NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015
Note
1 – BASIS OF PRESENTATION AND ORGANIZATION
NATURE
OF THE BUSINESS
FlikMedia,
Inc. was incorporated in the State of Nevada on July 29, 2009, under the name Go Green Directories, Inc. and changed its name
to Crossbox, Inc. on January 15, 2014. On July 7, 2014, in contemplation of its acquisition of Flikdate, Inc., Crossbox changed
its name to FlikMedia, Inc. We were a development stage company prior to our acquisition of Flikdate described below. When used
in these notes, the terms “Company,” “we,” “our,” or “us” mean FlikMedia, Inc.
and Subsidiary.
Flikdate,
Inc., was incorporated under the laws of the State of Delaware on November 28, 2012. On April 9, 2013, Flikdate, Inc. merged with
Flikdate, LLC. Under the terms of the Merger Agreement, the sole member of Flikdate, LLC received a total of 100 shares of voting
common stock of Flikdate, Inc. In addition, pursuant to the agreement, Flikdate, LLC ceased as of April 9, 2013.
On
July 24, 2014, FlikMedia acquired Flikdate. Under the terms of the Exchange Agreement, all stockholders of Flikdate received a
total of 32,291,287 shares of voting common stock of FlikMedia in exchange for all outstanding shares of Flikdate. Under accounting
principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance,
rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Flikdate for the net
monetary assets of FlikMedia accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly,
the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will
be recorded. Under share reverse takeover accounting, the post reverse acquisition comparative historical financial statements
of the legal acquirer, FlikMedia are those of the legal acquiree, Flikdate, which is considered to be the accounting acquirer.
Share and per share amounts stated have been retroactively adjusted to reflect the merger.
On
August 14, 2015 the Company determined that it no longer has sufficient assets available to meet new obligations or liabilities
that may arise after that date. As a result the Company has ceased normal operations pending new sources of working capital to
satisfy its day-to-day operations. For the period ended December 31, 2015 the Company has made certain adjustments to the carrying
value of its assets to impair to zero, which reflects managements anticipated market value for those assets.
Organization
Flikdate
has developed a software application to enable men and women to engage in live video social “dating” interaction on
their mobile phones. The technology permits users to go on a virtual date and quickly skip – or “flik” in the
parlance of the application - between multiple users. Flikdate is the world’s first real-time video speed dating platform
and it anticipates generating revenue in the future from a patented technology which bills users per duration of video session.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”).
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of FlikMedia, Inc. and its wholly owned subsidiary Flikdate,
Inc. All inter-company accounts and transactions have been eliminated in the preparation of these condensed consolidated statements.
Income
Taxes
The
Company utilizes the liability method of accounting for income tax. Under the liability method, deferred income tax assets and
liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities
The
Company has adopted accounting standards for the accounting for uncertain income taxes. These standards provide guidance for the
accounting and disclosure about uncertain tax positions taken. Management believes that all of the positions taken in its federal
and states income tax returns are more likely than not to be sustained upon examination.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are
reflected in the condensed consolidated financial statements in the period they are determined.
Research
and Development
Research
and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development.
Research and development expenses also include third-party development and programming costs, localization costs incurred to translate
software for international markets, and the amortization of purchased software code and services content. Such costs related to
software development are included in research and development expense until the point that technological feasibility is reached,
which for our software products, is generally shortly before the products are put into service. Once technological feasibility
is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products. Research and
development expense is included as an operating expense.
Debt
with Detachable Stock Purchase Warrants and Beneficial Conversion Features
The
proceeds received from debt issued with detachable stock purchase warrants is allocated between the notes and the warrants, based
upon the relative fair values of the two securities. The difference between the proceeds allocated to the notes and the face value
of the notes is recognized as beneficial conversion feature and reflected as a discount from the convertible notes with a corresponding
credit to additional paid-in capital. This beneficial conversion feature together with the value of the warrants is amortized
to interest expense over the term of the debt instrument, using the effective interest method.
Risks
and Uncertainties
The
Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated
with financing, liquidity requirements, rapidly changing customer requirements and technologies and limited operating history.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess
such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of
the amount of relief sought or expected to be sought.
If
the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they
involve guarantees, in which case the guarantee would be disclosed.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill
is not amortized but is evaluated for impairment at the reporting unit level annually as of December 31, or more frequently if
events or changes in circumstances indicate that impairment may exist.
Effective
November 28, 2012, the Company adopted ASU 2011-08, which allows the Company to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. This step serves as
the basis for determining whether it is necessary to perform the two-step goodwill impairment test. The two-step test first compares
the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, no impairment exists,
and the second step is not performed. If the fair value is less than the carrying value, the second step is performed to compute
the amount of the impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
The adoption did not have a material impact on the condensed consolidated financial statements.
The
Company determined that goodwill was impaired during the year ended December 31, 2015 and recorded an impairment loss of $117,224.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments
and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined
as follows:
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
As
of December 31, 2015 and 2014, the Company did not identify any assets and liabilities that are required to be presented on the
balance sheet at fair value.
