who need an easy, efficient, centralized solution for video content management, delivery, syndication and monetization. The platform
offers an HTML5 (Fully Responsive)/Flash-friendly Video Player but is player agnostic and provides premium content for publishers
who need digital video to offer to their audiences or to supplement their video libraries.
Customers
pay a fee for the core Media Graph platform which allows the customer to upload and encode content and then store, manage, program
and serve that content to their audiences. In addition, the core platform allows Adaptive Medias to provide the following options
and supporting services:
The
platform comes with a video player or the customer can use its player. The Company’s proprietary mobile-first player was
designed for mobile devices, as compared to players that were originally designed as a desktop video player and then repurposed.
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The
platform services allow the customer to use the customer’s own advertising relationships, supplement those advertising
campaigns with Adaptive Medias advertising orders or have Adaptive Medias fully-manage the advertising process on the customer’s
behalf.
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The
platform provides content syndication and audience buying services – for content owners that may have unfilled advertising
campaigns and need additional reach.
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In
addition, if publishers need premium video content or need to supplement their libraries with additional video content, Adaptive
Medias platform provides the ability to select from collections of content or to license the content from other third parties.
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Competition
Publishers
and video content owners that want to engage audiences across mobile and other devices with video experiences are challenged with
fragmented technology solutions and providers. They often have to acquire a content management system, content delivery network,
desktop video player, mobile video player, an adserver, and ads from adnetworks or advertising exchanges via real-time-bidding
(RTB) technology from multiple vendors and they may also incur other internal costs and inefficiencies to integrate the services
so that they will continue working together.
As
a result many vendors in the market provide components of the Adaptive Medias platform without providing the entire simplified
platform or providing a video player that is mobile-first, that is designed for mobile devices and able to self-adapt to the particular
mobile device the individual is using.
Our
competitors include companies that provide online video players such as JW Player, CMS platform and desktop video players such
as Ooyala and BrightCove, adserver and advertising network and service providers such as Tremor Video and FreeWheel, content delivery
network providers such as Akamai, and video content licensing services such as NDM or AOL.
While
we believe that the end-to-end solution provided by our Media Graph platform competes well with the products and services offered
by these competitors, many of our competitors are more established in the industry than we are and have greater financial and
personnel resources than we do. We do not represent a significant competitive presence in the industry.
Business
Development
Our
business development efforts are focused on three main areas:
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publishers
and content owners that have video content and need an easy, efficient, centralized technology platform solution for video
content management, delivery, syndication and monetization;
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white-label
partners of websites that provide desktop or display-oriented advertising services to hundreds or thousands of websites and
that need to provide a technology platform with video solutions or mobile solutions to supplement the services they currently
provide to their website owners; and
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syndication
partners that have branded video content (i.e. video sponsored by or produced by brand advertisers) that need a player and
platform to syndicate the content and reach additional audiences.
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Separately
but related, we focus on having relationships with Advertising Networks and Exchanges to assist our Publishers and Content owners
in monetizing their content and audiences.
Intellectual
Properties & Licenses
Our
success and ability to compete are substantially dependent upon our internally developed technology and expertise.
We
rely on patent, copyright, trade secret, and trademark law to protect our technology. We currently have one provisional patent
application pending. We also believe that factors such as the technological and creative skills of our personnel, and new product
developments and enhancements are essential to establishing and maintaining a technology leadership position. There can be no
assurance that others will not develop technologies that are similar or superior to our technology.
Our
success will depend in part upon our ability to protect our intellectual property rights. We cannot be certain that other parties
will not contest our intellectual property rights.
Employees
As
of the date of this report, we have 14 employees. We are not a party to any collective bargaining agreements.
Item
1A. Risk Factors
The
following important factors, and the factors described elsewhere in this report or in our other filings with the SEC, could affect
(and in some cases have affected) our business, operations, financial results or financial condition and could cause our results
of operations to be materially different from estimates or expectations. Other risks and uncertainties, of which we are currently
unaware may also affect our results or operations adversely.
An
investment in our securities is highly speculative in nature and involves an extremely high degree of risk. A prospective investor
should consider the possibility of the loss of the investor’s entire investment and evaluate all information about us and
the risk factors discussed below in relation to his financial circumstances before investing in our securities.
Risks
Related to the Company’s Operations
Our
intellectual property is valuable, and our inability to protect it could reduce the value of our products, services, and brand.
We
currently do not have patents for any of our technology. Although we seek to obtain patent protection for our innovations, it
is possible we may not be able to protect some of these innovations. Furthermore, there is always the possibility, despite our
efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.
The efforts we have taken to protect our proprietary rights may not be sufficient or effective.
Any
significant impairment of our intellectual property rights could harm our business and our ability to compete. Also, protecting
our intellectual property rights may be costly and time consuming. Any increase in the unauthorized use of our intellectual property
could make it more expensive to do business and harm our operating results.
We
have limited financial resources and are dependent on raising additional funds to support future operations.
We
have limited funds to pay all of our current liabilities. Should one or more of our creditors demand immediate payment in-full,
we are not likely to have the resources to pay or satisfy any such claims. If the Company cannot continue to raise additional
funds it could face a risk of insolvency.
We
have incurred continued operating losses and we lack a history of operations upon which an investor can assess our business and
plans.
Our
insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy
laws or state insolvency statutes. We also may face the risk that a receiver may be appointed. We face that risk and other risks
resulting from our current financial condition.
For
these and other reasons, we anticipate that unless we can obtain sufficient capital from an outside source and do so in the very
near future, we may be unable to continue to operate as a corporation, continue to meet our filing obligations under the Securities
Exchange Act of 1934, or otherwise satisfy our obligations to our stock transfer agent, our accountants, our legal counsel, our
EDGAR filing agent, and many others.
For
these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from
the funds that we have raised during the year ended December 31, 2015, we have no committed source of financing and there can
be no assurance that we will receive any additional financing or funding from any source or if any financing should be obtained,
that existing shareholders will not incur substantial, immediate, and permanent dilution of their existing investment.
Going
Concern Uncertainties
As
of December 31, 2015, we have only limited working capital with which to pursue our business plan. The amount of capital required
to sustain operations until we achieve positive cash flow from operations is subject to future events and uncertainties. It will
be necessary for us to secure additional working capital through sales of our common stock and/or debt financing, and there can
be no assurance that such funding will be available in the future. These conditions raise substantial doubt about our ability
to continue as a going concern.
As
of and for the years ended December 31, 2015 and 2014, our independent registered public accounting firms have issued a going
concern qualification as part of their audit reports included herein and included in our 2015 consolidated financial statements.
Our
common stock is subordinate to existing and future debt.
All
of our common stock is and will remain subordinate to the claims of our existing and future creditors. These existing claims together
with likely additional debts, obligations, and other commitments that we give to others in the future, will be superior to any
rights and interests of our stockholders.
Significant
control of the Company is held by management and principal shareholders.
Our
officers, directors and principal stockholders (greater than 5% stockholders) collectively control approximately 39% of our common
shares as of April 14, 2016. As a result, any person who acquires our common shares will likely have little or no ability to influence
or control the Company.
Due
to a limited public market our common stock may not be easily sold.
There
is a limited trading market for our common shares, and there is no guarantee that a continuous liquid trading market will develop.
All of our common shares are traded only on the OTC Bulletin Board and the OTCQB and there can be no assurance that the common
shares will ever gain any liquid trading volumes in any other market or gain listing on any stock exchange.
Our
business is difficult to evaluate because we have a limited operating history.
We
have a history of operating losses and we have incurred significant net losses in each of the last two years. These losses, among
other things, have had and will continue to have an adverse effect on our results of operations, financial condition, stockholders’
equity, net current assets and working capital.
We
will need to generate significant additional revenue and/or cost reductions to achieve profitability. While management believes
that we may achieve profitability in the future, there can be no assurance that we will do so. Our ability to generate and sustain
significant additional revenues or achieve profitability will depend upon numerous factors outside of our control, including sales
of our advertising and software products and reduction of our debt obligations.
Our
stock price is likely to be highly volatile because of several factors, including a limited public float.
The
market price of our stock is likely to be highly volatile because there has been a relatively thin trading market for our stock,
which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to re-buy or
re-sell our common stock easily following periods of volatility because of the market’s reaction to volatility.
Other
factors that could cause such volatility may include, among other things:
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announcements
concerning our strategy;
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litigation;
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general
market conditions.
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Because
our common stock is considered a “penny stock” any investment in our common stock is considered to be a high-risk
investment and is subject to restrictions on marketability.
Our
common stock is currently quoted on the OTC Bulletin Board and the OTCQB and is considered a “penny stock.” The OTC
Bulletin Board and the OTCQB is generally regarded as a less efficient trading market than the NASDAQ Capital Market.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny
stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which
specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer
also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any
salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s
account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those
rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for our common stock. Since our common stock is subject to the regulations applicable
to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks
could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary
market.
The
Company may issue more shares which will result in substantial dilution.
Our
Certificate of Incorporation authorizes the issuance of a maximum of 300,000,000 shares of common stock and 50,000,000 shares
of preferred stock. Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder
approval. To the extent that additional shares of common stock or preferred stock are issued, dilution to the interests of our
stockholders will occur and the rights of the holders of common stock might be materially and adversely affected.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted
rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make
it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy
and sell our stock and have an adverse effect on the market for our shares.
Our
internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being
disseminated to the public.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange
Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal
executive and principal financial officer and effected by the Board of Directors, management and other personnel, 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 and includes those policies and procedures that: (i) pertain to the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
We
have never paid dividends on our common stock.
We
have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate
that any funds available for payment of dividends will be re-invested into the Company to further its business strategy.
