5.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties notes payable:
Note
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Original Borrowing
|
|
|
Balance at
December 30, 2016
|
|
|
Balance at
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1
|
|
Year 2015
|
|
April 1,2017
|
|
|
12.0
|
%
|
|
$
|
1,203,242
|
|
|
$
|
1,198,883
|
|
|
$
|
1,248,883
|
|
Note 2
|
|
December 2015
|
|
April 1, 2017
|
|
|
12.0
|
%
|
|
|
200,000
|
|
|
|
-
|
|
|
|
200,000
|
|
Note 3
|
|
December 1, 2015
|
|
April 1,2017
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
189,000
|
|
|
|
189,000
|
|
Note 4
|
|
December 1, 2015
|
|
April 1, 2017
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
111,901
|
|
Note 5
|
|
August 4, 2016
|
|
April 4, 2017
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
343,326
|
|
|
|
-
|
|
Note 7
|
|
August 4, 2016
|
|
April 4, 2017
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,964,985
|
|
|
|
1,749,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(398,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable – related parties,
net
|
|
|
|
|
|
|
|
|
|
$
|
1,964,985
|
|
|
$
|
1,351,192
|
|
|
●
|
On
various dates during the year ended December 31, 2015, Rory J. Cutaia, the Company’s majority shareholder and Chief
Executive Officer, loaned the Company total principal amounts of $1,203,242. The loans were unsecured and all due on demand,
bearing interest at 12% per annum. On December 1, 2015, the Company entered into a Secured Convertible Note agreement with
Mr. Cutaia whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans amounting to an aggregate
total of $1,248,883 and due on demand, was consolidated under a note payable agreement, bearing interest at 12% per annum,
and converted from due on demand to due in full on April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate
the loans and extend the maturity date, the Company granted Mr. Cutaia a senior security interest in substantially all current
and future assets of the Company. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665
of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share.
On April 4, 2016 $50,000 of this note was converted into another note (see below).
|
|
|
|
|
●
|
On
December 1, 2015, the Company entered into an Unsecured Convertible Note with Mr. Cutaia in the amount of $189,000, bearing
interest at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note extends the payment
terms from on-demand to due in full on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr.
Cutaia’s discretion into shares of common stock at a conversion rate of $0.07.
|
|
|
|
|
●
|
On
December 1, 2015, the Company entered into an Unsecured Note agreement with a consulting firm owned by Michael Psomas, a former
member of the Company’s Board of Directors, in the amount of $111,901 representing unpaid fees earned for consulting
services previously rendered but unpaid as of November 30, 2015. The outstanding amounts bear interest at 12% per annum, and
are due in full on April 1, 2017.
|
|
|
|
|
●
|
On
April 4, 2016 the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and a director
of the Company, in the amount of $343,325, which represents additional sums of $93,326 that the CEO advanced to the Company
during the period from December 2015 through March 2016, and the conversion of $250,000 other pre-existing notes including
the $200,000 December note bearing 12% interest. This note bears interest at the rate of 12% per annum, compounded annually.
In consideration for this agreement to extend the repayment date to August 4, 2017, the Company granted to the CEO the right
to convert up to 30% of the amount of the such note into shares of the Company’s common stock at $0.07 per share and
issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50%
of the amount of such note.
|
|
|
|
|
●
|
The
Company calculated the effect of the issuance of the warrants and the conversion that arose as part of issuances of the $343,325
convertible amounted to $132,140. As the change in the fair value of the note constituted a change in excess of 10% of the
present value of the note, the Company considered this to be a “debt extinguishment” in accordance with ASC 470-50-40
and recorded the fair value of the grant as a debt extinguishment cost.
|
|
|
|
|
●
|
April
4, 2016 the Company issued an unsecured convertible note payable to the CEO in the amount of $121,875, which represents the
amount of the accrued but unpaid salary owed to the CEO for the period from December 2015 through March 2016. In consideration
for this agreement to extend the payment date to August 4, 2017, the Company granted to the CEO the right to convert the amount
of the such note into shares of the Company’s common stock at $0.07 per share, which approximated the trading price
or the Company’s common stock on the date of the agreement. This note bears interest at the rate of 12% per annum, compounded
annually.
