(The accompanying notes are an integral part of these condensed consolidated financial statements)
(The accompanying notes are an integral part of these condensed consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these condensed consolidated financial statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
NOTE 1 – ORGANIZATION AND GOING CONCERN
Organization
Our company's name is Multimedia Platforms, Inc. (the "
Company
"). The Company was incorporated on April 3, 1996 in the State of Nevada as Jubilee Trading Corp. On March 3, 2002, the Company changed its name to PorFavor Corp. From inception until March 2010, we operated as a broker of structural wood materials. On February 4, 2011, The Company acquired ExploreAnywhere Inc. and changed its name to the same. On December 24, 2013, the Company changed its name to Sports Media Entertainment Corp. in anticipation of a future merger.
On January 9, 2015, Multimedia Platforms, Inc. (the "
Registrant
" and "
Legal Acquirer
") entered, and on February 2, 2015, closed, a Share Exchange Agreement (the "
Merger
"), between and among the Company and Multimedia Platforms, LLC, a Florida Limited Liability Corporation ("
MMP LLC
") ("
Accounting Acquirer
"), all the members of MMP LLC (the "
Members
"), Harrison Holdings, LLC and Amalfi Coast Capital (collectively, the "
Debt Holders
"). Pursuant to the Merger, the Registrant was (i) to issue to the Debt Holders a total of 4,000,000 shares of Series B Convertible Preferred stock in exchange for all the indebtedness of the Company totaling approximately $688,138 as of December 31, 2014; (ii) to issue 21,320,832 shares of restricted common stock; and (iii) to issue 34,390,199 shares of Series A Convertible Preferred stock (collectively, the "
Merger Shares
") to the Members in exchange for 100% of the Members interest in MMP LLC. The Merger Shares were adjusted such that 30,748,969 shares of restricted common stock, 27,212,694 shares of Series A Convertible Preferred stock and 4,000,000 shares of Series B Convertible Preferred stock were ultimately issued. The share issuances represented approximately 97.6% of the total issued and outstanding shares of preferred and common stock of the Registrant post-closing. As a result, the Company (i) became the 100% parent of MMP LLC; (ii) assumed the operations of MMP LLC; (iii) changed its name from Sports Media Entertainment Corp. to Multimedia Platforms, Inc.; and (iv) experienced a change in control.
The terms and conditions of the Merger gave rise to reverse merger accounting whereby MMP LLC was deemed the acquirer for accounting purposes. Consequently, the assets and liabilities and the historical operations of MMP LLC prior to the Merger are reflected in the financial statements and have been recorded at the historical cost basis of MMP LLC. Our financial statements include the assets and liabilities of both the Company and MMP LLC.
On January 16, 2015, the Company, with the approval of its board of directors and its majority shareholders by written consent in lieu of a meeting, filed a Certificate of Amendment and Certificate of Change (collectively, the "Amendments") with the Secretary of State of Nevada. As a result of the Amendments, the Company (i) changed its name to Multi Media Platforms, Inc., (ii) authorized a 1:30 (one-for-thirty) reverse-split of its issued and authorized common shares, (iii) authorized 40,000,000 Series A Preferred Stock, par value $0.001, and (iv) authorized 4,000,000 Series B Preferred Stock, par value $0.001.
On February 27, 2015, the Company completed the acquisition of Columbia Funmap, Inc., a New Jersey Corporation ("
Funmap
"). The purchase price reflects an enterprise value of approximately $3,479,834, including assumed indebtedness, and was funded from the issuance of 2,252,250 shares of restricted common stock and a $10,000 note. The acquisition of Funmap will allow the Company to gain a distribution foothold in 35 metropolitan areas in North America and acquire control of a respected and vital travel tool for LGBT travelers, including the website www.gayosphere.com.
On June 17, 2015, the Company entered into an asset purchase agreement (the "
Asset Purchase Agreement
") with RND Enterprises, Inc. ("
RND
"), a New York company, pursuant to which the Company purchased substantially all of the assets of RND from its sole shareholder for a purchase price of $1,000,000, consisting of $200,000 in cash and $800,000 in restricted shares of common stock. Immediately prior to the transaction, the 5% shareholder of RND transferred all his interests in RND to Mr. Moyal for nominal amount. In consideration, the Company agreed to pay to the minority shareholder $30,000 in cash and issue 750,000 shares of common stock valued at $0.40 per share. In aggregate, the Company completed the acquisition transaction for an amount equal to $1,330,000, consisting of $230,000 in cash payable at closing and $1,100,000 in restricted shares of the Company's common stock, valued at $0.40 per share for a total of 2,750,000 shares. The transaction was closed on June 17, 2015. RND is engaged in the business of publishing an LGBT culture magazine known as
Next Magazine
.
On September 8, 2015, the Company entered into a membership interest purchase agreement, dated as of September 8, 2015, with Mr. Michael A. Turner, the sole member of New Frontiers Media Holdings, LLC, ("
Frontiers Media
"), to purchase 100% of the membership interests of Frontiers Media. The purchase price reflects an enterprise value of approximately $4,730,000, including the issuance of an aggregate of 14,400,000 shares of the Company's common stock, of which 3,000,000 shares of common stock shall be placed in escrow to be released upon achieving certain milestones, $500,000 in cash, consisting of $250,000 payable at the closing date and the remaining $250,000 in the form of a Promissory Note payable at the earlier of March 31, 2016 or the closing of an underwritten offering of not less than $3,000,000, and assumed assets and liabilities. The transaction was closed on September 8, 2015. Frontiers Media is active in live events, digital, mobile, streaming video, print and outdoor signage, and is best known as the publisher of the gay lifestyle magazine, Frontiers.
Going Concern
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America and applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the six months ended June 30, 2016, the Company recognized net revenue of $1,459,168 and a net loss of $4,698,798 and had negative working capital of $5,518,237 as of June 30, 2016.
In view of these conditions, the ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. Historically, the Company has relied upon internally generated funds and funds from the sale of shares of stock, issuance of promissory notes and loans from its shareholders and private investors to finance its operations and growth. Management is planning to raise necessary additional funds for working capital through loans and/or additional sales of its common stock. However, there is no assurance that the Company will be successful in raising additional capital or that such additional funds will be available on acceptable terms, if at all. Should the Company be unable to raise this amount of capital its operating plans will be limited to the amount of capital that it can access. These financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited financial statements of Multimedia platforms, Inc. as of June 30, 2016, and for the three and six months ended June 30, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and include the Company's wholly-owned subsidiaries. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015, as filed with the Securities and Exchange Commission as part of the Company's Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Columbia Funmap, Inc., New Frontiers Media Holdings, LLC and Multimedia Platforms, LLC. All intercompany transactions and balances have been eliminated in consolidation. As of June 30, 2016, the Company has a 100% interest in Columbia Funmap, Inc., 100% interest in New Frontiers Media Holdings, LLC and 100% interest in Multimedia Platforms, LLC. The results of each of these entities are consolidated with the Company's results from and after their respective acquisition dates based on guidance from the Financial Accounting Standards Board ("
FASB
") Accounting Standards Codification ("
ASC
") No. 810, "Consolidation" ("ASC 810").
Accounting estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") 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 revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
The Company maintains cash balances at two financial institutions. The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.
Accounts receivable
Accounts receivable represent receivables from customers for the sale of advertising, website listings, sponsorships and events. Our receivables are recorded as invoiced and represent claims that will be settled in cash. Our collection policy is that payment is due at time of advertising printing. The Company has recorded a $45,000 allowance for doubtful accounts.
Property, plant, and equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. Depreciation for financial statement purposes is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
Estimated
|
|
|
|
Useful Lives
|
|
|
|
|
|
Office Equipment
|
|
3 - 5 years
|
|
|
|
|
|
Furniture & equipment
|
|
5 - 7 years
|
|
Long-lived assets
The Company accounts for long-lived assets at cost. Other long-lived assets consist principally of property and equipment and identifiable intangible assets with finite useful lives (subject to amortization and depreciation). The Company may impair these assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company assesses the recoverability of long-lived assets using an assessment of the estimated undiscounted future cash flows related to such assets. In the event that assets are found to be carried at amounts which are in excess of estimated gross future cash flows, the assets will be adjusted for impairment to a level commensurate with fair value determined using a discounted cash flow analysis of the underlying assets.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses and general economic conditions.
Revenue Recognition
Revenues are recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service has been delivered and collectability is reasonably assured. We consider the terms of each arrangement to determine the appropriate accounting treatment.
Advertising Revenues
Advertising revenues are recognized at the magazine cover date, net of agency commissions and discounts. Advertising revenues from websites are recognized as impressions are delivered or as the services are performed. Customer payments received in advance of the performance of advertising services are recorded as deferred revenue in the Balance Sheets.
Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. During the three and six months ended June 30, 2016 and 2015, no customer accounted greater than 10% of revenue.
As of June 30, 2016, no customer accounted for greater than 10% of accounts receivable.
Derivatives - Warrant Liability
The Company accounts for the common stock warrants issued and still outstanding as of June 30, 2016 in connection with our 9% Convertible Notes (7,633,342 warrants) and Firstfire note (576,000 warrants) in accordance with the guidance contained in ASC 815-40-15-7F, "Contracts in Entity's Own Equity". Under that provision the warrants were determined to be ineligible for equity classification due to provisions that may result in an adjustment to their conversion or exercise prices via a down-round feature and must be recorded as a liability. Accordingly, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statements of operations. The fair value of the warrants issued by the Company in connection with the 9% Convertible Notes and Firstfire note has been estimated using a Monte Carlo simulation.