Item
1B. Unresolved Staff Comments
None.
Item
2. Description of Property
We
do not own any real property. We lease two offices in Irvine, California. On September 22, 2015 the Company signed a lease for
office space at 47 Discovery in Irvine, California, and subsequently moved its operation to this location. This lease expires
in September 2018 and carries a current monthly rent of approximately $5,350. The previous location of our headquarters was located
at 16795 Von Karman Avenue, Suite 240, Irvine, California, 92606. This lease expires in March 2017 with a current rent of $13,100.
Item
3. Legal Proceedings
Please
refer to Note 10 “Commitments and Contingencies” within the Notes to Consolidated Financial Statements within this
document
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our
common stock is quoted under the symbol “ADTM” on the OTC Bulletin Board and the OTCQB, a quotation service that displays
sale prices, and volume information for transactions with market makers in over-the-counter (“OTC”) equity securities.
All such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent
actual transactions. Trading in our common stock is limited and sporadic and there can be no assurance that any liquid trading
market will develop or, if it does develop, that it can be maintained.
The
high and low bid quotations for our common stock for each of the quarters of our fiscal years ended December 31, 2015 and 2014
are set forth in the table below:
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Price Range
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High($)
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Low($)
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Quarter ended March 31, 2014
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$
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4.50
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$
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2.10
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Quarter ended June 30, 2014
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$
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4.20
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$
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2.40
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Quarter ended September 30, 2014
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$
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4.30
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$
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1.70
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Quarter ended December 31, 2014
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$
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5.45
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$
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2.31
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Quarter ended March 31, 2015
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$
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3.19
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$
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1.50
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Quarter ended June 30, 2015
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$
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2.47
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$
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0.31
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Quarter ended September 30, 2015
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$
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0.51
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$
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0.18
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Quarter ended December 31, 2015
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$
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0.39
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$
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0.15
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On
April 13, 2015, the closing per share price for our common stock was $.19.
Holders:
According to the records of Adaptive Medias’ transfer agent, Adaptive Medias had 190 stockholders of record as of April
14, 2016 and it believes there are a substantially greater number of beneficial holders. This number does not include an indeterminate
number of shareholders whose shares are held by brokers in street name.
Dividends:
We have not paid any dividends to date, and we have no intention of paying any cash dividends on our common stock in the foreseeable
future. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain limitations
imposed under the Nevada Revised Statutes. The timing, amount and form of dividends, if any, will depend on, among other things,
our results of operation, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Securities
Authorized for Issuance under Equity Compensation Plans
The
Company’s shareholders approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”) on November
2, 2010. The Plan provides for the grant of non-statutory or incentive stock options, stock appreciation rights, restricted stock,
restricted stock units, and other stock-based awards to the Company’s employees, Officers, Directors or consultants. The
Company’s Board of Directors administers the 2010 Plan, selects the individuals to whom options will be granted, determines
the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms
of the 2010 Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of
the grant. The term of the options granted under the 2010 Plan cannot be greater than 10 years. Options vest at varying rates
generally over three to five years along with performance based options.
In
September 2013, our Board of Directors approved an increase in the number of shares issuable pursuant to the 2010 Plan to 15,000,000.
In December 2013, our Board of Directors approved an amendment to the 2010 Plan which increased the number of shares issuable
pursuant to the 2010 Plan by 15,000,000 to 30,000,000 shares. Both amendments have also been approved by the Company’s shareholders.
Upon completion of the Reverse Stock Split on April 14, 2014, the Company continues to have 30,000,000 shares issuable of which
28,370,356 shares were available for future grant as of December 31, 2015. The material terms of our stock incentive plans are
described in Note 7 of the Notes to Financial Statements in Part II, Item 8 of this Form 10-K.
Performance
Graph
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under
this item.
Sales
of Unregistered Securities
There
were no unregistered sales of securities during the period covered by this report that were not previously reported in a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K.
Item
6. Selected Financial Data
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information
required by this Item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
This
report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking statements by terminology including, “could”
“may”, “will”, “should”, “expect”, “plan”, “anticipate”,
“believe”, “estimate”, “predict”, “potential” and the negative of these terms
or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While
these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested in this Annual Report.
Business
Overview
We
are a leader in programmatic, real time bidding (“RTB”) advertising across mobile, video and display, as well as a
provider of a business-to-business digital video content management platform SaaS. The Company, through its core content monetization
platform and technology, provides app developers, publishers and video content developers one of the only end-to-end monetization
platforms driven by programmatic algorithms. The Company provides these unique capabilities to monetize content efficiently across
multiple marketing channels and devices, including mobile, video and online display advertising.
The
Company is a programmatic audience and content monetization company for website owners, app developers and video publishers who
want to more effectively optimize content through advertising. The Company provides a foundation for publishers and developers
looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across
multiple devices. The Company meets the needs of its publishers with an emphasis on maintaining user experience, while delivering
timely and relevant ads through its multi-channel ad delivery and content platform. Our corporate headquarters are located at
47 Discovery Suite 220, Irvine CA, 92618. Our website address is www.adaptivem.com. The information contained on, or that may
be obtained from, our website is not, and shall not be deemed to be, a part of this report.
On
the supply side, the Company provides each publishing client with unique capabilities to distribute and monetize its content across
multiple channels or operating systems, where it can serve a piece of content on a laptop, a tablet and a phone without any additional
cost or license. The optimization modules in our technology can be deployed across multiple channels on the platform to provide
capabilities such as ad serving, RTB, ad revenue waterfall management and video content management, and enabling necessities like
the video player itself. We help mobile app developers, publishers and video content developers monetize their ad inventory through
our proprietary ad-delivery and optimization platform. The Company provides these unique capabilities to monetize content efficiently
across multiple marketing channels, including mobile, video and online display advertising. Our relationships span across health,
sports, entertainment, auto, fashion, news, tech and luxury verticals.
On
the demand side, the Company’s programmatic technology stack is advertiser-friendly; the platform provides advertisers with
a brand-safe and transparent marketplace for buying media across mobile, video and display. This is essential for big brand advertisers
and brand-direct ecommerce companies that require a high level of safety, context and relevance for their advertisements.
On
June 16, 2014, the Company launched its marketplace to enable publishers a seemingly simple marriage of quality content, users
and monetization opportunities side-by-side with advertising partners who drive demand. This is accomplished through a complex
set of discovery technology solutions, driven by patents, and efficient algorithmic data that cohesively interact in any digital
marketing environment where advertising, audience and content must come together.
Factors
Affecting Our Performance
We
believe that the growth of our business and our future success depend on various opportunities, challenges and other factors,
including the following:
Investment
in Growth
During
2015, Adaptive invested in additional features and technology such as data visualization and insights and optimization tools that
will further increase the value of the platform to current and future customers. We also intend to continue investing in research
and development related to further streamlining the content marketplace service. The goal of these development efforts will be
to maximize market penetration across our multiple streams of income within the video and mobile landscapes while improving the
user experience. We also believe that as both our publisher and demand side sales teams becomes more seasoned, we will experience
an increase in sales productivity.
Technology
Enhancements and Customer Satisfaction
We
will continue to make improvements to our technology platform. We will be focusing our development efforts in two main categories.
The first effort will be to increase performance for our publishing partners through improved efficiency, higher fill rates and
reduced Cost Per Thousand (“CPM”) impressions. The second effort will be a collaborative solution with the agencies
and advertisers that could include planning, content monetization and strategic partnership opportunities. Both of these efforts
will have the overarching goal of increasing our customer satisfaction and thus increasing our customer retention.
Ability
to Increase Penetration in All Channels and All Devices
Our
future performance is dependent on our continued ability to penetrate and grow our revenue in mobile and video channels but to
also serve the needs of our customers that need help with display advertising. These revenues will come from both the publisher
side through our RTB platform driving inventory monetization and through direct agency and advertiser contracts. Video and mobile
represent the fastest growing channels currently, but we also see a significant opportunity in rich media and high impact display
ads. Mobile device growth is eclipsing desktop growth. We are seeing an increase in requests for cross device targeting. We are
working on a unique, non-Personal Identity Identifier (“PII”) solution based on our data store that will allow us
to successfully identify users regardless of which device they are on.
Seasonality
In
the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, many advertisers allocate
the largest portion of their budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing.
Historically, the fourth quarter of the year reflects our highest level of advertising activity, and the first quarter reflects
the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising
industry as a whole.
Competition
There
are many fractional players in this space. There are those who provide video players like Ooyala, BrightCove and Kaltura. Others
provide advertising network services like BrightRoll, Grab and TubeMogul. A final group provides ad serving and demand services
including RocketFuel, LiveRail or FreeWheel. These providers and their fragmented solutions only complicate the choices that a
publisher, app developer or video content provider must make to participate in today’s market for audiences and advertising
revenue. We believe that AOL is the only other company that can claim to provide an end-to-end solution. It has a video player
and ad serving capabilities through Adap.tv, CMS and CDN capabilities through 5min Media and a wealth of inventory and demand
through legacy AOL properties and exchange integration.
Despite
AOL’s size, we believe that we our business model has advantages that will allow us to compete in this space. The first
advantage pertains to AOL’s legacy inventory source. While AOL benefits from many domains under its control, it is also
hampered by the responsibility to fill advertising through these domains first. Our advantage is that we are inventory agnostic.
If advertisers want and can benefit from our direct publisher inventory, we are happy to provide it. If advertisers want to take
advantage of efficiencies through RTB exchange inventory, we can provide that as well. The Company is less restricted and, as
a result, we believe that we can provide better optimization choices than AOL.