|
|
|
|
|
●
|
In
2015, the Company granted 8,920,593 warrants to Mr. Cutaia and 799,286 warrants to Mr. Psomas as consideration for their respective
notes payable balances to a maturity date of April 1, 2017. The warrants are immediately vested and have an exercise price
of $0.07 and expire on November 30, 2018. The warrants have been valued using the Black-Scholes valuation model and have an
aggregate value of $424,758. The value has been recorded as a discount to the outstanding notes payable - related parties
on the accompanying consolidated balance sheet, and was being amortized into interest expense over the extended maturity periods
of April 1, 2017.
|
Total
interest expense for notes payable to related parties for the years ended December 31, 2016 and 2015 was $232,076 and $61,781,
respectively.
6.
|
CONVERTIBLE
NOTE PAYABLE
|
The
Company entered into a series of unsecured loan agreement with Oceanside Strategies, Inc. (“Oceanside”) a third party
lender, in the aggregate principal amount of $600,000 through December 31, 2015. The loans bear interest at rates ranging from
5% to 12% per annum and were due on demand.
On
April 3, 2016, the Company issued an unsecured convertible note payable to Oceanside in the amount of $680,268 (this amount includes
$600,000 principal amount and $80,268 accrued and unpaid interest). This note superseded and replaced all previous notes and current
liabilities due to Oceanside for sums Oceanside loaned to the Company in 2014 and 2015. This note bears interest at the rate of
12% per annum, compounded annually. In consideration for Oceanside’s agreement to convert the prior notes from current demand
notes and extend the maturity date to December 4, 2016, the Company granted Oceanside the right to convert up to 30% of the amount
of such note into shares of the Company’s common stock at $0.07 per share and issued 2,429,530 share purchase warrants,
exercisable at $0.07 per share until April 4, 2019
The
Company calculated the effect of the issuance of the warrants and the conversion feature that arose as part of issuances of notes,
which amounted to $164,344. As the change in the fair value of the note constituted a change in excess of 10% of the present value
of the note, the Company considered this to be a “debt extinguishment” in accordance with ASC 470-50-40 and recorded
the fair value of the grant as a debt extinguishment cost.
Effective
December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend
the maturity date of the Note to and including August 4, 2017. All other terms of the Note remain unchanged. In consideration
for Oceanside’s agreement to extend the maturity date to August 4, 2017 the Company issued Oceanside 2,429,530 share purchase
warrants, exercisable at $0.08 per share until December 29, 2019, which warrants represent 25% of the amount of the Note. The
fair value of the warrants was determined to be $159,491 using a Black-Scholes option pricing model. As the change in the fair
value of the note constituted a change in excess of 10% of the present value of the note, the Company considered this to be a
“debt extinguishment” in accordance with ASC 470-50-40 and recorded the fair value of the grant as a debt extinguishment
cost.
As
of December 31, 2016 and December 31, 2015, principal amount of the note payable was $680,268 and $600,000, respectively.
Common
Stock
The
following were common stock transactions during the year ended December 31 2016.
Stock
Repurchases
– On January 28, 2016, the Company entered into stock repurchase agreements (the “Repurchase Agreements”)
with three former employees and consultants to acquire an aggregate total of 9,011,324 shares of the Company’s common stock.
Pursuant to the terms of the agreements, the Company had the right to purchase the shares at a price of $0.02 per share on or
before April 15, 2016. In accordance with the terms of the Repurchase Agreements, the Company repurchased 8,311,324 shares for
total of $166,226 during the year ended December 31, 2016.
Shares
Issued for Services
– The Company issued common shares to consultants and vendors for services rendered and are
expensed based on fair market value of the stock on the date of grant, or as the services were performed. For the year ended December
31, 2016, the Company issued 6,388,334 shares of common stock for services and recorded stock compensation expense of $726,789.