The warrant derivative liability balance was $77,686 as of June 30, 2016.
During the three and six months ended June 30, 2016, the Company recognized a gain of $47,673 and $143,842, respectively, in the fair value of warrant related derivatives compared to a loss of $2,825,003 and $4,200,004 during the three and six months ended June 30, 2015, respectively. Subsequent changes to the fair value of the derivative liabilities will continue to require adjustments to their carrying value that will be recorded as other income (in the event that their value decreases) or as other expense (in the event that their value increases). In general (all other factors being equal), the Company will record income when the market value of the Company's common stock decreases and will record expense when the value of the Company's stock increases. The Company's derivative liability has been measured at fair value at June 30, 2016 using a Monte-Carlo Simulation. Inputs into the model require estimates, including such items as estimated volatility of the Company's stock, estimated probabilities of additional financing, risk-free interest rate, dilution and the estimated life of the financial instruments being fair valued. In addition, since the conversion price contains an anti-dilution adjustment, the probability that the Conversion Price of the warrants would decrease as the share price decreased was also incorporated into the valuation calculation.
Derivatives - Bifurcated Conversion Option in Convertible Notes
The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued Convertible Notes with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.
The convertible notes conversion derivative liability was $0 as of June 30, 2016
During the three and six months ended June 30, 2016, the Company recognized a gain of $12,403 and $236,594, respectively, in the fair value of bifurcated conversion option related derivatives compared to a loss of $2,935,709 and $4,191,170 during the three and six months ended June 30, 2015, respectively. The 9% Convertible Notes and Firstfire note issued during year ended December 31, 2015 are subject to anti-dilution adjustments that allow for the reduction in the Conversion Price, as defined in the agreement, in the event the Company subsequently issues equity securities including Common Stock or any security convertible or exchangeable for shares of Common Stock for a price less than the current conversion price. The Company bifurcated and accounted for the conversion option in accordance with ASC 815 as a derivative liability, since this conversion feature is not considered to be indexed to the Company's own stock. The Company's derivative liability has been measured at fair value at June 30, 2016 using a Monte-Carlo Simulation.
Fair Value of Financial Instruments
We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2016, the carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities approximate fair value due to relatively short periods to maturity. The fair value of derivative liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, common stock, and derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate, and in some cases, credit spread. The derivative liabilities are the only Level 3 fair value measures.
At June 30, 2016, the estimated Level 3 fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
|
|
Fair Value Measurements at June 30, 2016
|
|
|
|
Carrying
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liability - warrants
|
|
|
77,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,686
|
|
Total liabilities measured at fair value
|
|
$
|
77,686
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
77,686
|
|
The following tables present the activity for Level 3 liabilities for the six months ended June 30, 2016:
Fair Value Measurements Using Level 3 Inputs
|
|
Warrant Derivative Liability
|
|
|
Note Conversion
Derivative Liability
|
|
|
Total
|
|
Balance – December 31, 2015
|
|
$
|
236,594
|
|
|
$
|
214,728
|
|
|
$
|
451,322
|
|
Additions during the period
|
|
|
-
|
|
|
|
6,800
|
|
|
|
6,800
|
|
Total unrealized (gains) or losses included in net loss
|
|
|
(236,594
|
)
|
|
|
(143,842
|
)
|
|
|
(380,436
|
)
|
Balance – June 30, 2016
|
|
$
|
-
|
|
|
$
|
77,686
|
|
|
$
|
77,686
|
|
Cost of Revenues
Costs of revenues primarily relate to production (e.g., paper, printing and distribution) and editorial costs. Production costs directly related to publications are expensed in the period that revenue is recognized for a publication (e.g., on the cover date of a magazine). Staff costs recognized as costs of revenues are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense to third parties for the three months ended June 30, 2016 and 2015 were $2,638 and $1,487, respectively. Advertising expense to third parties for the six months ended June 30, 2016 and 2015 were $4,132 and $1,997, respectively.
Shipping and Handling
Costs incurred for shipping and handling are reflected in Costs of revenues in the Statements of Operations.
Stock-Based Compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. We use the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. In calculating this fair value, there are certain assumptions that we use consisting of the expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.
We periodically issue restricted common stock as compensation. Pursuant to ASC 505-50-30-6 issuances are valued using the market price of the stock or value of the services rendered on the date of the related agreement, whichever is more readily determinable.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Classification of Interest and Penalties
Net Income (Loss) Per Share
The computation of basic earnings per share ("
EPS
") is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS, if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
Following is the computation of basic and diluted net loss per share for the three and six months ended June 30, 2016 and 2015:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(2,903,549
|
)
|
|
$
|
(6,880,165
|
)
|
|
$
|
(4,698,798
|
)
|
|
$
|
(13,474,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
72,714,860
|
|
|
|
35,798,817
|
|
|
|
70,544,907
|
|
|
|
34,134,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(0.04
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.39
|
)
|
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
Series A preferred stock
|
|
|
17,999,995
|
|
|
|
27,212,694
|
|
|
|
17,999,995
|
|
|
|
27,212,694
|
|
Series B preferred stock
|
|
|
1,435,598
|
|
|
|
4,000,000
|
|
|
|
1,435,598
|
|
|
|
4,000,000
|
|
Convertible promissory notes
|
|
|
14,850,818
|
|
|
|
5,491,591
|
|
|
|
14,850,818
|
|
|
|
5,491,591
|
|
Common stock purchase warrants
|
|
|
17,551,009
|
|
|
|
6,050,002
|
|
|
|
17,551,009
|
|
|
|
6,050,002
|
|
Recent Accounting Pronouncements
In September 2015, the FASB issued Accounting Standards Update ("
ASU
") 2015-16, Business Combinations (Topic 805). This ASU eliminates the requirement for retrospective application of measurement period adjustments relating to provisional amounts recorded in a business combination as of the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments will be effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This ASU provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and will be effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years. We expect the adoption of this guidance will not have a material impact on our financial statements.
In February 2015, the FASB issued ASU 2015-02, "Amendments to the Consolidation Analysis", which amends the consolidation requirements in ASC 810 and significantly changes the consolidation analysis required under U.S. GAAP relating to whether or not to consolidate certain legal entities. Early adoption is permitted. The Company's effective date for adoption is January 1, 2016. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
In January 2015, the FASB issued ASU 2015-01, "Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items", which eliminates the concept from U.S. GAAP the concept of an extraordinary item. Under the ASU, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. Early adoption is permitted. The Company's effective date for adoption is January 1, 2016. The Company does not expect this accounting update to have a material effect on its consolidated financial statements in future periods, although that could change.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 to further clarify the implementation guidance on principal versus agent considerations. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on the Company's consolidated financial statements and related disclosures.
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our financial statements.
NOTE 3 - Fixed Assets
Fixed assets consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Office equipment
|
|
$
|
24,599
|
|
|
$
|
24,599
|
|
Furniture and fixtures
|
|
|
18,234
|
|
|
|
18,234
|
|
Total fixed assets
|
|
|
42,833
|
|
|
|
42,833
|
|
Accumulated depreciation
|
|
|
(10,528
|
)
|
|
|
(4,600
|
)
|
Fixed assets, net
|
|
$
|
32,305
|
|
|
$
|
38,233
|
|
During the three months ended June 30, 2016 and 2015, the Company recognized $2,964 and $50, respectively, in depreciation expense. During the six months ended June 30, 2016 and 2015, the Company recognized $5,928 and $50, respectively, in depreciation expense.
NOTE 4 – INTANGIBLE ASSETS
The components of intangible assets consisted of the following:
|
|
Estimated
Useful Life
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2016
|
|
|
2015
|
|
Customer lists
|
|
2
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Website development
|
|
5
|
|
|
|
247,641
|
|
|
|
103,990
|
|
Accumulated amortization
|
|
|
|
|
|
(227,170
|
)
|
|
|
(83,333
|
)
|
Intangible assets, net
|
|
|
|
|
$
|
520,471
|
|
|
$
|
520,657
|
|
During 2015 and the six months ended June 30, 2016, the Company began development of WiRLD.com and capitalized $103,990 and $143,651, respectively, pursuant to ASC 350-50, Intangibles – Goodwill and Other. Also, during 2015, the Company allocated $500,000 to customer lists as a result of the acquisition of Frontiers Media Holdings, LLC on September 8, 2015. The Company recognized amortization expense of $74,882 and $143,837 during the three and six months ended June 30, 2016, respectively.