The
second advantage is in pricing. AOL’s legacy properties have high floor inventory costs. While AOL addresses this issue
by explaining that its inventory is “premium”, this claim is generally made by most, if not all, inventory sources.
Our inventory flexibility and existing monetization contracts allow us to deliver advertising, which we believe has the same quality
as AOL’s advertising, but at a lower cost per impression. We believe that this allows us an edge in negotiating onto advertising
campaigns where we don’t have an existing track record.
Business
Development
Our
business development efforts are focused on three main areas. The first is signing content providers to syndication and monetization
deals. The second is signing publishers onto our platform. The third area of focus is driving advertising demand or fulfillment
through our platform. This translates to revenue generation in the following forms: 1) Encoding fees for uploading content; 2)
Revenue share from platform publishers consuming the content; 3) Content streaming bandwidth fees from publishers consuming content;
4) Ad server fees from publishers consuming ads within the platform; 5) Content storage fees for housing content within the platform;
and 6) Percentage of revenue from advertisers attaching content to their video ads. In 2013, we added approximately 50 publishers.
The direct impact of which was operationally minimal as the platform lends itself extremely simplified workflows. Our overall
content contracted in 2013 as we began to remove underperforming partners and categories. We expect all content categories to
grow in 2015 as we move toward stabilization of our platform and expansion of our technical capabilities while onboarding premium
content providers through focused business development efforts. During the year ended December 31, 2015, our efforts to streamline
our operations and processes led to the successful acquisition and retention of quality publishers and content relationships.
New relationships included premium publishers and content producers, all of whom are leaders in their respective categories.
Today
our advertiser campaign demand initiatives are consistently fulfilling and scaling at sustainable rates for our growing publisher
base. We have over 350,000 rights cleared pieces of video content across all interest categories. We have recently expanded our
publisher base to include Latin On, Webisaba, Sovrn Holdings, Techno Buffalo.
Engaging
more publishers will increase our platform utilization and SaaS income. It will increase the consumption and utilization of our
content partners resulting in higher income. It will also allow for greater reach for our demand partners and advertising agencies
leading to higher advertising revenues.
Results
of Operations – Years ended December 31, 2015 and 2014
Revenues,
Cost of Revenues, and Gross Profit
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Revenue
|
|
$
|
4,654,489
|
|
|
$
|
5,075,226
|
|
|
$
|
(420,737
|
)
|
Cost of revenue
|
|
|
3,891,930
|
|
|
|
3,940,350
|
|
|
|
(48,420
|
)
|
Gross Profit
|
|
|
762,559
|
|
|
|
1,134,876
|
|
|
|
(372,317
|
)
|
Total as a percentage of revenues
|
|
|
16.4
|
%
|
|
|
22.4
|
%
|
|
|
-6.0
|
%
|
Gross
Revenues decreased in 2015 due our focus of transitioning over from a mostly marketplace model to our Media Graph platform model
of revenue growth, which we expect will continue to serve as an inflection point for Adaptive.
As
we continue to focus on that transition and increase our publishers, we’ll see a dramatic difference in our cash flow and
our ability to be profitable. Those revenues are not seasonal and won’t decline like you see traditionally in the marketplace.
The onboarding system for platform can be anywhere between 30, 60 and 90 days, and as we continue to add publishers to our platform,
our revenues will be more consistent.
Operating
Expenses
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Legal and professional fees
|
|
$
|
1,341,127
|
|
|
$
|
1,506,016
|
|
|
$
|
(164,889
|
)
|
Total as a percentage of revenues
|
|
|
28.8
|
%
|
|
|
29.7
|
%
|
|
|
-0.9
|
%
|
Legal
and professional fees decreased from the prior comparable period due to the gradual resolution of on-going litigation, primarily
related to matters from previously completed acquisitions. In the remainder 2015 and 2016, we expect the litigation efforts to
continue but decrease as we address them accordingly.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Research and development
|
|
$
|
174,443
|
|
|
$
|
1,381,873
|
|
|
$
|
(1,207,430
|
)
|
Total as a percentage of revenues
|
|
|
3.7
|
%
|
|
|
27.2
|
%
|
|
|
-23.5
|
%
|
Research
and development costs incurred decreased from the prior comparable period primarily due to a reduction in staff compared to the
prior comparable period. Going forward we expect to maintain a lean staff of highly motivated sales and support resources to help
expand our growth efforts.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
General and administrative expenses
|
|
$
|
4,804,877
|
|
|
$
|
4,044,468
|
|
|
$
|
760,409
|
|
Total as a percentage of revenues
|
|
|
103.2
|
%
|
|
|
79.7
|
%
|
|
|
23.5
|
%
|
General
and administrative expenses decreased from the prior comparable period primarily due to cost cutting initiatives which began in
May 2015 that came to full realization during the current period. We continue to anticipate lower general and administrative expenses
in future periods.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Selling expenses
|
|
$
|
367,025
|
|
|
$
|
1,712,328
|
|
|
$
|
(1,345,303
|
)
|
Total as a percentage of revenues
|
|
|
7.9
|
%
|
|
|
33.7
|
%
|
|
|
-25.9
|
%
|
Selling
expenses decreased from the comparable period primarily due to streamlining our sales and marketing personnel and related resources.
We continue to anticipate lower selling expenses in future periods.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Depreciation and amortization
|
|
$
|
2,453,696
|
|
|
$
|
1,485,384
|
|
|
$
|
968,312
|
|
Total as a percentage of revenues
|
|
|
52.7
|
%
|
|
|
29.3
|
%
|
|
|
23.4
|
%
|
Depreciation
and amortization increased from the prior comparable period primarily due to the overall increase in furniture and fixtures and
intangibles assets acquired that are being amortized over their estimated useful lives. We expect depreciation and amortization
to remain at these levels in absolute dollars in future periods.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Stock compensation expense
|
|
$
|
3,490,339
|
|
|
$
|
1,206,852
|
|
|
$
|
2,283,487
|
|
Total as a percentage of revenues
|
|
|
75.0
|
%
|
|
|
23.8
|
%
|
|
|
51.2
|
%
|
Stock
compensation expense increased from the prior comparable period as a result of cash conserving measures that put an emphasis on
payment for services via shares.
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Impairment of intangibles
|
|
$
|
5,458,229
|
|
|
$
|
8,604,315
|
|
|
$
|
(3,146,086
|
)
|
Total as a percentage of revenues
|
|
|
117.3
|
%
|
|
|
169.5
|
%
|
|
|
-52.3
|
%
|
Impairment
of intangibles increased from the prior comparable period due to the Company deciding to write-off the remaining amounts of balance
sheet Goodwill that resulted from the Adaptive Medias and Media Graph acquisitions.
Other
income (expense)
|
|
For the years ended
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Change
|
|
Interest expense
|
|
$
|
(680,230
|
)
|
|
$
|
(42,171
|
)
|
|
$
|
(638,059
|
)
|
Total as a percentage of revenues
|
|
|
-14.6
|
%
|
|
|
-0.8
|
%
|
|
|
-13.8
|
%
|
Interest
expense increased from the prior comparable period primarily as a result of the amortization of debt discounts associated with
the convertible notes offerings in the third and fourth quarter of 2015.
Net
Loss
For
year ended December 31, 2015, we incurred a net loss of $18,127,950 or $1.02 per basic and diluted share compared to a net loss
of $18,849,726 or $2.04 per basic and diluted share for year ended December 31, 2014. The increase in the net loss is described
above.
Liquidity
and Capital Resources
The
following table describes our current assets and liabilities as of December 31, 2015:
Current
Assets
|
|
|
|
|
Current
Liabilities
|
|
|
|
Cash
|
|
$
|
359
|
|
Accounts
payable and accrued expenses
|
|
$
|
4,624,916
|
Accounts
receivable, net
|
|
|
742,194
|
|
Convertible
note payable, net
|
|
|
675,172
|
Prepaid
expenses
|
|
|
845,000
|
|
Related
party note payable
|
|
|
46,795
|
|
|
|
|
|
Derivative
liability
|
|
|
1,481,278
|
Total
Current Assets
|
|
|
1,587,553
|
|
Total
Liabilities
|
|
|
6,828,161
|
We
have limited funds to pay our currently due debts and liabilities. Should one or more of our creditors seek or demand payment,
we are not likely to have the resources to pay or satisfy any such claims. Thus, we face risk of defaulting on our obligations
to our creditors with consequential legal and other costs which would adversely impact our ability to continue our existence as
a corporate enterprise.
Our
insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy
laws or state insolvency statutes. We also may face the risk that a receiver may be appointed. We face that risk and other risks
resulting from our current financial condition.
For
these and other reasons, we anticipate that unless we can obtain sufficient capital from outside sources and do so in the very
near future, we may be unable to continue to operate as a corporation, continue to meet our filing obligations under the Securities
Exchange Act of 1934, or otherwise satisfy our obligations to our vendors, stock transfer agent, our accountants, our legal counsel,
our EDGAR filing agent, and many others.
For
these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from
the funds that we have received to date, there can be no assurance that we will receive any additional financing or funding from
any source or if any financing should be obtained, that existing shareholders will not incur substantial, immediate, and permanent
dilution of their existing investment.
The
following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities
for the years ended December 31, 2015 and 2014:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Net cash used in operating activities
|
|
$
|
(5,674,409
|
)
|
|
$
|
(4,471,775
|
)
|
Net cash used by investing activities
|
|
|
(162,816
|
)
|
|
|
(300,504
|
)
|
Net cash provided by financing activities
|
|
|
3,581,800
|
|
|
|
7,005,875
|
|
Change in cash
|
|
$
|
(2,255,425
|
)
|
|
$
|
2,233,596
|
|
Going
Concern Uncertainties
As
of December 31, 2015, we do not have an adequate source of operating revenue to cover our operating costs, and have only limited
working capital with which to pursue our business plan. The amount of capital required to sustain operations until we achieve
positive cash flow from operations is subject to future events and uncertainties. It will be necessary for us to secure additional
working capital through sales of our common stock and/or debt financing, and there can be no assurance that such funding will
be available in the future. These conditions raise substantial doubt about our ability to continue as a going concern.