Effective
July 12, 2016, the Board approved the execution of a term sheet with a consultant in which the consultant will receive 5,000,000
restricted common shares that vest over 3 years in increments of 1,666,667 shares every year. The shares are being valued at the
trading price of our common shares as the shares vest. During the year ended December 31, 2016, the Company recognized a cost
of $90,500 related to the cost of approximately 765,000 shares earned during the period, which cost is included in the amount
above. As the shares have not yet vested, they are not being reflected as outstanding at December 31, 2016. In addition, the consultant
will receive cash compensation equal to 50% of “net revenue” generated through a to-be-formed wholly owned subsidiary
“through which mutually approved booth related opportunities will be conducted”.
Shares
Issued to Board of Directors
– The Company issued common shares to board of directors for services rendered and
are expensed based on fair market value of the stock price at the date of grant. For the year ended December 31, 2016, the Company
issued 1,150,000 shares to board of directors and recorded stock compensation expense of $116,682.
Shares
Issued from Stock Subscription
– The Company issued stock subscription to investors. For the year ended December
3, 2016, the Company issued 32,135,556 common shares for a net proceed of $1,544,050.
The
following were common stock transactions during the year ended December 31, 2015.
Settlement
Agreement
– During the year ended December 31, 2015, the Company entered into settlement and release agreements,
pursuant to which the Company agreed to issue an aggregate of 820,000 shares of common stock valued at $530,000 in full settlement
and release of claims on certain assets acquired from Songstagram.
Shares
Issuance to Employees
– On July 18, 2015, the Company issued an aggregate total of 1,215,000 shares of restricted
common stock as compensation to certain employees, which were fully vested as of December 31, 2015. The Company recorded a total
of $607,500 of share-based compensation expense during the year ended December 31, 2015 for these grants.
Shares
Issuance to Board of Directors
– On July 21, 2015, the Company issued an aggregate total of 600,000 shares of restricted
common stock as compensation to members of the Board of Directors. The shares vest over an 18-month period from the issuance date.
On December 1, 2015, the Company granted an additional 500,000 shares of restricted common stock as compensation to a Board member
which was immediately vested. The Company recorded a total of $123,909 of share-based compensation expense during the year ended
December 31, 2015 for these grants. In October 2015, the Company issued 100,000 shares of common stock to a vendor for services
to be provided pursuant to a services contract extending for 6 months through April 9, 2016. The Company also issued a vendor
24,000 shares of common stock as compensation. The Company recorded a total of $34,678 of share-based compensation expense during
the year ended December 31, 2015 for this contract.
8.
|
Acquisition
of Assets of Songstagram, Inc.
|
On
December 11, 2014, Songstagram, Inc. (“Songstagram”) and Rocky Wright (“Wright”) issued secured promissory
notes (collectively, the “Promissory Notes”) in connection with advances that the Company made to Songstagram and
Wright. The advances were made by the Company in connection with ongoing negotiations for a possible acquisition of Songstagram
or its assets by the Company. Pursuant to the Promissory Notes, Songstagram promised to pay the Company the principal sum of $475,000,
together with interest at a rate equal to 8% per annum, and Wright promised to pay the Company the principal sum of $386,435,
together with interest at a rate equal to 8% per annum. All unpaid principal, which totaled an aggregate of $861,435, together
with any then-unpaid and accrued interest and other amounts payable under the Promissory Notes, were to be due and payable on
the earlier of (i) the Company’s demand for payment; or (ii) when, upon or after the occurrence of an event of default,
the Company declared such amounts due and payable or such amounts were made automatically due and payable under the terms of the
Promissory Notes. During any period in which an event of default had occurred and was continuing, Songstagram and Wright, as applicable,
were to pay interest on the unpaid principal balance at a rate of 13% per annum. The full amounts due under the Promissory Notes
were secured by all of Songstagram’s assets and all of Wright’s assets related to Songstagram, as applicable, in accordance
with security agreements dated December 11, 2014, as described below.
In
connection with the Promissory Notes, the Company entered into security agreements (collectively, the “Security Agreements”)
with each of Songstagram and Wright dated December 11, 2014. Pursuant to the Security Agreements, Songstagram and Wright, as applicable,
agreed to, among other things; (i) pay all secured obligations when due; (ii) upon or following the occurrence of an event of
default, pay all of the Company’s costs and expenses, including reasonable attorneys’ fees, incurred by the Company
in the perfection, preservation, realization, enforcement and exercise of the Company’s rights, powers and remedies under
the Security Agreements; and (iii) execute and deliver such documents as the Company deems necessary to create, perfect and continue
the security interests.