The estimated future aggregated amortization expense for intangible assets owned as of June 30, 2016 consisted of the following:
|
|
Amortization Expense
|
|
2016
|
|
|
149,764
|
|
2017
|
|
|
216,195
|
|
2018
|
|
|
49,529
|
|
2019
|
|
|
49,528
|
|
2020
|
|
|
49,528
|
|
Thereafter
|
|
|
5,927
|
|
|
|
|
520,471
|
|
NOTE 5 – DEBT AND RELATED LIABILITIES
As of June 30, 2016, the Company had the following debt and related liability balances:
|
|
|
|
|
|
|
Debt and Related Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non Current
|
|
|
Note Holder
|
|
Issue Date
|
|
Maturity Date
|
|
Convertible Promissory Notes
|
|
|
Notes - Related Party
|
|
|
Promissory Notes
|
|
|
Line of Credit
|
|
|
Due to Related Parties
|
|
|
Accrued Interest
|
|
|
Convertible Promissory Notes
|
|
|
Line of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
9% Convertible promissory notes
|
|
Various
|
|
9/18/16 to 3/28/17
|
|
$
|
2,365,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
122,368
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1)
|
Firstfire Global Opportunities Fund
|
|
12/15/2015
|
|
1/16/2017
|
|
|
196,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,869
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Lincoln Park Capital Fund, LLC
|
|
8/21/2015
|
|
12/31/2016
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,144
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Terry King
|
|
10/29/2015
|
|
10/29/2016
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,102
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Terry King
|
|
1/6/2016
|
|
1/6/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,202
|
|
|
|
-
|
|
|
|
-
|
|
(2)
|
Mark Friedman
|
|
10/15/2015
|
|
2/12/2016
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
(2)
|
Lawerence Rutstein, Chairman
|
|
10/15/2015
|
|
2/12/2016
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Lawerence Rutstein, Chairman
|
|
11/6/2015
|
|
5/4/2016
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,785
|
|
|
|
-
|
|
|
|
-
|
|
(3)
|
Mark Friedman
|
|
2/18/2016
|
|
8/18/2016
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
729
|
|
|
|
-
|
|
|
|
-
|
|
(3)
|
Lawerence Rutstein, Chairman
|
|
2/18/2016
|
|
8/18/2016
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
729
|
|
|
|
-
|
|
|
|
-
|
|
(3)
|
$400,000 bridge note offering
|
|
2/18/2016
|
|
8/1/2016
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,560
|
|
|
|
-
|
|
|
|
-
|
|
(4)
|
Michael Turner
|
|
11/8/2015
|
|
3/31/2016
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,124
|
|
|
|
-
|
|
|
|
-
|
|
(5)
|
Various
|
|
11/6/2014 - 7/19/2015
|
|
3/31/2015 - 9/30/2015
|
|
|
-
|
|
|
|
-
|
|
|
|
159,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,325
|
|
|
|
-
|
|
|
|
-
|
|
(6)
|
Crown Bridge Partners, LLC
|
|
4/8/2016
|
|
4/8/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
918
|
|
|
|
-
|
|
|
|
-
|
|
(7)
|
Santander bank line of credit
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,850
|
|
(8)
|
Complete Business Solutions
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(9)
|
Various related parties
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
497,513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Totals
|
|
|
|
|
|
|
3,011,000
|
|
|
|
600,000
|
|
|
|
359,000
|
|
|
|
116,242
|
|
|
|
497,513
|
|
|
|
205,855
|
|
|
|
-
|
|
|
|
27,850
|
|
|
Debt discount
|
|
|
|
|
|
|
(859,359
|
)
|
|
|
(5,275
|
)
|
|
|
(35,165
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance
|
|
|
|
|
|
$
|
2,151,641
|
|
|
$
|
594,725
|
|
|
$
|
323,835
|
|
|
$
|
116,242
|
|
|
$
|
497,513
|
|
|
$
|
205,855
|
|
|
$
|
-
|
|
|
$
|
27,850
|
|
_______________
(1)
|
See disclosure below.
|
|
|
(2)
|
On October 15, 2015, Mark Friedman, Director and C. Lawrence Rutstein, Chairman, each loaned the Company $25,000 and received a promissory note with identical terms, including maturity date of 120 days on February 12, 2016 and one-time interest payment of $10,000 bringing the total due under each note to $35,000. No other consideration was exchanged under the promissory notes. The notes are in default as of the date of this current report.
|
(3)
|
During the three months ended March 31, 2016, the Company initiated a private bridge note offering (the "
Bridge Note Offering
") for up to $400,000 consisting of an 8% promissory note (the "
Bridge Note
") and shares of common stock sold as units with each unit consisting of a $25,000 promissory note and 250,000 shares of common stock (the "
Bridge Note Offering
Units
"). The notes are due and payable in six months or upon the receipt of no less than $2,000,000 of gross proceeds from a securities offering. Additionally, the promissory notes are secured by certain accounts receivable. The Company received $250,000 pursuant to the Bridge Note Offering. The Company allocated Bridge Note principal between the Bridge Note and the common stock based upon their relative fair values resulting in a debt discount of $230,000 which is being accreted over the six month term of the Bridge Notes. During the three and six months ended June 30, 2016, the Company recognized $4,988 and $8,018, respectively of interest expense. During the three and six months ended June 30, 2016, the Company recognized $115,000 and $189,560, respectively of accretion related to the debt discount. The notes are in default as of the date of this current report.
|
|
|
(4)
|
Promissory note with face amount of $250,000, interest of 4.5% and maturity of March 31, 2016 payable to Michael Turner, Director and President of Media Ventures Division pursuant to the purchase of New Frontiers Media, LLC on September 8, 2015. The Note is currently in default. During the three and six months ended June 30, 2016, the Company recognized $2,805 and $5,610, respectively, of interest expense with total accrued interest under this note totaling $9,124. see "NOTE 7 – BUSINESS COMBINATIONS" for additional information.
|
|
|
(5)
|
Represents notes acquired with the acquisition of New Frontiers Media Holdings, LLC on September 8, 2015 (the "
Frontiers Notes
"). There are eight, unsecured promissory notes with principle balances ranging between $3,000 to $50,000 and bearing interest of 2% to 9%. The Frontiers Notes all matured by December 24, 2015 and are currently in default. During the three and six months ended June 30, 2016, the Company recognized interest expense of $5,211 and $8,132, respectively, with total accrued interest under these notes totaling $11,325.
|
|
|
(6)
|
On April 8, 2016, the Company and Crown Bridge Partners, LLC ("
Crown
") entered into a $50,000 Convertible Promissory Note (the "
Crown Note
"). The Company received proceeds of $38,000 net of a $5,000 original issue discount and $7,000 of legal fees. The Crown Note matures in one year, bears interest of 8%, default interst of 22% and is convertible at any time into shares of common stock at a conversion price equal to 61% of the lowest trade price in the twenty trading days previous to the conversion. The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Crown Note and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $114,000. As this amount resulted in a total debt discount that exceeds the Crown Note proceeds, the amount recorded for the beneficial conversion feature was limited to the principal amount of the Crown Note. The resulting $50,000 discount is being accreted over the 12 month term of the Crown Note. During the three and six months ended June 30, 2016, the Company recognized interest expense of $918 and debt discount accretion of $11,370.
|
|
|
(7)
|
Represents a bank loan acquired with the acquisition of Columbia Funmap, Inc. on February 27, 2015. The loan was established on December 13, 2012 in the original amount of $75,000. Payments of principal and interest are due monthly at a variable interest rate currently at 4%. Payments are approximately $1,250 per month.
|
|
|
(8)
|
Working capital loan provided by Complete Business Solutions. The Company received $125,000 and is obligated to repay $175,000 over 180 business days at $972.22 per day.
|
|
|
(9)
|
Non-interest bearing advances by related parties used to cover operations and overhead costs not covered by revenues. As of June 30, 2016, includes $337,000 to Alan Beck, shareholder and consultant and $160,000 due to Michael Turner, shareholder and President of our digital media division.
|
9% Convertible Promissory Notes Financing of up to $2.5 million
From March 2015 to September 2015, the Company entered into certain securities purchase agreements (the "
Agreements
") with certain accredited investors (the "
Investors
"). Pursuant to the Agreements, the Company is conducting a private bridge note offering, up to $2,500,000, consisting of 9% Convertible Promissory Notes (the "
9% Convertible Notes
") which may be voluntarily converted into shares of the Company's common stock and four-year warrants (the "
Company Warrant
") to purchase shares of Company's common stock. The securities are sold as units, with each unit consisting of a 9% Convertible Note, in the principal amount of $50,000 and Company Warrant to purchase 166,667 shares of the common stock, pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended (the "
Securities Act
") and Rule 506 of Regulation D ("
Regulation D
") and/or Regulation S ("
Regulation S
") as promulgated under the Securities Act.
The 9% Convertible Notes are due in 18 months and include interest at the rate of 9% per annum, due semi-annually. The initial interest payment is due in advance in cash or common stock (at the discretion of the Company) at $0.30 per share. Subsequent interest payments are payable at the discretion of the Investors in cash or common stock, with stock valued based on the 10 day VWAP for 10 days before the applicable interest due date. In the event of default, the 9% Convertible Notes interest rate shall increase to the lesser of fifteen percent (15%) or the highest rate permissible by law. The 9% Convertible Notes are convertible into common stock, at the Investor's option, at a price of $0.30 per share or 85% of the price common stock is sold at the next equity or convertible debt financing with gross proceeds to the Company of no less than $1,000,000 (the "Subsequent Financing"). Upon default the conversion price shall be permanently reduced to the lesser of $0.25 per share or the 10 day VWAP then in effect on the date of default.
At no time may the 9% Convertible Notes be converted into shares of our common stock if such conversion would result in the Investors and its affiliates owning an aggregate of shares of our common stock in excess of 9.99% of the then outstanding shares of our common stock, provided such percentage may increase or decrease upon not less than 61 days prior written notice from the Investor.
The Company Warrant has a four year term and an exercise price equal to the lesser of: (i) $0.75 or (ii) 85% of the price of the common stock (or common stock equivalents, or conversion price of debt instruments sold in such offering) sold at the Subsequent Financing. The Company Warrant includes the same ownership limitation described above in connection with the Company Note. The Company Warrant includes cashless exercise rights.
During the year ended December 31, 2015, the Company raised $2,365,000 from the issuance of 9% Convertible Notes and issued 7,633,342 of Company Warrants.