It
may be necessary for us to secure additional working capital through loans or sales of common stock, and there can be no assurance
that such funding will be available in the future. These conditions raise substantial doubt about our ability to continue as a
going concern. Our independent registered public accounting firm has issued a “going concern” qualification as part
of their report on our consolidated financial statements for the year ended December 31, 2015, which is contained elsewhere in
this Annual Report on Form 10-K.
Capital
Expenditures
For
the year ended December 31, 2015, we have not incurred any material capital expenditures.
Commitments
and Contractual Obligations
As
a “smaller reporting company”, the Company is not required to provide this information.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that would be considered material to investors.
Item
8. Financial Statements and Supplementary Data
See
pages beginning with page F-1.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item
9A. Controls and Procedures
Internal
Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal
executive officer and principal financial officer and effected by our Board of Directors, management, and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”) and includes those policies
and procedures that:
●
|
Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets;
|
|
|
●
|
Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and Directors; and
|
|
|
●
|
Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets
that could have a material effect on the consolidated financial statements.
|
We
believe that our processes and controls provide reasonable assurance for the consolidated financial statement preparation and
presentation. However, because of inherent limitations in the size of the Company’s organization, our internal control over
financial reporting may not prevent or detect misstatements.
Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in
Internal Control – Integrated Framework.
Based on such assessment, our President (principal executive officer)
and Chief Financial Officer (principal financial and accounting officer) determined that, as of December 31, 2015, our internal
control over financial reporting is not effective.
Evaluation
of Disclosure Controls and Procedures.
We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management,
including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
We
carried out an evaluation under the supervision and with the participation of management, including our President and Principal
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2015, the end of the period covered by this Annual Report on Form 10-K for the year ended December
31, 2015. Based on that evaluation, our President and Principal Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective during the 2015 fiscal year at a reasonable assurance level, as a result
of material weaknesses primarily related to a lack of a sufficient number of personnel with appropriate training and experience
in GAAP and a proper segregation of duties based on our size and available resources. These material weaknesses are due to an
insufficient numbers of properly trained and experienced personnel available to independently test the design of our key controls
at the financial activity level as well as the insufficient operations of information technology general controls in identifying
a deficiency, or combination of deficiencies, which may result in a reasonable possibility that a more than an inconsequential
misstatement of the consolidated financial statements would not be prevented or detected on a timely basis. While Management has
reviewed the consolidated financial statements and underlying information included in this Annual Report on Form 10-K in detail
and believes the procedures performed are adequate to fairly present our financial position, results of operations and cash flows
for the periods presented in all material respects, the deficiency in accounting personnel that existed in fiscal year 2015 could
have led to an error in the original accounting of the estimated fair market value of certain security instruments.
Remediation
of Material Weaknesses.
A
material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”)
Auditing Standard No. 5), or combination of control deficiencies, that result in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected. While management believes that the
Company’s consolidated financial statements previously filed in the Company’s SEC reports have been properly recorded
and disclosed in accordance with GAAP, we have designed and plan to implement, or in some cases have already implemented, the
specific remediation initiatives described below:
●
|
We
plan to retain additional accounting personnel and continue to enhance our internal finance and accounting organizational
structure.
|
|
|
●
|
We
have hired a third party consultant who has the required background and experience in accounting principles generally accepted
in the United States of America and with SEC rules and regulations.
|
|
|
●
|
We
are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control
reviews within the accounting and financial reporting functions.
|
|
|
●
|
We
are in the process of strengthening our internal policies and enhancing our processes for ensuring consistent treatment and
recording of reserve estimates, performing impairment analyses, and that validation of our conclusions regarding significant
accounting policies and their application to our business transactions are carried out by personnel with an appropriate level
of accounting knowledge, experience and training.
|
While
we now believe that these material weaknesses are currently being addressed, we will continue our remediation efforts during fiscal
year 2016.
Changes
in Internal Control over Financial Reporting
No
changes in the Company’s internal control over financial reporting have come to management’s attention during the
Company’s last fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal
control over financial reporting.
Item
9B. Other Information
None
Notes
to the Consolidated Financial Statements
Note
1 - Organization and Nature of Business
Adaptive
Medias, Inc., formerly known as “Mimvi, Inc.” and prior to that as “Fashion Net, Inc.” (“Adaptive
Medias” or the “Company”), was formed on August 7, 2007 under the laws of the State of Nevada. The Company,
through its core content monetization platform and technology, provides app developers, publishers and video content developers
one of the only end-to-end monetization platforms driven by programmatic algorithms. The Company provides these unique capabilities
to monetize content efficiently across multiple marketing channels, including mobile, video and online display advertising.
Pursuant
to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name
to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company’s emphasis on providing a supply-side
platform for mobile, video and online display advertising. In connection with the name change, effective on November 6, 2013,
the Company’s ticker symbol was changed to ADTM.
The
Company is a programmatic audience and content monetization company for website owners, app developers and video publishers who
want to more effectively optimize content through advertising. Adaptive Medias provides a foundation for publishers and developers
looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across
multiple devices. The Company meets the needs of its publishers with an emphasis on maintaining user experience, while delivering
timely and relevant ads through its multi-channel ad delivery and content platform.
Media
Graph Transaction
On
July 15, 2014, the Company executed a Stock Purchase Agreement (the “Agreement”), effective June 30, 2014, with OneScreen,
Inc., a Delaware corporation (“OneScreen”), Media Graph, Inc., a Nevada corporation and OneScreen’s spun-off
former subsidiary (“Media Graph”), and the shareholders of Media Graph (the “Selling Shareholders”) whereby
the Company acquired certain assets of OneScreen, which immediately prior thereto were held by Media Graph, in exchange for 5,000,000
shares of the Company’s common stock (the “Acquisition”). On July 15, 2014, the parties to the Agreement executed
the First Amendment to the Stock Purchase Agreement (the “Amendment”), which (i) amended the effective date of the
Agreement to July 15, 2014, (ii) limited the scope of Section 5.04 of the Agreement to apply only to the Restricted Selling Shareholders,
as defined in the Amendment, and (iii) added the Selling Shareholders as a signatory to the Agreement.
The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition
and the allocation of the purchase price to the fair value of net assets acquired:
Fixed assets
|
|
$
|
82,112
|
|
Intangibles
|
|
|
6,320,000
|
|
Goodwill
|
|
|
8,597,888
|
|
Total purchase price allocated
|
|
$
|
15,000,000
|
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting
principles in the United States of America, and pursuant to the rules and regulations of the Securities and Exchange Commission
and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present
the financial position, results of operations and cash flows of the Company as of and for the years ended December 31, 2015 and
2014.
On
April 14, 2014, the shareholders of the Company authorized its Board of Directors to effectuate a reverse stock split, in the
Board’s discretion (the “Reverse Stock Split”), which was ultimately declared effective by the Board of Directors
as of the close of business on July 14, 2014. As a result of the Reverse Stock Split, every thirty (30) issued and outstanding
shares of the Company’s common stock was changed and converted into one (1) share of common stock. Following the Reverse
Stock Split, the Company continues to have 300,000,000 shares of common stock authorized for issuance, but the number of outstanding
shares of the Company’s common stock was reduced from 192,364,735 shares to 6,412,225 shares. As required by the Financial
Accounting Standards Board’s (FASB”) Accounting Standards Codification (“ASC”) Topic 260-10-55-12 “
Earnings
per Share
” all share and per-share computations presented in these condensed consolidated financial statements are based
on the new number of shares after the Reverse Stock Split.
Principles
of Consolidation
The
consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Going
Concern
The
Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles
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. The Company has not yet established an ongoing source of revenue sufficient to cover
its operating costs and allow it to continue as a going concern. As of December 31, 2015, the Company had an accumulated deficit
of $58,300,666. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital
to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced
to cease or reduce its operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company will
continue to raise funds through the sale of its equity securities or issuance of notes payable to obtain additional operating
capital. The Company is dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing
until the Company can earn revenue and realize positive cash flow from its operations. There are no assurances that the Company
will be successful in earning revenue and realizing positive cash flow from its operations. Without sufficient financing it would
be unlikely that the Company will continue as a going concern.
Based
on the Company’s current rate of cash outflows, cash on hand and proceeds from the prior sale of equity securities and issuance
of convertible notes, management believes that its current cash will not be sufficient to meet the anticipated cash needs for
working capital for the next 12 months. The Company’s plans with respect to its liquidity issues include, but are not limited
to, the following:
|
1)
|
Continue
to issue restricted stock for compensation due to consultants and for its legacy accounts payable in lieu of cash payments;
and
|
|
|
|
|
2)
|
Seek
additional capital in the public equity markets to continue its operations as it rolls out its current products in development,
responds to competitive pressures, develops new products and services, and supports new strategic partnerships. The Company
is currently evaluating additional debt or equity financing opportunities and may execute them when appropriate. However,
there can be no assurances that the Company can consummate such a transaction, or consummate a transaction at favorable pricing.
|
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and achieve profitable operations. These condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Reclassifications
Certain
reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications
have been applied consistently to the periods presented.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Revenue
Recognition
The
Company recognizes revenue when earned and related costs of sales and expenses when incurred. The Company recognizes revenue in
accordance with FASB ASC Topic 605-10-599,
Revenue Recognition, Overall, SEC Materials
(“Section 605-10-599”).
