The accompanying notes are an integral part
of these consolidated financial statements.
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.
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.
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.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
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 March 31, 2016, the Company had an accumulated deficit
of $63,930,638. 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.
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 March 31,
2016 and December 31, 2015 is adequate, but actual write-offs could exceed the recorded allowance.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
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.
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.
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.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
As
of March 31, 2016 and December 31, 2015, we did not have any level 3 assets or liabilities. As of March 31, 2016 and 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.
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 March 31, 2016 and December 31, 2015.
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Websites
|
|
$
|
11,297
|
|
|
$
|
11,297
|
|
Customer lists
|
|
|
306,505
|
|
|
|
306,505
|
|
Developed technology
|
|
|
3,995,098
|
|
|
|
3,995,098
|
|
Trade names
|
|
|
71,235
|
|
|
|
71,235
|
|
|
|
|
4,384,135
|
|
|
|
4,384,135
|
|
Less: accumulated amortization
|
|
$
|
(4,125,765
|
)
|
|
$
|
(4,088,730
|
)
|
Intangible assets, net
|
|
|
258,370
|
|
|
|
295,405
|
|
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 $37,035 and $650,218 for the three months
ended March 31, 2016 and 2015, respectively.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
4 – Convertible Notes Payable
The
following tables describes the Company’s convertible notes payable as of March 31, 2016 and December 31, 2015.
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Principal
|
|
|
Accrued Interest
|
|
|
Principal
|
|
|
Accrued Interest
|
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2015 convertible notes
|
|
$
|
1,182,815
|
|
|
$
|
-
|
|
|
$
|
1,470,588
|
|
|
$
|
-
|
|
Convetible note #1
|
|
|
-
|
|
|
|
-
|
|
|
|
245,000
|
|
|
|
-
|
|
Convertible note #2
|
|
|
21,528
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
8,800
|
|
Convertible note #3
|
|
|
245,000
|
|
|
|
3,061
|
|
|
|
-
|
|
|
|
-
|
|
Convertible note #4
|
|
|
60,500
|
|
|
|
716
|
|
|
|
-
|
|
|
|
-
|
|
Convertible note #5
|
|
|
335,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible note #6
|
|
|
40,000
|
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
Debt Discount
|
|
|
(1,307,822
|
)
|
|
|
-
|
|
|
|
(1,150,417
|
)
|
|
|
|
|
Subtotal convertible notes net
|
|
|
577,021
|
|
|
|
3,952
|
|
|
|
675,172
|
|
|
|
8,800
|
|
Related party promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party promissory note #1
|
|
|
-
|
|
|
|
-
|
|
|
|
46,795
|
|
|
|
-
|
|
Total
|
|
|
577,021
|
|
|
|
3,952
|
|
|
|
721,967
|
|
|
|
8,800
|
|
Current portion
|
|
|
577,021
|
|
|
|
3,952
|
|
|
|
721,967
|
|
|
|
8,800
|
|
Long-term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
and Repayments of Convertible Promissory Notes
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
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%.
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. This note was paid in full on 3/28/16.
On
October 26, 2015, the Company entered into convertible promissory note #1 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. This note was repaid
with cash in full on February 22, 2016.
On
November 13, 2015, the Company entered into a convertible promissory note #2 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%.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
The
holder of convertible promissory note #2 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%.
On
February 22, 2016, the Company entered into convertible promissory note #3 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 lessor
of 60% of the lowest trading price of the Company’s common stock for the previous 20 trading days prior to the execution
date or conversion date. The note bears 12% interest per annum. According to ASC 815, the Company recorded a derivative liability
and valued the conversion feature of the notes using the Black-Scholes model. The following were used to determine to the value:
volatility of 246.15%, risk free rate of .51%.
The
holder of convertible promissory note #3 also received warrants to purchase an aggregate of 2,543,605 shares of the Company’s
common stock, par value $0.0001 per share, for an exercise price of $.60 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 the Black Sholes
model. The following were used to determine to the value: volatility of 246.2%, risk free rate of .92%.
On
February 24, 2016, the Company entered into convertible promissory note #4 with an outside investor for a principal amount of
$60,500 in exchange for $55,000 with a maturity date of February 23, 2018. The note is convertible at a conversion price lessor
of $.48 per share 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 per annum. According to ASC 815, the Company recorded a derivative liability
and valued the conversion feature of the notes using the Black-Scholes model. The following were used to determine to the value:
volatility of 245.9%, risk free rate of .75%.