During the three months ended June 30, 2016 and 2015, the Company recognized $53,194 and $46,266, respectively, of interest expense. During the six months ended June 30, 2016 and 2015, the Company recognized $99,304 and $72,477, respectively, of interest expense. During the three months ended June 30, 2016 and 2015, the Company recognized $391,750 and $148,833, respectively, of debt discount accretion. During the six months ended June 30, 2016 and 2015, the Company recognized $783,500 and $159,118, respectively, of debt discount accretion.
Financing with Firstfire Global Opportunities Fund LLC
On December 15, 2015, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC ("
Firstfire
"), for the sale of an unsecured, 5% convertible promissory note in the principle amount of $176,000 and 176,000 stock purchase warrants allowing Firstfire to purchase up to 176,000 shares of the Company's common stock at an exercise price of $0.40 for a period of five (5) years. On December 16, 2015, the Company received $150,000 net of a 10% original issue discount and legal fees and issued a convertible promissory note (the "
Firstfire Note
") in the amount of $176,000. The Firstfire Note was due in six months on June 16, 2016 ("
Firstfire Note Maturity Date
"), accrues interest at the rate of 5% per annum and is convertible into shares of common stock as described below. In no event shall Firstfire effect a conversion if such conversion results in Firstfire beneficially owning in excess of 4.99% of the outstanding common stock of the Company. Under the terms of the Firstfire Note, the Company agreed to pay Firstfire as follows:
|
·
|
if paid by the Maturity Date, the principal sum of $176,000.00 and interest at the rate of five percent (5%);
|
|
|
|
|
·
|
if $0.00 of principal is paid by the Firstfire Note Maturity Date, then the principle sum of the face amount will be increased by 50% or $88,000 to the purchase price of $264,000.00 to be paid, at the discretion of Firstfire, in the form of cash or conversion into Common Stock plus interest; or
|
|
|
|
|
·
|
if a portion of the principal is paid plus interest in cash by the Firstfire Note Maturity Date, the face amount of the purchase price of $264,000 will be reduced by the amount that is 150% of the amount paid in cash by the Firstfire Note Maturity Date.
|
The Firstfire Note is unsecured but is a senior obligation of the Company, with priority over all existing and future indebtedness (as defined in the Firstfire Note) of the Company, except that the Firstfire Note is treated pari passu with future indebtedness that is equal to, or exceeds, $250,000.00.
Under the terms of the Firstfire Note, Firstfire has the right to convert at any time beginning on the Firstfire Note Maturity Date. The conversion price is $0.30. If, prior to the repayment or conversion of the Firstfire Note, the Company consummates a registered or unregistered primary offering of its securities for capital raising purposes, Firstfire has the right to (x) demand full repayment as determined under the terms of the note or (y) convert any outstanding principal amount and interest into Common Stock at the closing of such primary offering at a conversion price equal to the $0.30. If an event of default (as defined in the Firstfire Note) occurs, the conversion price shall equal the lower of (A) $0.30 and (B) a 10% discount to the offering price to investors in the primary offering.
Under the terms of the Firstfire Note, the Company may pre-pay the outstanding principal amount of the Firstfire Note plus accrued interest upon three Trading Days prior written notice to Firstfire. If the Company exercises its right to prepay the Firstfire Note, the pre-payment amount will be equal to the sum of: (A) within 90 days of the Closing Date, 110% and (B) thereafter, 115%, multiplied by principal amount, plus accrued and default interest.
As additional consideration, the Company granted Firstfire a warrant to purchase 176,000 shares of our common stock (the "
Firstfire Warran
t"). The Firstfire Warrant has a five-year term and an exercise price equal to the lesser of: (i) $0.40 or (ii) the price of our common stock (or common stock equivalents, or conversion price of debt instruments sold in such offering) sold and entitling any person to acquire shares of common stock at an effective price per share that is lower than the then exercise price. Such adjustment shall be made whenever such common stock or other securities are issued. Pursuant to the terms of the Firstfire Warrant, no adjustment to the exercise price will be made in respect of an "exempt issuance".
The Firstfire Warrant includes the same ownership limitation described above in connection with the Firstfire Note. The Firstfire Warrant includes cashless exercise rights if a registration statement covering the resale of the Firstfire Warrant shares is not available for the resale of such Firstfire Warrant shares.
On June 16, 2016 Firstfire and the Company entered into an Amendment and Waiver Agreement (the "
Firstfire
Amendment No. 1
"). Pursuant the Firstfire Amendment No. 1, the Firstfire Note shall be exchanged for a new debenture with identical terms as Firstfire Note as described above except the principle amount of the new debenture shall be increased by $20,000, the maturity date extended to July 13, 2016 and the new debenture conversion price shall be amended to provide that upon default by MMP, the conversion price will be permanently reset to $0.02. Additionally, 400,000 common stock purchase warrants (the "
Firstfire Warrant No. 2
") were issued with a five year life and $0.30 exercise price subject to adjustment for dilutive issuances with identical terms to the Firstfire Warrant.
The securities purchased by Firstfire were issued by the Company under the exemption from registration afforded by Section 4(a)(2) of the Securities Act, as amended and/or Regulation D promulgated thereunder, as the securities were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement.
Because the economic characteristics and risks of the equitylinked conversion options contained in the Firstfire Note and Firstfire Amendment No. 1 are not clearly and closely related to a debt-type host, the conversion features require classification and measurement as derivative financial instruments. Additionally, due to the down-round feature contained in the Firstfire Warrant and Firstfire Warrant No. 2, they too are classified on the balance sheet as a liability with all firstfire instruments revalued each period with changes in value recorded as other income (expense). The initial fair value of the Firstfire Amendment No 1. derivative liability was $0 and determined using Monte Carlo simulation with the following inputs: quoted market price - $0.02; conversion price - $0.30, volatility - 178%; term - 0.08 years; and risk-free interest rate - 0.23%. The Firstfire Warrant No. 2liability was $6,800 and determined using Monte Carlo simulation with the following inputs: quoted market price - $0.02; conversion price - $0.30, volatility - 178%; term - 5 years; and risk-free interest rate - 1.10%, resulting in a fair value per share of $0.017 multiplied by the 400,000 shares that would be issued if the additional Firstfire Warrantswere exercised on the issuance date.
During the three and six months ended June 30, 2016, the Company recognized $2,275 and $4,483, respectively of interest expense. During the three and six months ended June 30, 2016, the Company recognized $80,452 and $167,495, respectively of accretion related to the debt discounts.
Derivative Liability related to the 9% Convertible Notes, Firstfire Note and Related Detachable Warrants
ASC Topic No. 815 - Derivatives and Hedging provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features within the 9% Convertible Notes, Firstfire Note and related detachable warrants issued in connection with said notes do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future, the Company concluded that the instruments are not indexed to the Company's stock and are to be treated as derivative liabilities. The accounting treatment of derivative financial instruments requires that the Company record the initial fair value of the derivative first by allocating the fair value of the embedded derivative as a reduction to the face value of the debt recorded as a contra liability or debt discount to be accreted over the term of the note; and if the fair value of the embedded derivative exceeds the face value of the note, the excess embedded derivative fair value is expensed as other expense and the related liability increased. On each reporting date, the fair value of the embedded derivative is calculated with changes in value recorded to other expense. In determining the fair value of the derivative liabilities, the Company used a Monte Carlo simulation at June 30, 2016.
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company's 9% Convertible Notes, Firstfire Note and related warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of June 30, 2016 is as follows:
|
|
June 30,
2016
|
|
Common stock issuable upon conversion of notes
|
|
|
8,974,664
|
|
Common stock issuable upon exercise of warrants
|
|
|
8,209,342
|
|
Stock price
|
|
$
|
0.0185
|
|
Volatility (Annual)
|
|
|
178
|
%
|
Strike price
|
|
$0.75, 9% Convertible Note warrants; $0.40, Firstfire Note warrants; $0.30, 9% Convertible Notes
|
|
Risk-free rate
|
|
0.18% to 0.76%
|
|
Maturity date
|
|
3 - 5 years warrants; 0.08 – 1.5 years notes
|
|
The following table sets forth, by level within the fair value hierarchy, the Company's derivative liabilities that were accounted for at fair value on a recurring basis as of June 30, 2016:
|
|
Balance at December 31, 2015
|
|
|
Initial valuation of derivative liabilities upon issuance of new securities during the period
|
|
|
Increase (decrease) in fair value of derivative liabilities
|
|
|
Fair value of derivatives upon reclass to additional paid-in capital
|
|
|
Balance at June 30, 2016
|
|
Warrants derivative liability
|
|
$
|
236,594
|
|
|
$
|
-
|
|
|
$
|
(236,594
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible note conversion derivative liability
|
|
|
214,728
|
|
|
|
6,800
|
|
|
|
(143,842
|
)
|
|
|
-
|
|
|
|
77,686
|
|
Total
|
|
$
|
451,322
|
|
|
$
|
6,800
|
|
|
$
|
(380,436
|
)
|
|
$
|
-
|
|
|
$
|
77,686
|
|
Financing with Lincoln Park Capital Fund, LLC
On August 21, 2015, the Company issued a Senior Convertible Note (the "
Senior Convertible Note
\") to Lincoln Park Capital Fund, LLC ("
Lincoln Park
") in the amount of $300,000. The Senior Convertible Note was issued pursuant to the terms of a Securities Purchase Agreement dated as of the same date. The Senior Convertible Note bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default) and the principal and interest is due and payable in full on December 31, 2016. Interest may be paid in the Company's common stock if the Company meets certain conditions that would allow the issuance of the Company's common stock without any trading restrictions. The Senior Convertible Note included a $30,000 original issuance discount ("
OID
"). As a result, the net amount received in connection with the sale of the Senior Convertible Note was $270,000. The transaction was closed on August 24, 2015.