Section 605-10-599 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability
is reasonably assured. Cost of revenue consists of the cost of the purchased goods and labor related to the corresponding sales
transaction. When a right of return exists, the Company defers revenues until the right of return expires. The Company recognizes
revenue from services at the time the services are completed.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company’s accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts
that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances
combined with management’s estimate of future potential recoverability. Receivables are written off against the allowance
after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of December
31, 2015 and 2014 is adequate, but actual write-offs could exceed the recorded allowance.
Intangible
assets
Intangible
assets consisting of websites, customer lists, content and publisher relationships, developed technology and trade names are stated
at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the
useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated
amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible
assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may no longer be recoverable.
Intangible
Assets – Goodwill
The
Company’s goodwill associated with its acquisitions is not amortized. Management reviews goodwill for impairment at least
on an annual basis and at other times when existing conditions raise substantial questions about their recoverability. An impairment
charge is recognized in the period which management determines that the assets are impaired. Recoverability is assessed based
on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash
flows that are expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain
instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Internal
Use Software Development Costs
The
Company incurs costs to develop software for internal use. The Company expenses all costs that relate to the planning and post
implementation phases of development as research and development expense. The Company capitalizes costs when preliminary efforts
are successfully completed, management has authorized and committed project funding, and it is probable that the project will
be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material
functionality are capitalized.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Convertible
Debt and Warrants Issued with Convertible Debt
Convertible
debt is accounted for under the guidelines established by ASC 470,
Debt with Conversion and Other Options
and ASC 740,
Beneficial Conversion Features
. We record a beneficial conversion feature (“BCF”) when convertible debt is
issued with conversion features at fixed or adjustable rates that are below market value when issued. If, however, the conversion
feature is dependent upon a condition being met or the occurrence of a specific event, the BCF will be recorded when the related
contingency is met or occurs. The BCF for the convertible instrument is recorded as a reduction, or discount, to the carrying
amount of the convertible instrument equal to the fair value of the conversion feature. The discount is then amortized to interest
over the life of the underlying debt using the effective interest method.
We
calculate the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the
same assumptions used for valuing employee options for purposes of ASC 718,
Compensation – Stock Compensation
, except
that the contractual life of the warrant is used. Under these guidelines, we allocate the value of the proceeds received from
a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative
fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of
the convertible debt to interest expense. For a conversion price change of a convertible debt issue, the additional intrinsic
value of the debt conversion feature, calculated as the number of additional shares issuable due to a conversion price change
multiplied by the previous conversion price, is recorded as additional debt discount and amortized over the remaining life of
the debt.
For
modifications of convertible debt, we record the modification that changes the fair value of an embedded conversion feature, including
a BCF, as a debt discount which we amortize to interest expense over the remaining life of the debt. If modification is considered
substantial (i.e. greater than 10% of the carrying value of the debt), an extinguishment of debt is deemed to have occurred, resulting
in the recognition of an extinguishment gain or loss.
Fair
Value of Financial Instruments
We
utilize ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring
basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in
valuing the asset or liability and are developed based on market data obtained from sources independent of our Company. Unobservable
inputs are inputs that reflect our Company’s assumptions about the factors market participants would use in valuing the
asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level
1. Observable inputs such as quoted prices in active markets;
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
As
of December 31, 2015 and December 31, 2014, we did not have any level 3 assets or liabilities. As of December 31, 2015, the derivative
liabilities are considered level 2 items.
Net
Income (Loss) Per Share
Basic
earnings per share is calculated by dividing income available to common stockholders by the weighted-average number of common
shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and
dilutive common share equivalents outstanding during the period.
Stock
Based Compensation
The
Company recognizes stock-based compensation in accordance with FASB ASC Topic 718
Stock Compensation
, which requires the
measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including
employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.
For
non-employee stock-based compensation, the Company applies FASB ASC Topic 505
Equity-Based Payments to Non-Employees
, which
requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or
options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with FASB ASC
Topic 718.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Income
Taxes
The
Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of
deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in operations in the period that includes the enactment date.
The
Company also follows ASC 740-10-25, which provides detailed guidance for the financial statement recognition, measurement and
disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with ASC Topic 740,
“
Accounting for Income Taxes”
. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The
Company believes it is no longer subject to income tax examinations for the years prior to 2011.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB and the International Accounting Standards Board jointly issued ASU No. 2014-9,
Revenue from Contracts with
Customers
, which clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and
International Financial Reporting Standards. The core principle of the guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods and services. The ASU, as amended, is effective for public entities for annual
and interim periods beginning after December 15, 2017. Early adoption is not permitted under U.S. GAAP and retrospective application
is permitted, but not required. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial
position and results of operations.
In
August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statement-Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
, which provides guidance under U.S. GAAP about
management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as
a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing
and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016,
and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU
No. 2014-15 is not expected to have a significant impact on the Company’s consolidated financial statements and related
disclosures.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
3 – Intangible Assets
The
following table summarizes the intangible assets as of December 31, 2015 and December 31, 2014.
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Websites
|
|
$
|
11,297
|
|
|
$
|
11,297
|
|
Customer lists
|
|
|
306,505
|
|
|
|
306,505
|
|
Developed technology
|
|
|
3,995,098
|
|
|
|
4,883,034
|
|
Trade names
|
|
|
71,235
|
|
|
|
85,607
|
|
|
|
|
4,384,135
|
|
|
|
5,286,443
|
|
Less: accumulated amortization
|
|
$
|
(4,088,730
|
)
|
|
$
|
(1,666,237
|
)
|
Identifiable intangibles, net
|
|
|
295,405
|
|
|
|
3,620,206
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
4,397,964
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
295,405
|
|
|
$
|
8,018,170
|
|
Amortization
commences when the software for internal use is ready for its intended use and the amortization period is the estimated useful
life of the related asset, which is generally three years. Amortization expense totaled $2,422,492 and $1,460,267 for the years
ended December 31, 2015 and 2014, respectively.
During
2014, the Company determined that the intangible assets associated with the Adaptive Media transaction were partially impaired
and $87,207 was recognized as impairment of intangibles in the accompanying 2014 consolidated statement of operations as its fair
value is less than its carrying book value. The goodwill associated with this transaction was also impaired in the amount of $61,892.
During
2014, the Company determined that the intangible assets associated with the Media Graph transaction were partially impaired and
$2,292,599 was recognized as impairment of intangibles in the accompanying 2014 consolidated statement of operations, as their
fair value is less than their carrying book value. The goodwill associated with this transaction was also impaired for $6,162,617.
During
2015, the Company determined that the intangible assets and goodwill associated with the Adaptive Media transaction were impaired
and $14,372 and $1,923,795 was recognized as impairment of intangibles in the accompanying 2015 consolidated statement of operations
as its fair value is less than its carrying book value.
During
2015, the Company determined that the intangible assets and goodwill associated with the Media Graph transaction were impaired
and $1,045,892 and $2,189,272 was recognized as impairment of intangibles in the accompanying 2015 consolidated statement of operations,
as their fair value is less than their carrying book value.
During
2015, the Company determined that the goodwill associated with the Ember transaction was impaired and $284,898 was recognized
as impairment of intangibles in the accompanying 2015 consolidated statement of operations, as the fair value is less than their
carrying book value.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
4 – Income Taxes
The
Company had net operating loss carryforwards (“NOLs”) as of December 31, 2015 of approximately $42.1 million for federal
and state tax purposes, portions of which are expiring at various years through 2035. The Company may be able to utilize its NOLs
to reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal
Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership
change of more than 50 percentage points. In addition, the NOL carryforwards are subject to examination by the taxing authority
and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC Section 382 analysis, it
is possible that the utilization of the NOLs could be significantly limited.
Components
of net deferred tax assets (liabilities), including a valuation allowance, are as follows at December 31:
|
|
2015
|
|
|
2014
|
|
Net operating loss carryforwards
|
|
$
|
16,767,580
|
|
|
$
|
14,119,000
|
|
Stock-based compensation
|
|
|
5,362,559
|
|
|
|
3,972,000
|
|
Other
|
|
|
1,042,990
|
|
|
|
124,000
|
|
Valuation allowance
|
|
|
(23,173,129
|
)
|
|
|
(18,215,000
|
)
|
Total deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
change in the valuation allowance for deferred tax assets as of December 31, 2015 and 2014 was $3,246,952 and $11,164,000, respectively.
In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those temporary differences become deductible. Management considers
the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making
this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized
as of December 31, 2015 and 2014, and recorded a full valuation allowance.
Reconciliation
between the statutory rate and the effective tax rate is as follows at December 31, 2015:
|
|
2015
|
|
|
2014
|
|
Tax provision at statutory federal rate
|
|
|
34.0
|
%
|
|
|
34
|
%
|
Effects of:
|
|
|
|
|
|
|
|
|
State income tax expense, net of federal benefit
|
|
|
2.5
|
%
|
|
|
4
|
%
|
Change in valuation allowance
|
|
|
-17.0
|
%
|
|
|
-27
|
%
|
Permanent differences
|
|
|
-8.3
|
%
|
|
|
-11
|
%
|
Other
|
|
|
-11.2
|
%
|
|
|
0
|
%
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0
|
%
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
5 – Notes Payable
On
February 10, 2014, the Company settled all obligations under a previously issued convertible note payable and cancelled the 133,334
warrants in exchange for: (i) the conversion of $105,000 of note principal at $2.25 per share, for a total of 46,667 shares of
Company common stock, pursuant to the terms of the convertible note; and (ii) a cash payment of $275,000. The terms of this settlement
were memorialized in the Settlement and General Release Agreement. This agreement settled all outstanding obligations with the
note holder. In connection with this transaction, the Company recognized a loss on the settlement of the debt in the amount of
$79,014 in its operating results for the year ending December 31, 2014.