Effective
January 20, 2015, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with Songstagram
and Wright, pursuant to which the Company acquired from Wright all assets and intellectual property that Wright owned related
to, or used in connection with: (i) the business of Songstagram, (ii) the assets owned and/or used by Songstagram, (iii) the Songstagram
software application, (iv) the business and assets of Qubeey Inc. (“Qubeey”), and (v) all software applications of
Qubeey, in consideration of the forgiveness of all principal and interest owing by Mr. Wright to the Company under the promissory
note issued by Wright to the Company on December 11, 2014. In connection with the acquisition of certain IP, the Company also
paid an additional $43,900 to Wright in January 2015.
In
connection with the Acquisition Agreement and the Company’s prior demand for the repayment of all monies outstanding under
the Promissory Note issued by Songstagram to the Company on December 11, 2014, as Songstagram was unable to repay such monies,
Songstagram consented to the enforcement of the security granted under the Security Agreement with Songstagram by way of a strict
foreclosure. In accordance with the terms of the Acquisition Agreement, and as further provided for in a surrender of collateral,
consent to strict foreclosure and release agreement dated January 20, 2015 (the “Surrender of Collateral, Consent to Strict
Foreclosure and Release Agreement”) between the Company and Songstagram, Songstagram agreed to turn over all collateral
pledged under the Security Agreement and consented to the Company retaining such collateral in satisfaction of the indebtedness
due under the Promissory Note issued by Songstagram to the Company.
Effective
March 4, 2015, the Company entered into a settlement and release agreement with Songstagram and Jeff Franklin, pursuant to which
the Company agreed to pay $10,000 and issue 500,000 shares of common stock to Mr. Franklin in full settlement and release of a
claim he had on certain assets the Company acquired from Songstagram and in consideration for the transfer to us of a secured
lien he held on assets of Qubeey. The shares of common stock issued to Mr. Franklin were valued at $250,000 and were included
as part of the acquisition price of Songstagram.
Effective
March 5, 2015, the Company entered into a settlement and release agreement with Songstagram and Art Malone Jr., pursuant to which
the Company agreed to issue 320,000 shares of common stock to Mr. Malone in full settlement and release of a claim he had on certain
assets the Company acquired from Songstagram. The shares of common stock issued to Mr. Malone were valued at $160,000 and were
included as part of the acquisition price of Songstagram. The 320,000 shares of common stock were issued to Mr. Malone on April
29, 2015.
In
July 2015, the Company agreed to issue an aggregate of 240,000 shares to two individuals pursuant to the Acquisition Agreement
as payment for claims they had on certain assets acquired from Songstagram. The shares of common stock were valued at $120,000
and were included as part of the acquisition price of Songstagram. The shares of common stock have not been issued, although the
Company expects them to be in the future.
Effective
October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the Board
of Directors to retain the services of valued key employees and consultants of the Company.
On
November 21, 2014, the Company entered into an executive employment agreement with Rory Cutaia, the Company’s Chief Executive
Officer, and issued the following stock options in connection with the agreement: (i) 800,000 stock options, each exercisable
into one share of our common stock at a price of $0.50 per share, 400,000 of which vested immediately and 400,000 which will vest
one year from the execution date, on November 21, 2015 and (ii) 250,000 stock options on each anniversary of the execution date.
A
summary of option activity for the years ended December 31, 2016 and 2015 are presented below.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
6,470,000
|
|
|
$
|
0.50
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
3,350,000
|
|
|
|
1.12
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(2,163,750
|
)
|
|
|
0.91
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2015
|
|
|
7,656,250
|
|
|
$
|
0.66
|
|
|
|
4.87
|
|
|
$
|
-
|
|
Granted
|
|
|
5,860,000
|
|
|
|
0.09
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(2,985,297
|
)
|
|
|
0.93
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
10,530,953
|
|
|
$
|
0.33
|
|
|
|
4.03
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested December 31, 2016
|
|
|
6,801,577
|
|
|
$
|
0.49
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
5,748,933
|
|
|
$
|
0.47
|
|
|
|
|
|
|
$
|
-
|
|
The
weighted average grant date fair value of options granted during the years ended December 31, 2016 and 2015 was $0.09 and $0.15
per option, respectively. The total expense recognized relating to stock options for the years ended December 31, 2016 and 2015
amounted to $457,881 and $836,592, respectively. As of December 31, 2016, total unrecognized stock-based compensation expense
was $369,730 which is expected to be recognized as an operating expense through July 2019.