The Company has the right to prepay the Senior Convertible Note, pursuant to the terms thereof, at any time, provided it pays a prepayment amount of 120% of the then outstanding balance, accrued interest and interest payable from the date of prepayment to the Maturity Date. The Senior Convertible Note provides for customary events of default such as failing to timely make payments under the Senior Convertible Note when due and the occurrence of certain fundamental defaults, as described in the Senior Convertible Note.
The principal amount of the Senior Convertible Note and all accrued interest is convertible at the option of Lincoln Park into shares of our common stock at any time. The conversion price of the Senior Convertible Note is $0.30, as adjusted for stock splits, stock dividends, stock combinations or other similar transactions as provided in the Note.
At no time may the Senior Convertible Note be converted into shares of our common stock if such conversion would result in Lincoln Park and its affiliates owning an aggregate of shares of our common stock in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage may increase to 9.99% upon not less than 61 days prior written notice.
As additional consideration for the loan, the Company granted Lincoln Park a six-year warrant to purchase 1,000,000 shares of our common stock (the "Warrant") at an exercise price of $0.50 per share. The Warrant includes the same ownership limitation described above in connection with the Convertible Note. The Warrant includes cashless exercise rights.
The Senior Convertible Note and the Warrant were issued by the Company under the exemption from registration afforded by Section 4(a)(2) of the Securities Act, as amended and/or Regulation D promulgated thereunder, as the securities were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement.
The company determined that the Senior Convertible Note's conversion feature is indexed to the Company's stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under FASB ASC 815-40-15-7 and treatment under ASC 470-20 – Debt with Conversion and Other Options is appropriate. As a result, the Company first allocated Senior Convertible Note principal between the Senior Convertible Note, OID and the warrants based upon their relative fair values. The estimated fair value of the warrants was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.30 per share; estimated volatility – 150%; 5-year risk free interest rate – 1.44%; expected dividend rate - 0% and expected life - 6 years. This resulted in allocating $137,695 to the warrants and $132,305 to the Senior Convertible Note and $30,000 to the OID. Next, the intrinsic value of the beneficial conversion feature (the "
BCF
") was computed as the difference between the fair value of the common stock issuable upon conversion of the Senior Convertible Note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $1,667,695. As this amount resulted in a total debt discount that exceeds the Senior Convertible Note proceeds, the amount recorded for the BCF was limited to principal amount of the Senior Convertible Note. The resulting $300,000 discount is being accreted over the 16 month term of the Senior Convertible Note.
During the three and six months ended June 30, 2016, the Company recognized $3,856 and $5,206, respectively, of interest expense, and $54,819 and $109,638, respectively, of accretion related to the debt discount.
Financing with Terry King
On October 29, 2015, the Company issued a 9% Convertible Promissory Note (the "
King Note
") to Terry King ("
Mr. King
") in the amount of $50,000. The King Note was issued pursuant to the terms of a Note Purchase Agreement dated as of the same date. The King Note bears interest at the rate of 9% per annum (or 12% upon the occurrence of an event of default) and the principal and interest is due and payable in 12 months on October 29, 2016. The principal and all accrued interest is convertible at the option of Mr. King into shares of our common stock at any time at the conversion price of $0.40, as adjusted for stock splits, stock dividends, stock combinations or other similar transactions as provided in the King Note. At no time may the King Note be converted into shares of our common stock if such conversion would result in the Investors and its affiliates owning an aggregate of shares of our common stock in excess of 9.99% of the then outstanding shares of our common stock, provided such percentage may increase or decrease upon not less than 61 days prior written notice from the Investor.
As additional consideration for the loan, the Company granted Mr. King a four-year warrant to purchase 125,000 shares of our common stock (the "King Warrant") at an exercise price of $0.75 per share. The King Warrant includes the same ownership limitation described above in connection with the King Note. The King Warrant does not include cashless exercise rights.
The company determined that the King Note's conversion feature is indexed to the Company's stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the King Note meets the scope exception under FASB ASC 815-40-15-7 and treatment under ASC 470-20 – Debt with Conversion and Other Options is appropriate. As a result, the Company first allocated King Note principal between the King Note and the King Warrants based upon their relative fair values. The estimated fair value of the King Warrants was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.30 per share; estimated volatility – 150%; 5-year risk free interest rate – 1.53%; expected dividend rate - 0% and expected life - 4 years. This resulted in allocating $18,750 to the King Warrants and $31,250 to the King Note. Next, the intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the King Note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $100,000. As this amount resulted in a total debt discount that exceeds the King Note proceeds, the amount recorded for the BCF was limited to principal amount of the King Note. The resulting $50,000 discount is being accreted over the 12 month term of the King Note.
On January 6, 2016, the Company issued a 9% Convertible Promissory Note (the "
King Note 2
") to Mr. King in the amount of $50,000. The King Note 2 was issued pursuant to the terms of a Note Purchase Agreement dated as of the same date. The King Note 2 bears interest at the rate of 9% per annum (or 12% upon the occurrence of an event of default) and the principal and interest is due and payable in 12 months on January 6, 2017. The principal and all accrued interest is convertible at the option of Mr. King into shares of our common stock at any time at the conversion price of $0.40, as adjusted for stock splits, stock dividends, stock combinations or other similar transactions as provided in the King Note 2. At no time may the 9% Convertible Notes be converted into shares of our common stock if such conversion would result in the Investors and its affiliates owning an aggregate of shares of our common stock in excess of 9.99% of the then outstanding shares of our common stock, provided such percentage may increase or decrease upon not less than 61 days prior written notice from the Investor.
As additional consideration for the loan, the Company granted Mr. King a three-year warrant to purchase 166,667 shares of our common stock (the "
King Warrant 2
") at an exercise price of $0.40 per share. The King Warrant 2 includes the same ownership limitation described above in connection with the King Note 2. The King Warrant 2 does not include cashless exercise rights.
The company determined that the King Note 2 conversion feature is indexed to the Company's stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the King Note 2 meets the scope exception under FASB ASC 815-40-15-7 and treatment under ASC 470-20 – Debt with Conversion and Other Options is appropriate. As a result, Tthe Company first allocated King Note 2 principal between the King Note 2 and the King Warrant 2 based upon their relative fair values. The estimated fair value of the King Warrant 2 was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.19 per share; estimated volatility – 158%; 3-year risk free interest rate – 1.26%; expected dividend rate - 0% and expected life - 3 years. This resulted in allocating $16,292 to the King Warrant 2 and $33,708 to the King Note 2. Next, the intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the King Note 2 and the total price to convert based on the effective conversion price. The calculated intrinsic value was negative $9,958. As this amount resulted in a total debt discount that was less than the King Note 2 proceeds, the Company did not recognize any debt discount related to a BCF. The resulting $16,292 discount is being accreted over the 12 month term of the King Note 2.
The King Notes and King Warrants were issued by the Company under the exemption from registration afforded by Section 4(a)(2) of the Securities Act, as amended and/or Regulation D promulgated thereunder, as the securities were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement.
During the three and six months ended June 30, 2016, the Company recognized $2,328 and $4,524, respectively, of interest expense and $16,483 and $32,699, respectively, of accretion related to the debt discount recorded for both King Notes.
Financing with C. Lawrence Rutstein, Chairman
On November 6, 2015, the Company issued an 8% Promissory Note (the "Rutstein Note") to C. Lawrence Rutstein, Chairman of the Board of the Company ("Mr. Rutstein ") in the amount of $250,000. The Rutstein Note was issued pursuant to the terms of a Promissory Note dated as of the same date. The Rutstein Note bears interest at the rate of 8% per annum and the principal and interest were due on May 4, 2016. The Rutstein Note is currently in default.
In consideration for the financing, the Company issued Mr. Rutstein a Common Stock Purchase Warrant (the "Rutstein Financing Warrant"), dated as of November 13, 2015, for 500,000 shares of the Company's common stock, which is exercisable in whole or in part, for an exercise price equal to $0.50 per share. The Rutstein Financing Warrant terminates four years from the date of issuance. The exercise price and number of shares of the Company's common stock issuable under the Rutstein Financing Warrant are subject to adjustments for stock dividends, splits, combinations and certain other events as set forth in the Rutstein Financing Warrant.
The Company allocated Rutstein Note principal between the Rutstein Note and the Rutstein Financing Warrant based upon their relative fair values. The estimated fair value of the Rutstein Financing Warrant was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $1.15 per share; estimated volatility – 149%; 3-year risk free interest rate – 1.20%; expected dividend rate - 0% and expected life - 4 years. This resulted in allocating $169,459 to the Rutstein Financing Warrant and $80,541 to the Rutstein Note. The resulting $169,459 discount was accreted over the six month term of the Rutstein Note.
During the three and six months ended June 30, 2016, the Company recognized $5,182 and $10,262, respectively, of interest expense and $40,036 and $124,766, respectively, of accretion related to the debt discount. The Company repaid $2,500 of accrued interest during the six months ended June 30, 2016.