Issuance
and Repayments of Convertible Promissory Notes
On
July 14, 2015, the Company entered into a convertible promissory note with John Strong, the Company’s current Chief Executive
Officer, in the amount of $100,000. The principal amount plus 5% interest was to be repaid by July 28, 2015. A default provision
is included in the note to which the holder may elect to convert the entire unpaid balance including interest into the Company’s
common stock at a rate equal to 50% of the closing bid price for the trading day immediately preceding the date of the conversion.
The Company made payments on July 28, 2015 and August 13, 2015, in full satisfaction of the note.
On
July 14
th
, 2015, the Company entered into a convertible promissory note with John Strong in the amount of $200,000.
The principal amount plus 10% interest was to be repaid by September 12
t
, 2015. A default provision is included in
the note to which the holder may elect to convert the entire unpaid balance including interest into the Company’s common
stock at a rate equal to 50% of the closing bid price for the trading day immediately preceding the date of the conversion. The
Company made payment on September 11, 2015 in full satisfaction of the note.
In
September 2015, the Company raised $1,250,000 in gross proceeds from the sale of a discount convertible debenture offering in
the aggregate principal amount of $1,470,588 with a maturity date of September 4, 2016. The noteholders also received warrants
to purchase 3,676,470 shares of common Stock, exercisable at $.50 per share through September 3, 2020. The placement agent received
$100,000 in cash. The total principal amount of the debentures is issued with a 117.65% premium to the purchase price. The debentures
have a maturity date of September 3, 2016, until which the debentures may be convertible any time into shares of the Company’s
common stock at a conversion price equal to $0.30 per share. At any time while these notes are outstanding, the Company shall
sell or grant any option to purchase, or sell or grant any right to reprice, reset, “ratchet down” be entitled to
receive shares of Common Stock at an effective price per share that is less than the conversion price. According to ASC 815, the
Company recorded a derivative liability and valued the conversion feature of the notes using a multi-nomial model. The following
were used to determine to the value: volatility of 168.71%, risk free rate of .36%. The Company valued the conversion feature
of the notes upon issuance for $1,487,822, then revalued at December 31, 2015 at $519,576, which resulted in a gain of $968,246.
The
holders of these September 2015 discount convertible debentures also received warrants to purchase an aggregate of 3,676,470 shares
of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.50 per share for a period of five
(5) years beginning March 3, 2016, or six (6) months from the date of issuance. At any time while these warrants are outstanding,
the Company shall sell or grant any option to purchase, or sell or grant any right to reprice, reset, “ratchet down”
be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price. According
to ASC 815, the Company recorded a derivative liability and valued the warrant using a multi-nomial model. The following were
used to determine to the value: volatility of 168.71%, risk free rate of 1.47%. The Company valued the warrants upon issuance
for $1,631,357, then revalued at December 31, 2015 at $747,965, which resulted in a gain of $883,392.
On
October 7, 2015, the Company entered into a short term note payable with John B. Strong in exchange for $75,000. The note bears
interest at 6% per annum and is due and payable on January 7, 2016. The Company made payments of $28,205 before the due date and
then extended the note upon the due date under the same terms of 90 days and 6% per annum.
On
October 26, 2015, the Company entered into a convertible promissory note with an outside investor for a principal amount of $245,000
in exchange for $200,000 with a maturity date of April 25, 2016. The note is convertible at a conversion price of 60% of the lowest
trading price of the Company’s common stock for the previous 20 trading days prior to the conversion date. The note bears
no interest unless an event of default occurs under which it would bear an interest rate of 22% per annum.
On
November 13, 2015, the Company entered into a convertible promissory note with an outside investor for a principal amount of $110,000
in exchange for $100,000 with a maturity date of May 31, 2016. The note is convertible at a conversion price lessor of $.30 or
60% of the lowest trading price of the Company’s common stock for the previous 25 trading days prior to the conversion date.
The note bears no interest unless an event of default occurs under which it would bear an interest rate of 22% per annum. According
to ASC 815, the Company recorded a derivative liability and valued the conversion feature of the notes using a multi-nomial model.
The following were used to determine to the value: volatility of 203.6%, risk free rate of .31%. The Company valued the conversion
feature of the notes upon issuance for $121,986, then revalued at December 31, 2015 at $153,813, which resulted in a loss of $31,826.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
The
holder of the November 2015 discount convertible debenture also received warrants to purchase an aggregate of 294,118 shares of
the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.50 per share for a period of five (5)
years. At any time while these warrants are outstanding, the Company shall sell or grant any option to purchase, or sell or grant
any right to reprice, reset, “ratchet down” be entitled to receive shares of Common Stock at an effective price per
share that is less than the Exercise Price. According to ASC 815, the Company recorded a derivative liability and valued the warrant
using a multi-nomial model. The following were used to determine to the value: volatility of 280.4%, risk free rate of 1.67%.
The Company valued the warrants upon issuance for $87,851, then revalued the warrants at $59,925 on December 31, 2015, which resulted
in a gain of $27,926.
Note
6 – Stockholders’ Equity
Preferred
Stock
The
Company’s articles of incorporation authorize the Company to issue up to 50,000,000 preferred shares of $0.001 par value,
having preferences to be determined by the Board of Directors for dividends, and liquidation of the Company’s assets. As
of December 31, 2015 and 2014, the Company had no preferred shares outstanding.
Common
Stock
We
are authorized to issue 300,000,000 shares of $0.001 par value common stock. The holders of common stock are entitled to one vote
per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors.
The holders of common stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally
available therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions
against the payment of dividends on common stock. In the event of liquidation or dissolution of our Company, holders of common
stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to
convert their common stock into any other securities.
Issuance
of Common Stock
During
the year ended December 31, 2015, the Company issued 6,889,094 shares of its common stock for to various employees and consultants
in exchange for services rendered. The aggregate fair value of these issuances was $3,479,498. Additionally, the Company issued
and sold 2,164,661 shares of its common stock (including 981,229 shares related to anti-dilution clauses) to an accredited investor
for an aggregate purchase price of $2,000,000. The total number of shares outstanding as of December 31, 2014 was 22,923,526.
During
the year ended December 31, 2014 the Company issued 555,309 shares of its common stock to various consultants in exchange for
services rendered with an aggregate fair value of $2,145,026 or $3.86 per share on average. The Company also issued and sold 3,239,780
shares of its common stock to several accredited investors for an aggregate purchase price of $7,289,500 or $2.25 per share on
average. The Company issued 64,993 shares of its common stock for settlement of $195,879 of accounts payable or $3.01 per share
on average. The Company issued 5,000,000 shares of its common stock in connection with merger transactions with a fair value of
$15,000,000 or $3.00 per share on average. Finally, in the year ended December 31, 2014, the Company issued 46,667 shares of its
common stock in connection with a convertible note with a fair value of $105,000 or $2.25 per share. The total number of shares
outstanding as of December 31, 2014 was 13,869,771.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
7 – Warrants and Options
Stock
Option Plans
The
Company’s shareholders approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”) on November
2, 2010. The Plan provides for the grant of non-statutory or incentive stock options, stock appreciation rights, restricted stock,
restricted stock units, and other stock-based awards to the Company’s employees, Officers, Directors or consultants. The
Company’s Board of Directors administers the 2010 Plan, selects the individuals to whom options will be granted, determines
the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms
of the 2010 Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of
the grant. The term of the options granted under the 2010 Plan cannot be greater than 10 years. Options vest at varying rates
generally over three to five years along with performance based options.
In
September 2013, the Company approved the increase in the number of shares issuable pursuant to the 2010 Plan to 15,000,000. In
December 2013, the Company’s Board of Directors approved an amendment to the Amended and Restated 2010 Stock Incentive Plan
which increased the number of shares issuable pursuant to the Plan by 15,000,000 to 30,000,000 shares. Both amendments were approved
by the Company’s shareholders. Upon completion of the Reverse Stock Split on April 14, 2014, the Company continues to have
30,000,000 shares issuable pursuant to the 2010 Plan.
On
February 5, 2013 the Company’s Board of Directors adopted the 2013 Consultant Stock Plan (the “2013 Plan”) and
reserved 2,000,000 shares of the Company’s common stock for issuance thereunder. During the year ended December 31, 2013,
all 2,000,000 shares were issued under this 2013 Plan.
The
following table reflects the option activity during the year ended December 31, 2015 and 2014:
|
|
Common
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding as of January 1, 2014
|
|
|
542,056
|
|
|
$
|
3.60
|
|
Granted
|
|
|
1,058,770
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited, cancelled, expired
|
|
|
(122,849
|
)
|
|
|
2.59
|
|
Outstanding as of December 31, 2014
|
|
|
1,477,977
|
|
|
$
|
1.11
|
|
Granted
|
|
|
151,667
|
|
|
|
1.86
|
|
Exercised
|
|
|
(202,706
|
)
|
|
|
0.48
|
|
Forfeited, cancelled, expired
|
|
|
(1,033,063
|
)
|
|
|
0.92
|
|
Outstanding as of December 31, 2015
|
|
|
393,875
|
|
|
$
|
0.49
|
|
To
value options granted during the year ended December 31, 2015, the Company used the Black-Scholes option pricing model based upon
the following assumptions: term of 3 years, average risk free interest rate of .99%, a dividend yield of 0% and a volatility of
338%. For the year ended December 31, 2015 the company recorded stock option compensation expense of $242,221. As of December
31, 2015, 28,219,022 shares were available for future grants.