The
Company has the following warrants as of December 31, 2016:
|
|
Issuance Date
|
|
Expiration Date
|
|
Warrant Shares
|
|
|
Exercise Price
|
|
Warrant #1
|
|
November 12, 2014
|
|
November 12, 2019
|
|
|
600,000
|
|
|
$
|
0.50
|
|
Warrant #2
|
|
March 21, 2015
|
|
March 20, 2018
|
|
|
48,000
|
|
|
$
|
0.10
|
|
Warrant #3
|
|
October 30, 2015
|
|
October 30, 2020
|
|
|
600,000
|
|
|
$
|
0.50
|
|
Warrant #4
|
|
December 1, 2015
|
|
April 1, 2017
|
|
|
9,719,879
|
|
|
$
|
0.07
|
|
Warrant #5
|
|
April 4, 2016
|
|
April 4, 2019
|
|
|
2,452,325
|
|
|
$
|
0.07
|
|
Warrant #6
|
|
April 4, 2016
|
|
April 4, 2019
|
|
|
2,429,530
|
|
|
$
|
0.07
|
|
Warrant #7
|
|
December 15, 2016
|
|
December 14, 2019
|
|
|
176,000
|
|
|
$
|
0.25
|
|
Warrant #8
|
|
December 30, 2016
|
|
December 29, 2019
|
|
|
2,429,530
|
|
|
$
|
0.08
|
|
Outstanding at December 31, 2016
|
|
|
|
|
|
|
18,455,264
|
|
|
|
|
|
On
November 12, 2014, the Company granted warrants to a consultant to purchase 600,000 shares of common stock at an exercise price
of $0.50 per share. The warrants expire on November 12, 2019 and were fully vested on the grant date. The total share based compensation
expense recognized relating to these warrants for the year ended December 31, 2014 amounted to $199,356.
On
March 21, 2015, in connection with the DelMorgan agreement, the Company issued 48,000 warrants, each exercisable into one share
of common stock at an exercise price of $0.10 per share. The warrants were fully vested on the date of the grant and expire on
March 20, 2018. The warrants have been valued using the Black-Scholes pricing model as of the contract date. The total value of
$20,114 has been recorded as a component of prepaid expenses and other current assets in the accompanying consolidated balance
sheet as of December 31, 2015 and is being amortized over the life of the agreement.
On
October 30, 2015, the Company granted warrants to a consultant to purchase 600,000 shares of common stock at an exercise price
of $0.50 per share. The warrants expire on October 30, 2020 and were fully vested on the grant date. The total share based compensation
expense recognized relating to these warrants for the year ended December 31, 2015 amounted to $20,719.
On
December 1, 2015, the Company granted 9,719,879 warrants as consideration for the Company’s Chief Executive Officer and
a Board of Director member agreeing to extend the payment terms of their respective note payable balances to a maturity date of
April 1, 2017.
On
April 4, 2016, the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and member of
the Board of Directors, in the amount of $343,326, which represents additional sums that the CEO advanced to the Company during
the period from December 2015 through March 2016, and is addition to all pre-existing loans made by, and notes held by the CEO
(See Note 5). In consideration for this agreement the Company issued 2,452,325 share purchase warrants, exercisable at $0.07 per
share until April 4, 2019.
On
April 4, 2016, the Company issued an unsecured convertible note payable to Oceanside Strategies, Inc. (“Oceanside”)
in the amount of $680,268 (See Note 6). In consideration for Oceanside’s agreement to convert the prior notes from current
demand notes and extend the maturity date to December 4, 2016, we granted Oceanside d 2,429,530 share purchase warrants, exercisable
at $0.07 per share until April 4, 2019.