NOTE 6 – STOCKHOLDERS' EQUITY
Preferred and Common Stock
As of June 30, 2016 and December 31, 2015, there were 71,188,923 and 52,268,504 shares of common stock outstanding, respectively. As of June 30, 2016 and December 31, 2015 there were 17,999,995 shares of Series A Preferred Stock and 1,435,598 shares of Series B Preferred Stock outstanding; convertible into common stock at a ratio of one-for-one. Additionally, the Company has recorded in the equity section of its balance sheet $905,000 as common stock payable which relates to common stock to be issued related to the following: 1) 3,000,000 shares due in exchange for the purchase of New Frontiers Media Holdings, LLC; 2) 500,000 shares due as part of the Bridge Note Offering Units; and 3) 1,514,359 shares due in exchange for consulting services. All shares related to amounts recorded to common stock payable are reflected on an as-if issued basis for purposes of the weighted average share calculations reflected on the statement of operations. All share and per share amounts have been retrospectively restated to reflect the one-for-thirty reverse stock split affected January 16, 2015.
During the six months ended June 30, 2016, the Company issued preferred stock and common stock as follows:
|
·
|
Issued 11,400,000 shares of restricted common stock pursuant to the 2015 purchase of New Frontiers Media Holdings, LLC valued at $3,420,000.
|
|
|
|
|
·
|
Issued 2,000,000 shares and became obligated to issue another 500,000 shares pursuant to the Bridge Note Offering. The shares issued were valued between $0.06 and $0.10 on the date of issuance and recorded as a $230,000 debt discount to the proceeds from the Bridge Notes.
|
|
|
|
|
·
|
Issued 520,419 shares of restricted common stock and recognized $36,000 of stock compensation expense in exchange for services valued at the fair value of services performed.
|
|
|
|
|
·
|
Issued 5,000,000 shares to Maxim Group, LLC as placement agent pursuant to an engagement agreement for the public offering of common stock. The shares were valued at $100,000 and capitalized in deferred financing costs until the closing of an offering at which time the asset will be reclassified as a charge to equity.
|
Each share of Series A Preferred shall: (i) have a par value of $0.001 per share, (ii) rank on parity with the Company's common stock and any class of series of capital stock hereafter created, and (iii) be convertible into one share of common stock at the option of the holder until January 1, 2017 after which the right to convert to common stock ceases. Holders of the Series A Preferred are entitled to vote on all matters submitted to the Company's stockholders and are entitled to such number of votes as is equal to twice the number of shares of Series A Preferred stock such holder owns. The holders of Series A Preferred stock are not entitled to any dividends declared by the Company nor do such holders have any liquidation preferences or any other asset distribution rights as it relates to the Company.
Each share of Series B Preferred shall: (i) have a par value of $0.001 per share, (ii) rank on parity with the Company's common stock and any class of series of capital stock hereafter created, but not higher than the Series A Convertible Preferred Stock, and (iii) be convertible into one share of common stock at the option of the holder until January 1, 2017 after which the right to convert to common stock ceases. Holders of the Series B Preferred have no voting rights, are not entitled to any dividends declared by the Company or have any liquidation preferences or any other asset distribution rights as it relates to the Company.
Common Stock Warrants
Each of the Company's warrants outstanding entitles the holder to purchase one share of the Company's common stock for each warrant share held. A summary of the Company's warrants outstanding and exercisable as of June 30, 2016 and December 31, 2015 is as follows:
|
Number of Warrants as of:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
Exercise
Price
|
|
|
Date of
Issuance
|
|
Expiration
Date
|
|
(1)
|
|
7,633,342
|
|
|
|
7,633,342
|
|
|
$
|
0.75
|
|
|
2015
|
|
2020
|
|
(2)
|
|
800,000
|
|
|
|
800,000
|
|
|
$
|
0.75
|
|
|
April 15, 2015
|
|
March 20, 2019
|
|
(3)
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
$
|
0.30
|
|
|
June 30, 3015
|
|
June 30, 2020
|
|
(4)
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
$
|
0.30
|
|
|
July 29, 2015
|
|
July 29, 2020
|
|
(4)
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
$
|
0.30
|
|
|
July 29, 2015
|
|
July 29, 2020
|
|
(5)
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
$
|
0.50
|
|
|
August 21, 2015
|
|
August 21, 2021
|
|
(6)
|
|
125,000
|
|
|
|
125,000
|
|
|
$
|
0.75
|
|
|
October 29, 2015
|
|
October 29, 2019
|
|
(7)
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
0.50
|
|
|
November 6, 2015
|
|
November 6, 2019
|
|
(8)
|
|
1,750,000
|
|
|
|
1,750,000
|
|
|
$
|
0.50
|
|
|
November 18, 2015
|
|
November 18, 2021
|
|
(9)
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
0.50
|
|
|
November 13, 2015
|
|
November 13, 2019
|
|
(10)
|
|
176,000
|
|
|
|
176,000
|
|
|
$
|
0.30
|
|
|
December 15, 2015
|
|
December 15, 2020
|
|
(10)
|
|
400,000
|
|
|
|
-
|
|
|
$
|
0.30
|
|
|
June 16, 2016
|
|
June 16, 2021
|
|
(11)
|
|
166,667
|
|
|
|
-
|
|
|
$
|
0.40
|
|
|
January 6, 2016
|
|
January 6, 2019
|
|
|
|
17,551,009
|
|
|
|
16,984,342
|
|
|
|
|
|
|
|
|
|
|
_______________
(1)
|
Issued to various parties pursuant to the securities purchase agreement and 9% Convertible Notes. These warrants are accounted for at fair value and remeasured at each reporting period as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
|
|
(2)
|
Issued pursuant to prior financings with fixed conversion price, no down-round protection and included in equity.
|
|
|
(3)
|
The Company issued 1.5 million common stock purchase warrants to C. Lawrence Rutstein pursuant to a consulting agreement entered into on June 30, 2015. The consulting agreement has a term of 24 months with compensation solely in the form of 1.5 million warrants. The warrant includes Piggyback registration rights, cashless exercise, 5 year life, $0.30 exercise price. The warrants were evaluated for equity or liability accounting. Based on their terms, they are treated as equity. The fair value of the warrants was $0.271 as calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $.30 per share; estimated volatility - 147%; risk free interest rate - 1.63%; expected dividend rate - 0% and expected life - 5 years. Pursuant to ASC 505-50-25,
Equity-based Payments to Non-Employees
, the resulting total compensation expense of $406,500 was recorded as an increase to additional paid-in capital and deferred compensation and was being recognized ratably over the 24 month consulting term at $50,813 per quarter. During the quarter ended June 30, 2016, due to changes in personnel, the Company fully expensed the remaining $254,062.
|
|
|
(4)
|
The Company issued 3.0 million common stock purchase warrants, or 1.5 million each to Patrick Kolenik and Carry W Sucoff, pursuant to a consulting agreement entered into by each individual on July 29, 2015. The consulting agreements are identical and have a term of 24 months with compensation solely in the form of 1.5 million warrants each. Both warrants contain identical terms including Piggyback registration rights, cashless exercise, 5 year life and $0.30 exercise price. The warrants were evaluated for equity or liability accounting. Based on their terms, they are treated as equity. The fair value of the warrants was $0.274 as calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $.30 per share; estimated volatility - 152%; risk free interest rate - 1.62%; expected dividend rate - 0% and expected life - 5 years. Pursuant to ASC 505-50-25,
Equity-based Payments to Non-Employees
, the resulting total compensation expense of $822,000 was recorded as an increase to additional paid-in capital and deferred compensation and was being recognized ratably over the 24 month consulting term at $102,750 per quarter. During the quarter ended June 30, 2016, due to changes in personnel, the Company fully expensed the remaining $513,750.
|
(5)
|
Issued to Lincoln Park Capital Fund, LLC pursuant to that Senior Convertible Promissory Note dated August 21, 2015 as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
|
|
(6)
|
Issued to Terry King pursuant to the King Note as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
|
|
(7)
|
The Rutstein Financing Warrant Issued to Lawrence Rutstein, Chairman, pursuant to the Rutstein Note as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
|
|
(8)
|
On November 18, 2015, the Company issued to C. Lawrence Rutstein, Chairman of the Board, a warrant to purchase 1,750,000 shares of common stock in consideration for his services as a member of the Company's board of directors. The warrant has an exercise price of $0.50 per share and becomes exercisable with respect to one-third (1/3) of the total shares subject to the warrant (approximately 583,333 shares of common stock) on each of the following dates (i) November 18, 2015, which is the date of issuance, (ii) first anniversary of the date of issuance, and (iii) the second anniversary of the date of issuance. If at any time while there are shares subject to the warrant that are outstanding the Company is sold to a third party, whether through a stock sale or a sale of substantially all of its assets or in one or more transactions, all shares subject to the warrant fully vest and become exercisable. The warrant terminates on the fourth (4th) anniversary of the applicable vesting date with respect to each tranche of shares subject to the warrant that vest as described above. The warrants were evaluated for equity or liability accounting. Based on their terms, they are treated as equity. The fair value of the warrants was $0.249 as calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $.30 per share; estimated volatility - 149%; risk free interest rate - 1.69%; expected dividend rate - 0% and expected life - 4 years. The resulting total compensation expense of $435,750 will be expensed according to the vesting schedule described above.
|
|
|
(9)
|
On November 13, 2015, the Company issued to Mark Friedman, Director, warrants to purchase 500,000 shares of Common Stock on November 13, 2015, in consideration for services performed to date as a member of the Company's Board of Directors. The warrants have a term of 4 years and an exercise price of $0.40 per share. The warrants were evaluated for equity or liability accounting. Based on their terms, they are treated as equity. The fair value of the warrants was $0.254 as calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $.30 per share; estimated volatility - 149%; risk free interest rate - 1.67%; expected dividend rate - 0% and expected life - 4 years. The resulting total compensation expense of $127,000 was expensed on the date of issuance.
|
|
|
(10)
|
The Firstfire Warrant and Firstfire Warrant No. 2 Issued to Firstfire, pursuant to the Firstfire Note and Firstfire Amendment No. 1 as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
|
|
(11)
|
King Warrant 2 issued on January 6, 2016 in connection with the King Note 2 issued on the same date as described under "NOTE 5 – DEBT AND RELATED LIABILITIES".
|
No warrants were exercised, expired, canceled or repriced during the six months ended June 30, 2016.