For
the year ended December 31, 2014, the Company granted 1,058,770 options to purchase its common stock while recording stock compensation
expense for these options of $471,043 using the Black-Scholes option pricing model based upon the following assumptions: term
of 5 years, risk free interest rate ranging from 1.50% ~ 1.51%, a dividend yield of 0% and a volatility rate ranging from 133%
~ 145%. In that same period, 122,849 stock options were cancelled by the Company as they had been issued to certain consultants
and employees who no longer provided services to the Company.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Warrants
The
following table reflects warrant activity during the year ended December 31, 2015 and 2014:
|
|
Warrants for
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding and exercisable as of January 1, 2014
|
|
|
1,550,959
|
|
|
$
|
4.80
|
|
Granted
|
|
|
1,462,002
|
|
|
|
3.00
|
|
Exercised – cash
|
|
|
-
|
|
|
|
-
|
|
Exercised - cash-less exercise
|
|
|
-
|
|
|
|
-
|
|
Forfeited, cancelled, expired
|
|
|
(133,334
|
)
|
|
|
2.25
|
|
Outstanding and exercisable as of December 31, 2014
|
|
|
2,879,627
|
|
|
$
|
4.00
|
|
Granted
|
|
|
5,826,949
|
|
|
|
0.99
|
|
Exercised – cash
|
|
|
-
|
|
|
|
-
|
|
Exercised - cash-less exercise
|
|
|
-
|
|
|
|
-
|
|
Forfeited, cancelled, expired
|
|
|
(166,667
|
)
|
|
|
0.50
|
|
Outstanding as of December 31, 2015
|
|
|
8,539,909
|
|
|
$
|
2.02
|
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
8 – Income (Loss) Per Share
Net
income (loss) per share is provided in accordance with FASB ASC 260-10,
“Earnings per Share”.
Basic net income
(loss) per common share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing
net income (loss) by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless
doing so is anti-dilutive. The numerators and denominators used to calculate basic and diluted income (loss) per share are as
follows for the years ended December 31, 2015 and 2014:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Numerator for income (loss) per share:
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
(18,127,950
|
)
|
|
$
|
(18,849,726
|
)
|
Numerator for diluted income (loss) per share
|
|
$
|
(18,127,950
|
)
|
|
$
|
(18,849,726
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for income (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
17,772,497
|
|
|
|
9,233,075
|
|
Convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
Denominator for diluted income (loss) per share
|
|
|
17,772,497
|
|
|
|
9,233,075
|
|
The
following shares are not included in the computation of diluted income (loss) per share, because their conversion prices exceeded
the average market price or their inclusion would be anti-dilutive:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Convertible notes
|
|
|
5,008,461
|
|
|
|
-
|
|
Options
|
|
|
393,875
|
|
|
|
1,477,977
|
|
Warrants
|
|
|
8,539,909
|
|
|
|
2,879,627
|
|
Total anti-dilutive weighted average shares
|
|
|
13,942,245
|
|
|
|
4,357,604
|
|
If
all dilutive securities had been exercised at December 31, 2015 the total number of common shares outstanding would be as follows:
Common shares
|
|
|
22,923,526
|
|
Convertible notes
|
|
|
5,008,461
|
|
Options
|
|
|
393,875
|
|
Warrants
|
|
|
8,539,909
|
|
Total potential shares
|
|
|
36,865,771
|
|
Note
9 – Concentrations
The
following table reflects the concentration of revenue during the years ended December 31, 2015 and 2014:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Customer 1
|
|
|
30
|
%
|
|
|
3
|
%
|
Customer 2
|
|
|
10
|
%
|
|
|
0
|
%
|
Customer 3
|
|
|
3
|
%
|
|
|
16
|
%
|
Customer 4
|
|
|
5
|
%
|
|
|
15
|
%
|
Customers
in excess of 10% or more as included in the table above represent $1,168,927 and $585,673 of gross accounts receivable as of December
31, 2015 and 2014, respectively.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
10 – Commitments and Contingencies
Office
Lease Agreements
On
September 22, 2015 the Company signed a lease for office space in Irvine, California, and subsequently moved its operation to
this location. This lease expires in September 2018 and carries a current monthly rent of approximately $5,350.
The
Company is also still under lease for its previous office space in Irvine, California that expires in March 2017. The current
monthly rent is approximately $13,100. The Company plans to sublet this location in the near future.
Future
minimum lease payments under non-cancelable operating leases as of December 31, 2015 are as follows:
Years ending December 31,
|
|
2016
|
|
$
|
205,275
|
|
2017
|
|
|
103,776
|
|
2018
|
|
|
52,497
|
|
Total
|
|
$
|
361,548
|
|
For
the years ended December 31, 2015 and 2014 rent expense was $181,281 and $135,533, respectively.
Legal
Proceedings
1.
|
Adaptive
Medias, Inc. v. Vdopia, Inc
.
,
|
|
|
|
Alameda
County Superior Court, Case No. RG16806402. On March 4, 2016, Adaptive filed suit against Vdopia for recovery of over $177,246
owed. Vdopia has not yet responded to the Complaint.
|
|
|
2.
|
Open
X Technologies, Inc. v. Adaptive Medias, Inc
.
,
|
|
|
|
American
Arbitration Association (AAA), Case No. 01-15-0006-0657. On December 16, 2015, Open X filed a demand with AAA for arbitration
of a dispute over $58,701 allegedly owed by Adaptive, plus claimed interest, attorney’s fees, and costs, etc. The Company
has denied all allegations. An Arbitration trial is scheduled for July 8, 2016.
|
|
|
3.
|
Viewster,
AG v. Adaptive Medias, Inc.
,
|
|
|
|
Orange
County Superior Court, Case No. 30-2015-00809444-CU-BC-CJC. On September 14, 2015, Viewster, AG, a Swiss corporation, sued
Adaptive. A default judgment was entered and Adaptive filed a motion to set it aside. In January 2015, while that motion was
pending, the parties entered into a settlement agreement, pursuant to which Adaptive would make installment payments totaling
$58,592. Adaptive was not able to make all the installment payments, and the judgment is now enforceable but it has been reduced
by a prior payment. On January 16, 2016 the Company entered into a settlement agreement with a vendor to settle $55,137 in
payables for $58,593 including fees and costs.
|
|
|
4.
|
Shandy
Media, Inc. v. Adaptive Medias, Inc.
,
|
|
|
|
Los
Angeles County Superior Court, Case No. BC588554. On or about July 20, 2015, Shandy Media sued Adaptive for $83,655, which
Shandy claimed Adaptive owed pursuant to a service agreement. The Company denied all allegations. On or about April 7, 2016,
the parties entered into a settlement agreement pursuant to which Adaptive agreed to pay Shandy $40,000 by June 1, 2016, in
full settlement and release of all claims, and if Adaptive fails to pay the settlement amount by June 1, 2016, then a judgment
will be entered against Adaptive for $83,655.
|
|
|
5.
|
2Blue
Media Group, LLC v. Adaptive Medias, Inc.
,
|
|
|
|
Orange
County Superior Court, Case No. 30-2015-00806086-CU-CL-CJC. On August 24, 2015, 2Blue Media Group, LLC filed a lawsuit claiming
that Adaptive owed $25,825 for services. The Company has denied all allegations. A settlement conference is scheduled for
May 6, 2016, and trial is scheduled for June 20, 2016.
|
|
|
6.
|
Khoi
Senderowicz v. Kasian Franks, Andrew Linton, Mimvi, Inc.
,
|
|
|
|
Alameda
County Superior Court, Case No. RG13689457. On July 29, 2013, Plaintiff Khoi Senderowicz sued the Company’s founder
and former officer, Kasian Franks. The lawsuit also named as defendants the Company and an alleged shareholder. Senderowicz
claimed that Company was responsible for two residential properties she rented to Franks. Senderowicz sought over $353,983
in claimed unpaid rent, property damages, and lost rent. Senderowicz also sought to redeem 50,000 shares of restricted common
stock that Franks issued to her children in March of 2011, and she claimed she was entitled to an another 250,000 shares that
Franks allegedly promised. The Company denied all allegations. In June 2015, the Company agreed to settle Senderowciz’s
claims in exchange for payment of $26,000 and cooperation in removing the restrictions on the 50,000 shares. Senderowicz later
claimed that the settlement should be set aside. A hearing on whether the settlement should be set aside is scheduled for
April 29, 2016.
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
7.
|
Amanda
Besemer v. Adaptive Medias, Inc., Mimvi, Inc.
,
|
|
|
|
Los
Angeles County Superior Court, Case No. SC 123934. On February 27, 2014, Amanda Besemer sued the Company for alleged breach
of an Advisory Board Member Agreement that she claimed she entered into with the Company’s founder and former officer,
Kasian Franks. The lawsuit was filed in the Santa Clara County Superior Court (San Jose), but on or about March 20, 2015,
the lawsuit was transferred and re-filed in the Los Angeles County Superior Court (Santa Monica). Besemer received over $100,000
worth of stock. She alleged that the Member Agreement entitled her to an additional 800,000 shares which she claims were worth
$704,000. The Company denied all allegations. In March 2016, the parties entered into a settlement agreement, pursuant to
which the Company agreed to pay a total of $75,000 in monthly installments, the last of which is due in January 2017. Under
the agreement, if the Company defaults on the payments a judgment may be entered against Adaptive for $100,000, less any prior
payments.
|
|
|
8.
|
Mario
Wilson v. Mimvi, Inc.