Intangible
Assets
The
Company records identifiable intangible assets at fair value on the date of acquisition and evaluates the useful life of each
asset. Finite-lived intangible assets primarily consist of software development capitalized. Finite-lived intangible assets are
amortized on a straight-line basis and are tested for recoverability if events or changes in circumstances indicate that their
carrying amounts may not be recoverable. These intangibles have useful lives ranging from 1 to 10 years. As of December 31, 2015,
all intangible assets were deemed to be impaired.
Recently
Issued Accounting Pronouncements
There
have been no new accounting pronouncements during the year ended December 31, 2015 that we believe would have a material impact
on our financial position or results of operations.
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its
assets and discharge its liabilities in the normal course of business. As of December 31, 2015, the Company has no revenue, and
has an accumulated deficit of $5,153,661. The continuation of the Company as a going concern is dependent upon the continued financial
support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity
financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Note
3 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of December 31, 2015 and 2014:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Development costs
|
|
$
|
77,000
|
|
|
$
|
77,000
|
|
Trademarks
|
|
|
19,438
|
|
|
|
19,438
|
|
Intangible assets
|
|
|
96,438
|
|
|
|
96,438
|
|
Accumulated amortization
|
|
|
(77,000
|
)
|
|
|
(66,306
|
)
|
Impairment loss
|
|
|
(19,438
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
30,133
|
|
Development
costs were amortized over 3 years. Amortization expense was $10,694 and $19,250 for the year ended December 31, 2015 and 2014,
respectively.
The
Company concluded that all intangible assets including goodwill were impaired during the year ended December 31, 2015 and recorded
$19,438 in impairment loss for the intangible asset.
Note
4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As
of December 31, 2015 and 2014, accounts payable and accrued expenses consist of the following:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Accounts
payable
|
|
$
|
268,986
|
|
|
$
|
163,343
|
|
Accrued
wages
|
|
|
271,095
|
|
|
|
81,095
|
|
Accrued
expenses
|
|
|
75,634
|
|
|
|
28,250
|
|
Accrued
interest
|
|
|
56,655
|
|
|
|
4,753
|
|
Total
|
|
$
|
672,298
|
|
|
$
|
277,441
|
|
Note
5 – CONVERTIBLE NOTES
Between
October 26 and December 9, 2014, the Company entered into several convertible note agreements totaling $400,000. Terms of the
convertible note include interest at the rate of ten percent per annum, compounded annually payable upon maturity with exercise
price of $1 per share and the right to convert the note automatically at the next equity financing or upon the event of a corporate
transaction prior to full payment of a note or prior to the time when a note may be converted with interest.
In
February, March, May and June 2015, the Company entered into convertible note agreements totaling $150,000. Terms of the convertible
note include interest at the rate of ten percent per annum, compounded annually payable upon maturity with exercise price of $1
per share and the right to convert the note automatically at the next equity financing or upon the event of a corporate transaction
prior to full payment of a note or prior to the time when a note may be converted with interest.
In
connection with the issuance of these notes, the Company issued warrants that were recorded as a debt discount at an initial aggregate
value of $208,850. The fair value of the beneficial conversion feature of the notes were determined to be $255,150. The value
of these warrants and beneficial conversion features, along with the value of previously issued warrants, was amortized over the
life of the loan.
As
of December 31, 2015 and 2014 outstanding convertible notes payable consisted of the following:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Convertible notes, due October – December
2019
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Convertible notes, due January – March 2020
|
|
|
125,000
|
|
|
|
-
|
|
Convertible notes, due April –
June 2020
|
|
|
25,000
|
|
|
|
-
|
|
Total
|
|
$
|
550,000
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Long term portion
|
|
|
550,000
|
|
|
|
400,000
|
|
Less beneficial conversion feature
|
|
|
(201,680
|
)
|
|
|
(214,106
|
)
|
Less debt Discount
|
|
|
(172,653
|
)
|
|
|
(176,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175,667
|
|
|
$
|
9,501
|
|
For
the years ended December 31, 2015 and 2014, interest expenses for the convertible loans including discounts for warrants and beneficial
conversion feature was $144,317 and $27,641, respectively.
Note
6 – STOCK WARRANT
In
connection with the issuance of the $400,000 convertible notes, the Company issued warrants to all the convertible loan holders
to purchase an aggregate of 80,000 shares of common stock. The warrants have a conversion price of $1 per share and expires 5
years from the date of the convertible loan. The fair value of the warrants was estimated at $180,550 using a Black-Scholes model
with the following assumptions: expected volatility of 165.83% to 171.12%, risk free interest of 1.57% to 1.64%, expected life
of 5 years and no dividends. The fair value of the warrants was recorded as equity and a debt discount and will be amortized to
interest expense over the term of the loan.