Effective
December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend
the maturity date of the Note to and including August 4, 2017 (see Note 6). In consideration for Oceanside’s agreement to
extend the maturity date to August 4, 2017 the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08
per share until December 29, 2019.
Significant components of the Company’s
deferred tax assets and liabilities are as follows:
|
|
December 31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
3,497,359
|
|
|
$
|
2,640,747
|
|
Share based compensation
|
|
|
1,579,081
|
|
|
|
655,484
|
|
Amortization of intangible assets
|
|
|
535,158
|
|
|
|
576,150
|
|
Accrued officers compensation
|
|
|
121,017
|
|
|
|
35,325
|
|
State taxes
|
|
|
(356,157
|
)
|
|
|
(231,259
|
)
|
Less: Valuation allowance
|
|
|
(5,376,458
|
)
|
|
|
(3,676,447
|
)
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
The
items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes
were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
5.9
|
%
|
|
|
6.4
|
%
|
Non-deductible items
|
|
|
-0.1
|
%
|
|
|
-0.1
|
%
|
Change in valuation allowance
|
|
|
-39.8
|
%
|
|
|
-40.3
|
%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
ASC
740 requires that the tax benefit of net operating losses carry forwards be recorded as an asset to the extent that management
assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s
ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of
operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax
benefits is currently not likely to be realized and, accordingly, has provided a 100% valuation allowance against the asset amounts.
Any
uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities.
The Company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end December 31, 2015
or 2014. The Company has not accrued for interest or penalties associated with unrecognized tax liabilities.
As
of December 31, 2016, the Company had federal and state net operating loss carry forwards of approximately $8.2 million, which
may be available to offset future taxable income for tax purposes. These net operating loss carry forwards begin to expire in
2034. This carry forward may be limited upon the ownership change under IRC Section 382.
12.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Leases
Until
June 2015, the Company leased office space in West Hollywood, California under an operating lease which provided for monthly rent
of $6,700 through July 31, 2015. In June 2016, the Company moved its offices to a new location in Los Angeles, California under
a new operating lease which provides for monthly rent of $2,950 through June 25, 2017. The Company had total rent expense for
the year ended December 31, 2016 and 2015 of $68,328 and $143,428, respectively.
Employment
Agreements
On
November 21, 2014, we entered into an executive employment agreement effective November 1, 2014 with Rory Cutaia, our president,
chief executive officer, secretary and treasurer. Pursuant to the terms of the employment agreement, we have agreed to pay Mr.
Cutaia an annual salary of $325,000, which will be increased each year by 10%, subject to the annual review and approval of our
board of directors. Notwithstanding the foregoing, a mandatory increase of not less than $100,000 per annum will be implemented
on our company achieving EBITDA break-even. In addition to the base salary, Mr. Cutaia will be eligible to receive an annual bonus
in an amount up to $325,000, based upon the attainment of performance targets to be established by our board of directors, in
its discretion.
The
initial term of the employment agreement is five years and, upon expiration of the initial five-year term, it may be extended
for additional one year periods on ninety days prior notice.
In
the event that: (i) Mr. Cutaia’s employment is terminated without cause, (ii) Mr. Cutaia is unable to perform his duties
due to a physical or mental condition for a period of 120 consecutive days or an aggregate of 180 days in any 12 month period;
or (iii) Mr. Cutaia voluntarily terminates the employment agreement upon the occurrence of a material reduction in his salary
or bonus, a reduction in his job title or position, or the required relocation of Mr. Cutaia to an office outside of a 30 mile
radius of Los Angeles, California, Mr. Cutaia will:
|
(a)
|
receive
monthly payments of $27,083, or such sum as is equal to Mr. Cutaia’s monthly base compensation at the time of such termination,
whichever is higher, and
|
|
|
|
|
(b)
|
be
reimbursed for COBRA health insurance costs, in each case for 36 months from the date of such termination or to the end of
the term of the agreement, whichever is longer.
|
In
addition, Mr. Cutaia will have any and all of his unvested stock options immediately vest, with full registration rights; and
any unearned and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal sick days, etc., be deemed
earned, vested and paid immediately.