NOTE 7 – BUSINESS COMBINATIONS
The Company acquired three businesses during the year ended December 31, 2015. Business combinations are accounted for using the acquisition method, and the results of each of those acquired businesses are included in the consolidated financial statements beginning on the respective acquisition date. Acquisition method accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the consolidated financial statements, in conformity with ASC No. 820, "Fair Value Measurements and Disclosures" ("ASC 820"), represent the Company's best estimates. The fair value of consideration transferred in business combinations is allocated to the tangible and intangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The following estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. The allocations of the acquisition price for recent acquisitions have been prepared on a preliminary basis, and changes to those allocations may occur as a result of final working capital adjustments and tax return filings. Acquired goodwill represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. The Company paid these premiums for a number of reasons, including growing the Company's merchant and customer base, acquiring assembled workforces, expanding its presence in national markets and expanding and advancing its product offerings. The goodwill from these business combinations is generally not deductible for tax purposes.
Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill. In accordance with ASC 805 "Business Combinations", if additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including finalization of asset appraisals, the Company will refine its estimates of fair value to allocate the purchase price more accurately.
Columbia Funmap, Inc. Acquisition
On February 27, 2015, the Company entered into a Securities Purchase Agreement with, Columbia Funmap, Inc., a New Jersey Corporation, and Alan H. Beck, the President of Funmap for the purchase of 100% of common stock issued and outstanding of Funmap. The closing of the Securities Purchase Agreement occurred on February 27, 2015. The acquisition of Funmap will allow the Company to gain a distribution foothold in 35 metropolitan areas in North America and acquire control of a respected and vital travel tool for GLBT travelers, including the website www.gayosphere.com.
The table below summarizes the estimates of fair value of the Funmap assets acquired and liabilities assumed as of the acquisition date. The net enterprise value of Funmap was valued at $3,467,488 which represented both the restricted common stock and notes issued by the Company for its 100% interest. Upon closing, the final purchase price consisted of the assumption of $93,968 of liabilities, issuance of 2,160,000 shares of restricted common stock to Mr. Beck, repayment of related party debt of $87,888 by issuing 92,250 shares of restricted common stock to Mr. Beck, and a note to Mr. Beck totaling $10,000. Additionally, the Company entered into a consulting agreement with Mr. Beck under which Mr. Beck will act as a national sales manager. The agreement has a term of 36 months, provides compensation of $5,000 per month plus 15% of cash collected for print sales sold directly by Consultant; plus a 3% override on print sales of FunMaps™; plus 20% of collected online sales made by Consultant, personally.
The purchase price allocation is as follows:
Cash and cash equivalents
|
|
|
|
$
|
17,240
|
|
Accounts receivable
|
|
|
|
|
64,382
|
|
Accounts payable
|
|
|
|
|
(22,193
|
)
|
Loans
|
|
|
|
|
(3,000
|
)
|
Credit cards
|
|
|
|
|
(6,830
|
)
|
Line of credit
|
|
|
|
|
(61,945
|
)
|
Subtotal Funmap net liabilities assumed
|
|
|
|
|
(12,346
|
)
|
Amount of purchase price allocated to goodwill
|
|
|
|
|
3,479,834
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
$
|
3,467,488
|
|
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
|
|
2,160,000 shares of common stock
|
|
1)
|
|
$
|
3,369,600
|
|
92,250 shares of common stock issued for related party loans
|
|
|
|
|
87,888
|
|
Issuance of note
|
|
|
|
|
10,000
|
|
Total consideration
|
|
|
|
|
$3,467,488
|
|
_______________
1)
|
The fair value of the 2,160,000 ordinary shares issued as part of the consideration paid for Funmap was determined on the basis of our stock price on the acquisition date.
|
RND Enterprises Inc. Asset Purchase
On June 17, 2015, the Company entered into an asset purchase agreement (the "Asset Purchase Agreement") with RND Enterprises, Inc. ("RND"), a New York company, pursuant to which the Company purchased substantially all of the assets of RND from its sole shareholder Mr. David Moyal, for a purchase price of $1,000,000, consisting of $200,000 in cash and $800,000 in shares of common stock. Immediately prior to the transaction, the 5% shareholder of RND transferred all his interests in RND to Mr. Moyal for nominal amount. In consideration, the Company agreed to pay to the minority shareholder $30,000 in cash and issue 750,000 shares of common stock valued at $0.40 per share. In aggregate, the Company completed the acquisition transaction for an amount equal to $1,330,000, consisting of $230,000 in cash payable at closing and $1,100,000 in the restricted shares of the Company's common stock, valued at $0.40 per share for a total of 2,750,000 shares. The transaction closed on June 17, 2015. RND is engaged in the business of publishing an LGBT culture magazine known as
Next Magazine
. The Company accounted for the purchase using the acquisition method of accounting.
The table below summarizes the preliminary estimates of fair value of the RND assets acquired and liabilities assumed as of the acquisition date. The net enterprise value of the net assets purchased was valued at $1,330,000 which represented both the cash paid and restricted common stock issued by the Company.
The purchase price allocation is as follows:
Assets
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
Amount of purchase price allocated to intangibles
|
|
|
|
1,330,000
|
|
Net assets acquired
|
|
|
$
|
1,330,000
|
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
|
2,750,000 shares of common stock
|
1)
|
|
$
|
1,100,000
|
|
Cash at closing
|
|
|
|
230,000
|
|
Total consideration
|
|
|
$
|
1,330,000
|
|
_______________
1)
|
The fair value of the 2,750,000 common stock issued as part of the consideration paid was determined to be $0.40 per share which is consistent with the price paid per share of $0.30 included in our 9% Convertible Promissory Notes.
|
New Frontiers Media Holdings, LLC Acquisition
On September 8, 2015, Multimedia Platforms, Inc. entered into that certain membership interest purchase agreement, dated as of September 8, 2015, with Mr. Michael A. Turner, the sole member of New Frontiers Media Holdings, LLC, a Delaware limited liability company, to purchase 100% of the membership interests of Frontiers Media (such agreement, together with all schedules, exhibits and attachments thereto, the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company paid the purchase price equal to $500,000 in cash, consisting of $250,000 payable at the closing date and the remaining $250,000 in the form of a promissory note accruing interest of 4.5% payable at the earlier of March 31, 2016 or the closing of an underwritten offering of not less than $3,000,000. In addition, Mr. Turner shall also receive an aggregate of 14,400,000 shares of the Company's common stock, of which 3,000,000 shares of common stock shall be placed in escrow to be released upon achieving certain milestones. The Shares are being issued pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended.
Additionally, on September 8, 2015, the Board of Directors (the "Board") of the Company appointed Mr. Turner as a member of the Board and President of Media Ventures Division of the Company. Mr. Turner will also remain as the President and Chairman of Frontiers Media. Under the Employment Agreement, Mr. Turner is entitled to an annual salary of $150,000 until the Company completes the closing of any underwritten offering of $3,000,000 or more, in which case, Mr. Turner's annual salary will be increased to $250,000. Pursuant to the Employment Agreement, Mr. Turner is eligible for an annual bonus to be determined by the Board and to participate in any other incentive plans (cash or equity) and employee benefits subject to the applicable terms of such plans or arrangements.
The table below summarizes the preliminary estimates of fair value of the Frontiers Media assets acquired and liabilities assumed as of the acquisition date. The net enterprise value of Frontiers Media was valued at $4,730,000 which represented both the restricted common stock and notes issued by the Company for its 100% interest. Due to the lack of liquidity and volume in our common stock and significant share issuance to Mr. Turner, the market price of our common stock is not an accurate gauge of its value. Thus, management has assessed the fair value based on recent issuances of convertible notes with a $0.30 conversion price.
The preliminary purchase price allocation is as follows:
Net tangible assets acquired and liabilities assumed:
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
(21,396
|
)
|
Accounts receivable
|
|
|
|
|
144,954
|
|
Other assets
|
|
|
|
|
33,773
|
|
PP&E
|
|
|
|
|
26,000
|
|
Deposits
|
|
|
|
|
9,120
|
|
Client list
|
|
|
|
|
500,000
|
|
MMP advances
|
|
|
|
|
(19,004
|
)
|
Loans
|
|
|
|
|
(195,000
|
)
|
Accounts payable and accrued liabilities
|
|
|
|
|
(402,644
|
)
|
Subtotal Frontiers net liabilities assumed
|
|
|
|
$
|
75,803
|
|
Amount of purchase price allocated to goodwill
|
|
|
|
|
4,654,197
|
|
Net assets acquired
|
|
|
|
$
|
4,730,000
|
|
|
|
|
|
|
|
|
Consideration:
|
|
|
|
|
|
|
11,400,000 shares of common stock
|
|
1)
|
|
$
|
3,420,000
|
|
3,000,000 contingent shares
|
|
1)
|
|
|
810,000
|
|
Issuance of note
|
|
|
|
|
250,000
|
|
Cash paid
|
|
|
|
|
250,000
|
|
Total consideration
|
|
|
|
$
|
4,730,000
|
|
_______________
1)
|
The fair value of the 11,400,000 ordinary shares issued as part of the consideration paid for Frontiers Media was determined on the basis of our convertible promissory notes $0.30 conversion price. The 3,000,000 contingent shares placed into escrow will be released to Mr. Turner upon achieving certain milestones. These shares were valued based on a 90% probability that the related milestones would be met.
|
Pro Forma Adjusted Summary
The results of operations for Funmap, RND and Frontiers Media have been included in the consolidated financial statements subsequent to their acquisition dates. Under the acquisition method of accounting, the total purchase price was allocated to the tangible and intangible assets acquired on the basis of their respective estimated fair values at the dates of acquisition. The valuation of the identifiable intangible assets and their useful lives acquired reflects management's estimates.