,
|
|
|
|
San
Francisco County Superior Court, Case No. CPF-12-512012. On February 16, 2012, a judgment for $62,141 was entered in favor
of a former employee, Mario Wilson. By the end of 2014, the judgment had grown with interest, costs, and attorney fees to
$76,694. Adaptive settled the judgment and satisfied it.
|
|
|
9.
|
iii-interactive,
LLC, d/b/a 3 Interactive and d/b/a Division-D v. Adaptive Medias, Inc.
,
|
|
|
|
Circuit
Court of Boone County, Missouri, Case No. 15BA-CV02525. On July 29, 2015, iii-Interactive filed a lawsuit in Missouri claiming
that the Company owed $29,341 and a default judgment was entered. In October 2015, the Company agreed to settle the matter
for $20,000, and that settlement was paid.
|
|
|
10.
|
Phunware,
Inc. adv. Adaptive Medias, Inc.
|
|
|
|
Phunware,
Inc. has asserted a claim against Adaptive for $6,133.
|
|
|
11.
|
E.J.
Hilbert adv. Adaptive Medias, Inc.
|
|
|
|
E.J.
Hilbert has asserted claims against Adaptive for alleged breaches and/or alleged failures to grant him 500,000 shares of restricted
stock and 500,000 stock options.
|
|
|
12.
|
Crowdgather,
Inc. adv. Adaptive Medias, Inc.
|
|
|
|
Crowd
Gather has asserted a claim against Adaptive for $10,987.
|
|
|
13.
|
Eric
Rice v. Mimvi, Inc.
,
|
|
|
|
Los
Angeles County Superior Court, Case No. LC100816. On September 20, 2013, Eric Rice sued for alleged breaches and alleged termination
based on claimed false pretexts, and he sought over $180,000. In December 2014, the case was transferred to attorney David
Fisher of Fisher & Wolfe LLP. It is my understanding that the matter was settled.
|
|
|
14.
|
Felix
Chan v. Adaptive Medias, Inc.
,
|
|
|
|
San
Francisco County Superior Court, Case No. CPF-15-514104. On or about May 6, 2015, judgment was entered confirming a AAA arbitration
award against Adaptive and in favor of Chan for $358,387. In or about June 2015, the parties entered into a settlement agreement,
pursuant to which Adaptive agreed to resolve the matter by making payments. I do not know if all the payments were made. I
believe attorney David Fisher of Fisher & Wolfe LLP would have more information.
|
|
|
15.
|
OneScreen,
Inc. v. Patel
|
|
|
|
Orange
County Superior Court Case No. 30-2014-00699812.
OneScreen initiated the lawsuit against Atul Patel (“Mr. Patel”).
Mr. Patel subsequently filed a cross-complaint asserting claims against numerous cross-defendants, including the Company.
Mr. Patel asserted various claims in his Second Amended Cross-Complaint against the Company, including claims for conversion,
fraudulent transfers, and successor liability. On October 21, 2015, the court heard the Company’s demurrer to Mr. Patel’s
Second Amended Cross-Complaint. Adaptive reached a confidential settlement on this matter on February 16, 2016.
|
|
|
16.
|
AdOn
Network, LLC v. OneScreen, Inc., et al.,
|
|
|
|
San
Francisco Superior Court Case No. CGC-14-542878. AdOn Network, LLC (“AdOn”) originally filed suit against OneScreen
arising out of an alleged settlement agreement that OneScreen entered into with AdOn on March 14, 2014. AdOn asserts that
OneScreen breached the settlement and asserts various contractual and quasi-contractual claims against OneScreen. AdOn is
seeking damages of approximately $429,000. In its First Amended Complaint, Plaintiff also sued the Company for successor liability
for OneScreen’s alleged debts. The Company demurred to the First Amended Complaint, but the court denied the demurrer.
The Company has answered the First Amended Complaint and intends to vigorously defend against the claims. Adaptive filed a
summary judgement motion which is set for hearing on July 28, 2016.
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
17.
|
MeetMe,
Inc. v. Beanstock Media, Inc., et al., Philadelphia Court of Common Pleas
|
|
|
|
On
September 29, 2015, MeetMe, Inc. (“MeetMe”) filed suit against Beanstock Media, Inc. (“Beanstock”)
and the Company. MeetMe asserts breach of contract claims regarding an alleged debt that it claims it is owed by Beanstock.
MeetMe also claims that the Company allegedly guaranteed Beanstock’s debt through a subsequent agreement. The parties
are exploring settlement of the matter, but Adaptive intends to vigoursly defend against the claims if a settlement is not
reached. On January 5, 2016, Beanstock was put into involuntary bankruptcy. Beanstock’s bankruptcy has resulted in a
stay of the proceedings of the case, and the Court recently denied MeetMe’s motion to sever the claims against Adaptive.
Since the case is in its preliminary stages and currently stayed, and no discover has been take, it is impossible to determine
the exact likelihood of success on MeetMe’s claims. The parties are exploring potential settlement of the matter.
|
|
|
18.
|
Adaptive
Medias, Inc. v. Beanstock Media, Inc, et al.
|
|
|
|
On
September 28, 2015, Adaptive filed suit against MeetMe, Inc (“MeetMe”), Jim Waltz, (“Waltz) and Beanstock
Media, Inc, (“Beanstock”) in Orange County Superior court. Adaptive’s lawsuit, among other things, asserts
that Beanstock and Waltz fraudulently induced Adaptive into making a payment to MeetMe on behalf of Beanstock in the amount
of $600,000, and that Waltz and Beanstock fraudulently induced Adaptive’s President to sign a purported guarantee of
certain Beanstock payment obligation to MeetMe. Adaptive also asserts that Waltz breached his fiduciary duties to Adaptive,
and that MeetMe aided and abetted those breaches. Adaptive seeks an amount of damages to be proved a trial, declaratory relief,
recession, and punitive damages. On January 5, 2016, Beanstock was put into involuntary bankruptcy. Beanstock’s bankruptcy
has resulted in a stay of the proceedings. Because MeetMe and Waltz have not yet answered the Complaint, the case is currently
stayed, and no discovery has been taken, it is impossible to determine the exact likelihood of success on these claims. The
parties are exploring potential settlement of the matter.
|
|
|
19.
|
Adaptive
Medias, Inc. v. Jim Waltz, et al., Orange County Superior Court Case No. 30-2015-00812007-CU-FR-CJC
|
|
|
|
On
September 28, 2015, the Company filed suit against former director Jim Waltz (“Mr. Waltz”), Beanstock and MeetMe,
Inc. The Company asserts various claims relating to Mr. Waltz’ self-dealing as a director of the Company , including
fraudulent conduct that resulted in Adaptive Medias paying and allegedly guaranteeing obligations incurred by Beanstock. Among
other relief, the Company seeks to recover the monies that were paid to MeetMe, and it seeks to void and/or rescind the obligations
Adaptive Medias allegedly incurred as a result of Mr. Waltz’ fraudulent conduct and breaches of his fiduciary duties.
None of the defendants have yet responded to the Complaint.
|
Other
Commitments and Contingencies
Rescission
of Previously Announced and Accrued Settlement
On
May 6, 2015, the Company entered into a Confidential Settlement Agreement and Mutual Release (the “Settlement”) with
Gregg Templeton, pursuant to which the Company and Mr. Templeton agreed to mutually release one another from any and all obligations
under previous consulting arrangements between the parties. Pursuant to the terms of the Settlement Agreement, in exchange for
consulting services previously rendered to the Company, the Company’s shall pay to Mr. Templeton (i) a cash fee in the amount
of $405,000; (ii) 318,343 shares of the Company’s common stock; and (iii) a five-year warrant to purchase 1,500,000 shares
of the Company’s common stock at a price of $3.00 per share. This settlement was authorized by two of three Board members
and was accrued as of March 31, 2015. It was later determined that the settlement document itself was never signed by an officer
of the Company and the Company has no intentions of settling this issue on the terms noted above. Further, the Chairman of the
Board, being the only sitting Board member rescinded the Board authorization for this settlement on July 22, 2015.
Reversals
of Certain Liabilities
During
the third quarter of 2015, the Company reversed certain legacy liabilities in the amount of $658,000 that were carried over from
the Mimvi transaction in 2013. Upon the Company’s review, it was determined that these amounts did not represent valid liabilities.
In addition, certain liabilities recorded in prior years in the amount of $315,000 were determined to be invalid and were reversed.
The aggregate of these reversals in the amount of $973,000 were recorded as a component of “Other income” in the accompanying
statements of operations for the year ended December 31, 2015.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
11 – Subsequent Events
The
Company follows the guidance in FASB ASC Topic 855,
Subsequent Events
(“ASC 855”), which provides guidance
to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before
the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance
sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition
or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date.
Loan
transactions
On
February 22, 2016, the Company entered into a convertible promissory note with an outside investor for a principal amount of $245,000
in exchange for $220,400 with a maturity date of November 19, 2016. The note is convertible at a conversion price of 60% of the
lowest trading price of the Company’s common stock for the previous 20 trading days prior to the conversion date. The note
bears interest at 12% per annum.
The
holder of the February 22, 2016 discount convertible debenture also received warrants to purchase an aggregate of 1,276,042 shares
of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.50 per share for a period of five
(5) years.
On
March 4, 2016 the Company entered into a convertible promissory note with an outside investor for a principal amount of $335,000
in exchange for $253,000 with a maturity date of September 4, 2016. The note is convertible at a conversion price of 60% of the
lowest trading price of the Company’s common stock for the previous 20 trading days prior to the conversion date.
On
March 15, 2016, the Company entered into a convertible promissory note with an outside investor for a principal amount of $40,000
in exchange for $34,000 with a maturity date of March 15, 2017. The note is convertible at a conversion price of 60% of the lowest
trading price of the Company’s common stock for the previous 20 trading days prior to the conversion date. The note bears
interest at 10% per annum.