On
March 3, 2016, the Company entered into convertible promissory note #5 with an outside investor for a principal amount of $335,000
in exchange for $253,000 with a maturity date of September 3, 2016. The holder was also issued 150,000 shares of the company common
stock in connection with this note. The note is convertible at a conversion price lessor 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 and
is not convertible until an event of default occurs under which it would bear an interest rate of 22% per annum.
The
holder of convertible promissory note #5 also received warrants to purchase an aggregate of 652,597 shares of the Company’s
common stock, par value $0.0001 per share, for an exercise price of $.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 the Black Sholes
model. The following were used to determine to the value: volatility of 248%, risk free rate of .98%.
On
March 15, 2016, the Company entered into convertible promissory note #6 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 58% 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 per annum. According to ASC 815, the Company recorded a derivative liability and valued the conversion feature of
the notes using the Black-Scholes model. The following were used to determine to the value: volatility of 248%, risk free rate
of .98%.
Please
refer to Note 5 for derivative valuations of the above notes and warrants.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
5 – Derivative Financial Instruments
The
Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under
which convertible instruments, which contain terms that protect holders from declines in the stock price, may not be exempt from
derivative accounting treatment. As a result, embedded conversion options (whose exercise price is not fixed and determinable)
in convertible debt (which is not conventionally convertible due to the exercise price not being fixed and determinable) are initially
recorded as a liability and are revalued at fair value at each reporting date using the Black Sholes Model.
The
following table describes the Derivative liability as of March 31, 2016 and December 31, 2015.
|
|
|
|
|
Revaluation at
|
|
|
(Gain)/Loss for
Three Months
Ended
|
|
|
Revaluation at
|
|
|
|
Initial derivative valuation
|
|
|
December 31, 2015
|
|
|
March 31, 2016
|
|
|
March 31, 2016
|
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2015 convertible notes
|
|
$
|
1,487,822
|
|
|
$
|
519,575
|
|
|
$
|
203,739
|
|
|
$
|
723,314
|
|
Convetible note #1
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible note #2
|
|
|
121,986
|
|
|
|
153,813
|
|
|
|
20,070
|
|
|
|
79,995
|
|
Convertible note #3
|
|
|
1,504,118
|
|
|
|
-
|
|
|
|
(635,012
|
)
|
|
|
869,106
|
|
Convertible note #4
|
|
|
234,412
|
|
|
|
-
|
|
|
|
(121,611
|
)
|
|
|
112,801
|
|
Convertible note #5
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible note #6
|
|
|
42,100
|
|
|
|
-
|
|
|
|
27,861
|
|
|
|
69,961
|
|
Warrants attached to convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2015 warrants
|
|
|
1,631,357
|
|
|
|
747,965
|
|
|
|
296,520
|
|
|
|
1,044,485
|
|
Convertible note #2 warrants
|
|
|
87,851
|
|
|
|
59,925
|
|
|
|
(70,225
|
)
|
|
|
83,588
|
|
Convertible note #3 warrants
|
|
|
1,213,554
|
|
|
|
-
|
|
|
|
(490,153
|
)
|
|
|
723,401
|
|
Convertible note #5 warrants
|
|
|
251,119
|
|
|
|
-
|
|
|
|
(65,455
|
)
|
|
|
185,664
|
|
Total
|
|
|
6,574,319
|
|
|
|
1,481,278
|
|
|
|
(834,266
|
)
|
|
|
3,892,315
|
|
Note
6 – Stockholders’ Deficit
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 March 31, 2016 and December 31, 2015, 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 three months ended March 31, 2016, the Company issued 3,606,302 shares of its common stock to various employees and consultants
in exchange for services rendered with an aggregate fair value of $1,866,614. The Company also issued 3,422,306 shares to settle
debt for an aggregate fair value of $666,898. The total number of shares outstanding as of March 31, 2016 was 29,925,134.
During
the three months ended March 31, 2015, the Company issued 179,960 shares of its common stock to various employees and consultants
in exchange for services rendered with an aggregate fair value of $577,633. The total number of shares outstanding as of March
31, 2015 was 14,049,731.
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 three months ended March 31, 2016:
|
|
Common
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding as of December 31, 2015
|
|
|
393,875
|
|
|
$
|
0.65
|
|
Granted
|
|
|
50,000
|
|
|
|
0.59
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited, cancelled, expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of March 31, 2016
|
|
|
443,875
|
|
|
$
|
0.64
|
|
As
of March 31, 2016 28,169,022 shares were available for future grants.