The following schedule presents unaudited consolidated pro forma results of operations data as if the acquisitions had occurred on January 1, 2014. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net revenue
|
|
$
|
1,497,412
|
|
|
$
|
445,305
|
|
Gross profit
|
|
|
249,118
|
|
|
|
172,921
|
|
Operating costs
|
|
|
(1,917,541
|
)
|
|
|
(1,081,808
|
)
|
Stock compensation
|
|
|
(1,706,311
|
)
|
|
|
(1,153,240
|
)
|
Impairment of goodwill
|
|
|
-
|
|
|
|
(2,729,834
|
)
|
Interest expense
|
|
|
(240,978
|
)
|
|
|
(72,477
|
)
|
Accretion of debt discount
|
|
|
(1,419,028
|
)
|
|
|
(159,118
|
)
|
Change in fair value of derivatives
|
|
|
380,436
|
|
|
|
(8,391,174
|
)
|
Net income (loss)
|
|
$
|
(4,654,304
|
)
|
|
$
|
(13,414,730
|
)
|
All expenditures incurred in connection with the acquisitions were expensed and are included in selling, general and administrative expenses. The Company impaired $2,729,834 of goodwill related to the Funmap purchase during 2015, See "NOTE 8 – GOODWILL" for additional information.
NOTE 8 – GOODWILL
The following table sets forth the carry value of the Company's goodwill as of June 30, 2016:
|
|
|
|
|
During the Six Months Ended June 30, 2016
|
|
|
|
Balance at December 31,
2015
|
|
|
Good will
Recognized
at time of
Purchase
|
|
|
Goodwill
Impaired
|
|
|
Balance at
June 30,
2016
|
|
Funmaps
|
|
$
|
750,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
750,000
|
|
Next
|
|
|
1,330,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,330,000
|
|
Frontiers Media
|
|
|
4,654,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,654,197
|
|
Total
|
|
$
|
6,734,197
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,734,197
|
|
In accordance with FASB ASC 350, "Intangibles – Goodwill and Other," we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.
For purposes of reviewing impairment and the recoverability of goodwill, we must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the reporting unit. We perform an annual impairment review at the end of each fiscal year.
During 2015, we performed a goodwill impairment test and estimated the fair value of our Funmap, RND and Frontiers reporting units based on the income approach (also known as the discounted cash flow ("DCF") method, which utilizes the present value of cash flows to estimate fair value). The future cash flows for our Funmap reporting unit was projected based on our estimates of future revenues, operating income and other factors (such as working capital and capital expenditures). The discount rates used in our DCF method were based on a weighted-average cost of capital ("WACC") determined from relevant market comparisons, adjusted upward for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). A terminal value growth rate was applied to the final year of the projected period and reflected our estimate of stable, perpetual growth. We then calculated a present value of the cash flows for the reporting unit to arrive at an estimate of fair value under the income approach and then used the market approach to corroborate this value. We determined that the carry value of the Funmap reporting unit exceeded the fair value under the income and market approach. As a result we impaired $2,729,834 as of December 31, 2015. The RND and Frontiers reporting units' fair value was greater than their carry values.
NOTE 9 – RELATED PARTY TRANSACTIONS
A related party with respect to the Company is generally defined as any person (i) (and, if a natural person, inclusive of his or her immediate family) that holds 10% or more of the Company's securities, (ii) that is part of the Company's management, (iii) that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
During the three months ended June 30, 2016, Alan Beck, shareholder and consultant advanced the Company $132,692 and was repaid $22,262. During the six months ended June 30, 2016, Mr. Beck advanced the Company $173,692 and was repaid $26,262.
During the three and six months ended June 30, 2016, the Company recognized $37,500 and $75,000 of cash compensation expense for Michael Turner, President of Media Ventures Division, shareholder and former Director.
During the three and six months ended June 30, 2016, the Company recognized $30,000 and $80,000 of cash compensation expense for Lawrence Rutstein, Chairman for consulting services.
NOTE 10 – SUBSEQUENT EVENTS
Management has reviewed material events subsequent to June 30, 2016 and prior to the filing of financial statements in accordance with FASB ASC 855 "Subsequent Events".
On July 18, 2016 Firstfire and the Company entered into a Second Amendment and Waiver Agreement (the "
Firstfire
Amendment No. 2
"). Pursuant the Firstfire Amendment No. 2, the Firstfire Note shall be exchanged for a new debenture with identical terms as Firstfire Note except the new debenture maturity date is extended to January 16, 2017 and the new debenture conversion price shall be amended to provide that upon default by the Company, the conversion price will be permanently reset to $0.02. The Company will make a $10,000 payment on 7/22/2016 and another $40,000 payment before 7/29/2016, thereafter MMP will make 4 payments of $5,000 on each 15th of the month (September, October, November, December) with the balance of the note being repaid on or before January 16 2017.Additionally, 300,000 common stock purchase warrants (the "
Firstfire Warrant No. 3
") were issued with a five year life and $0.03 exercise price subject to adjustment for dilutive issuances with identical terms to the Firstfire Warrant.
On July 29, 2016, the Company entered into a Master Credit Facility Agreement (the "
Credit Agreement
") by and among the Company, Columbia Funmap, Inc., New Frontiers Media Holdings, LLC, (together with Columbia Funmap, the "
Subsidiaries
," and the Subsidiaries, together with the Company, the "
Borrowers
") and White Winston Select Asset Funds, LLC, as lender ("
WW
"). Pursuant to the Credit Agreement, WW agreed to loan the Borrowers the original principal amount of $1,750,000 (the "
Loan
"). An initial amount of $1,116,934 was funded by WW at the closing of the Credit Agreement. Any increase in the amount extended to the Borrowers shall be at the discretion of WW.
The amounts borrowed pursuant to the Credit Agreement are evidenced by a Secured Promissory Note (the "
Secured Note
") and the repayment of the Secured Note is secured by a first position security interest in substantially all of the Borrower's assets in favor of WW, as evidenced by a Security Agreement by and between the Borrowers and WW (the "
Security Agreement
"). The Secured Note is in the original principal amount of $1,750,000, is due and payable, along with interest thereon, on June 29, 2017, and bears interest at the rate of 10% per annum. Provided no Event of Default (as defined in the Credit Agreement) has occurred, until the first (1st) anniversary of the Loan transactions, all non-default interest accruing on the outstanding principal of up to $932,383.10 shall be added to the principal outstanding on the Secured Note at the end of each monthly payment period. Upon the occurrence of an Event of Default the interest rate shall increase 700 basis points, which increase shall take effect without the need for WW to notify the Borrower.
As additional security, the Company pledged its ownership interests in the Subsidiaries, pursuant to a Securities Pledge Agreement and Escrow Agreement entered into as of July 29, 2016.
As partial consideration for WW entering into and structuring the Credit Agreement, the Company issued to WW (i) a common stock purchase warrant to purchase up to 2,500,000 shares of the Company's common stock with an exercise price of $0.01 per share (the "Fixed Common Stock Purchase Warrant"), (ii) a common stock purchase warrant to purchase up to 2,500,000 shares of the Company's common stock with an exercise price of $0.03 per share ( the "Pro-Rata Common Stock Purchase Warrant"), and (iii) a common stock purchase warrant to purchase shares of the Company's common stock in such amount and at such price as is determined by the formulas set forth therein (the "Adjustable Common Stock Purchase Warrant").
Additionally, the Company shall pay to WW the following fees in connection with the Credit Agreement (i) a non-utilization fee commencing on the first anniversary of the date of the Secured Note accruing at the rate of one percent (1%) per annum on the average daily unborrowed portion of the Secured Note payable quarterly in arrears and (ii) a consulting fee for services provided to the Company not to exceed $5,000 per month unless an Event of Default has occurred or WW agrees to undertake specific tasks associated with the operations of the Company.
Pursuant to the Credit Agreement, an Event of Default includes, but is not limited to, the occurrence of any of the following: (i) the Borrower defaulting in making any payment when the payment shall become due under the Secured Note or any of the other Loan Documents (as defined in the Credit Agreement); (ii) the Borrower failing to comply with any term, covenant or agreement of the Credit Agreement or any other Loan Documents in accordance with the terms therein, which such failure continues for twenty days from the earlier of: (a) notice to WW or (b) the date on which the Borrower first became aware of non-compliance; and (iii) the commencement of proceedings under any bankruptcy or insolvency law by or against the Borrower or any other person primarily or secondarily liable under the Secured Note, or in respect thereof, including any person or entity who has pledged or granted to WW a security interest or other lien in property on behalf of the Borrower, or an inability of such person to pay its obligations when due.