As
a condition to receiving the foregoing, Mr. Cutaia will be required to execute a release of claims, and a non-competition and
non-solicitation agreement having a term which is the same as the term of the monthly severance payments described above.
Litigation
We
have one pending litigation, filed. on September 19, 2016. The action is captioned as Multicore Technologies, an Indian Corporation,
plaintiff, v. Rocky Wright, an individual, bBooth, Inc., a Nevada corporation, and Blabeey, Inc, a Nevada corporation, defendants.
The action is pending in the United States District Court for the Central District of California under Case No.: 2:16-cv-7026
DSF (AJWx). The First Amended Complaint was filed on January 27, 2017, alleging breach of Implied-in-fact Contract and Quantum
Meruit relating to services Multicore allegedly performed on behalf of bBooth in connection with various web and mobile applications.
Multicore is seeking damages of approximately $157,000 plus interest and cost of suit. We filed an Answer denying Multicore’s
claims on March 13, 2017. We do not believe plaintiff’s claims of an implied contract or quantum meruit have any basis in
fact, nor do we believe they have any other viable claims against us. We intend to vigorously defend the action and have determined
not to create a reserve in our financial statements for an unfavorable outcome.
We
know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.
On
January 10, 2017, the Company approved and granted 5,000,000 non-qualified stock options to employees and 2,000,000 to a Director.
Each exercisable into one share of our common stock at a price of $0.08 per share and vest 100% in three years from the grant
date.
Effective
February 14, 2017, the Company entered into a Securities Purchase Agreement, (the “Purchase Agreement”), by and between
an otherwise unaffiliated, accredited investor (the “Purchaser”) and the Company in connection with our issuance and
sale to the Purchaser of shares of Series A Preferred Stock under the terms and conditions as set forth in the Purchase Agreement
(the “Sale”).
In
connection with the Sale, our Board of Directors (our “Board”) authorized and approved a series of preferred stock
to be known as “Series A Convertible Preferred Stock”, for which 1,050,000 shares, $0.0001 par value per share, were
authorized and a Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, (the “Certificate”),
was filed with the Office of the Secretary of State of the State of Nevada (the “State”) to effectuate the authorization.
Pursuant to the Purchase Agreement, the purchase of shares of our Series A Preferred Stock may occur in several tranches (each,
a “Tranche”; and, collectively, the “Tranches”). The first Tranche of $300,000 ($315,000 in stated value,
represented by 315,000 shares of our Series A Preferred Stock) closed simultaneously with the execution of the Purchase Agreement
on February 14, 2017 (the “First Closing”), and each additional Tranche shall close at such times and on such financial
terms as may be agreed to by the Purchaser and us.
Pursuant
to the terms of the Purchase Agreement, the shares of our Series A Preferred Stock issued in the First Closing are to be redeemed
by us in five (5) equal weekly payments (each, a “Redemption Payment”), commencing in approximately 180 days from
the First Closing. All but one of the Redemption Payments may be made by us in cash or in shares of our common stock, at our option.
One of the Redemption Payments must be made in shares of our common stock. Redemption Payments made using shares of our common
stock will be valued based upon a VWAP formula, tied to the then-current quoted price of shares of our common stock, described
with greater particularity in the Purchase Agreement.
On
February 8, 2017, the Company extended International Monetary’s (“IM”) consulting agreement. The Parties have
agreed to modify the terms of the Agreement as follows:
|
1.
|
Accrued
Management Fees in the amount of $30,000 due and payable to IM by the Company shall be deemed paid in full by the issuance
to IM of 400,000 ‘restricted shares’, as that term is defined in the Agreement. There shall be no further accrual
of Management Fees as of the date hereof.
|
|
2.
|
The
term of the Agreement, as set forth in item 2 thereof, shall be extended for an additional 6-month period, commencing as of
the date hereof.
|
|
3.
|
Compensation
for the additional 6-month term is 700,000 ‘restricted shares. The Shares shall be issued effective as of the date,
hereof but delivered at the rate of 233,333 shares every 60 days during the term.
|