Warrants
The
following table reflects warrant activity during the three months ended March 31, 2016:
|
|
Warrants for
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding and exercisable as of December 31, 2015
|
|
|
8,539,909
|
|
|
$
|
4.00
|
|
Granted
|
|
|
3,196,202
|
|
|
|
0.58
|
|
Exercised – cash
|
|
|
-
|
|
|
|
-
|
|
Exercised - cash-less exercise
|
|
|
-
|
|
|
|
-
|
|
Forfeited, cancelled, expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of March 31, 2016
|
|
|
11,736,111
|
|
|
$
|
3.07
|
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
7 – 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 three months ended March 31, 2016 and 2015:
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator for income (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
(5,629,972
|
)
|
|
$
|
(6,958,660
|
)
|
Numerator for diluted income (loss) per share
|
|
$
|
(5,629,972
|
)
|
|
$
|
(6,958,660
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for income (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
26,808,484
|
|
|
|
13,906,033
|
|
Convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
Denominator for diluted income (loss) per share
|
|
|
26,808,484
|
|
|
|
13,906,033
|
|
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:
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible notes
|
|
|
11,254,810
|
|
|
|
-
|
|
Options
|
|
|
443,875
|
|
|
|
1,477,977
|
|
Warrants
|
|
|
11,736,111
|
|
|
|
2,879,627
|
|
Total anti-dilutive weighted average shares
|
|
|
23,434,796
|
|
|
|
4,357,604
|
|
If
all dilutive securities had been exercised at March 31, 2016 the total number of common shares outstanding would be as follows:
Common shares
|
|
|
29,952,134
|
|
Convertible notes
|
|
|
11,254,810
|
|
Options
|
|
|
443,875
|
|
Warrants
|
|
|
11,736,111
|
|
Total potential shares
|
|
|
53,386,930
|
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
8 – Concentrations
The
following table reflects the concentration of revenue during the years ended March 31, 2016 and 2015:
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Customer 1
|
|
|
25
|
%
|
|
|
0
|
%
|
Customer 2
|
|
|
23
|
%
|
|
|
3
|
%
|
Customer 3
|
|
|
13
|
%
|
|
|
2
|
%
|
Customer 4
|
|
|
0
|
%
|
|
|
19
|
%
|
Customer 5
|
|
|
0
|
%
|
|
|
13
|
%
|
Customers
in excess of 10% or more as included in the table above represent $93,847 and $309,073 of gross accounts receivable as of March
31, 2016 and 2015, respectively.
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
Note
9 – 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.
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. A trial date has been scheduled in February of 2017.
|
|
|
|
|
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 previously scheduled for July 8, 2016 but has been delayed and as of the
date of this filing has not been rescheduled.
|
|
|
|
|
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. An Arbitration trial previously scheduled
for June 20, 2016 but has been delayed and as of the date of this filing has not been rescheduled.
|
|
|
|
|
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. The Company has since settled the matter for $65,000 in Company common stock.
|
|
|
|
|
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.
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
|
8.
|
Phunware,
Inc. adv. Adaptive Medias, Inc.
|
|
|
|
|
|
Phunware,
Inc. has asserted a claim against Adaptive for $6,133. The Company denies any liability
but has yet to answer the complaint.
|
|
|
|
|
9.
|
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. The Company denies any liability. As of the date of this filing no further action has been
made by the plaintiff.
|
|
|
|
|
10.
|
Crowdgather,
Inc. adv. Adaptive Medias, Inc.
|
|
|
|
|
|
Crowd
Gather has asserted a claim against Adaptive for $10,987.
|
|
|
|
|
11.
|
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.
|
|
|
|
|
12.
|
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.
|
|
|
|
|
13.
|
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.
|
ADAPTIVE
MEDIAS, INC.
Notes
to the Consolidated Financial Statements
|
14.
|
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 due to Beanstalk filing for Bankruptcy, and no discovery has been taken, it is impossible to determine the exact likelihood
of success on these claims.
|
|
|
|
|
15.
|
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. Because MeetMe and Waltz have not yet answered the Complaint, the case is currently stayed due to
Beanstalk filing for Bankruptcy, and no discovery has been taken, it is impossible to determine the exact likelihood of success
on these claims.
|
Note
10 – Subsequent Events
Subsequent to March 31, 2016 through the date
of this filing the Company has issued 75,714,361 common shares for various services and settlements of debt and notes payable.
ADAPTIVE
MEDIAS, INC.