In
connection with the issuance of the $150,000 convertible notes, the Company issued warrants to all the convertible note holders
to purchase an aggregate of 30,000 shares of common stock. The warrants have a conversion price of $1 per share and expire 5 years
from the date of the convertible loan. The fair value of the warrants was estimated at $34,650 using a Black-Scholes model with
the following assumptions: expected volatility of 226% to 238%, risk free interest of 1.28% to 1.65%, expected life of 5 years
and no dividends. The fair value of the warrants was recorded as equity and a debt discount and will be amortized to interest
expense over the term of the loan.
As
of December 31, 2015 and 2014 outstanding stock warrants consisted of the following:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term
|
|
Balance
outstanding, December 31, 2014
|
|
|
80,000
|
|
|
$
|
1.00
|
|
|
|
4.88
|
|
Granted
|
|
|
30,000
|
|
|
|
1.00
|
|
|
|
4.46
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
outstanding, December 31, 2015
|
|
|
110,000
|
|
|
$
|
1.00
|
|
|
|
4.23
|
|
Exercisable,
December 31, 2015
|
|
|
110,000
|
|
|
$
|
1.00
|
|
|
|
4.23
|
|
Note
7 – STOCK COMPENSATION
On
December 18, 2014, the Board of Directors of the Company appointed Mr. David R. Wells, to serve as the Company’s Interim
Chief Financial Officer. As compensation for his services, the Company agreed to issue Mr. Wells 450,000 restricted shares of
common stock on the date that is 90 days from the date of the employment agreement, and an additional 100,000 restricted shares
of common stock to be issued on a quarterly basis in arrears commencing on December 31, 2015 through the end of the initial employment
term on December 31, 2016. During the year ended December 31, 2015, $2,125,000 in fair value was recognized under this award.
During the year ended December 31, 2015, 550,000 shares have been issued under this agreement.
During
the year ended December 31, 2015, the Company issued 631,002 shares of common stock at fair value for $640,700 under three separate
consulting agreements and recorded shares to be issued for $10,500.
Note
8 – RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2015 and 2014, the Company contracted services from a related company controlled by shareholders and
officers of this Company. Contracted services included development and technology costs and administrative services that amounted
to $82,691 and $76,791, respectively.
Note
9 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred
Stock
The
Company has 5,000,000 shares Preferred Stock authorized at a par value of $0.001 and there are no outstanding as of December 31,
2015 and 2014.
Common
Stock
The
Company has 75,000,000 shares of Common Stock authorized at a par value of $0.001 as of December 31, 2015 and 2014. There were
46,735,500 and 45,554,498 shares issued and outstanding as of December 31, 2015 and 2014, respectively.
During
the year ended December 31, 2015, the Company issued 1,181,002 shares of common stock, including 631,002 shares of common stock
issued under three separate consulting agreements, and 550,000 shares of common stock to its CFO.
Dividend
Policy
The
Company has not yet adopted a policy regarding the payment of dividends and no dividends have been declared.
Note
10 – INCOME TAX
The
following is the income tax expense reflected in the Statement of Operations for the years ended December 31, 2015 and 2014:
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
2014
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following are the components of loss before income tax reflected in the Statement of Operations for the years ended December 31,
2015 and 2014:
Components
Of Loss Before Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Loss
before income tax
|
|
$
|
(3,743,376)
|
|
|
$
|
(1,166,154
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following is a reconciliation of the provision for income taxes at the US federal income tax rate to the income taxes reflected
in the Statement of Operations for the period ended December 31, 2015:
Income
Tax Rate Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
US
statutory rates
|
|
|
34
|
%
|
|
|
34
|
%
|
Loss
from operations
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
Tax
expense at actual rate
|
|
|
-
|
%
|
|
|
-
|
%
|
Note
11 –
COMMITMENTS AND CONTINGENCIES
Legal
Matters
In
the ordinary course of business, The Company may become subject to certain lawsuits and other potential legal actions. The Company
does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position
or results of operations. As of December 31, 2015, the Company reserved $20,000 for possible future settlements.
One
of these actions was brought by the Washington State Department of Financial Institutions Securities Division (the “Washington
DFI”) against us and its two directors as controlled persons. The case alleges a violation of the anti-fraud provisions
of Washington State Securities law in connection with FlikMedia’s unilateral action to purchase of stock from a former employee,
including vested shares. The Washington DFI seeks to impose a certain fines against us and each director. FlikMedia and its directors
have responded to the Washington DFI action and have asserted that the action is a private litigation matter and should be dismissed
for, among other reasons, lack of jurisdiction. Related to the DFI action, the Company received a demand letter from the former
employee claiming damages based on 327,532 shares of the Company’s common stock.
Note
12 – SUBSEQUENT EVENTS
Mr.
David R. Wells resigned as our Chief Financial Officer, effective January 4, 2016.
On
January 11, 2016, the Board of Directors of the Company appointed Mr. Mark W. Lee, to serve as our Chief Financial Officer on
an interim basis.
The Company retained Mr. Lee
under the terms of a consulting agreement dated January 11, 2016, which provides for an initial term that expires December 31,
2017 subject to any party terminating the agreement upon 30 day’s notice, compensation of $2,500 per month and certain other
customary terms.
Mr. Lee resigned as our Chief Financial Officer, effective February 22,
2016.