NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR-ENDED DECEMBER 31, 2015
NOTE 1 – DESCRIPTION OF BUSINESS
Zonzia Media, Inc, initially organized
as HDIMAX Media, Inc., and incorporated in the State of Delaware on May 24, 2014, is a digital publishing and broadcast Company
focused on content development and multi-platform content distribution, advertising, and ecommerce.
Reverse Merger with Indigo-Energy, Inc.
On November 21, 2014, through a wholly-owned
subsidiary of a public shell Company then known as Indigo-Energy, Inc., HDIMAX Acquisition Corporation, a Nevada corporation, was
merged with and into HDIMAX, Inc., a Delaware corporation (“HDIMAX”) (such merger, the “Merger”) pursuant
to the Agreement and Plan of Merger, effective as of September 2, 2014, and as amended effective as of November 20, 2014, by and
among Indigo-Energy, Inc. (our “company” or “we” or “us”), HDIMAX and HDIMAX Acquisition Corporation
(the “Merger Agreement”). HDIMAX was the surviving corporation of the Merger and as such will continue as a wholly-owned
subsidiary of our Company. Upon closing the merger, we changed our name to HDIMAX Media, Inc.
As a result of the Merger, all of HDIMAX’s
common stock was converted into 712,121,205 shares of our Company’s common stock, which represents approximately 94% of the
outstanding shares of our company’s common stock after giving effect to the Merger. The common stock issuance, representing
94% of the outstanding shares of the consolidated Company was accounted for as a reverse capitalization in accordance with accounting
principles generally accepted in the United States (“US GAAP”) and the Rules and Regulations as promulgated by the
United States Securities and Exchanges Commission (“SEC”).
On January 22, 2015, we entered into a
Settlement Agreement in which we cancelled all of the 712,121,205 shares of restricted and unregistered common stock previously
issued to effectuate the merger with Rajinder Brar, the previous sole owner of HDIMAX, Inc. In consideration for the shares being
cancelled, Rajinder Brar received 3,000,000 shares of newly restricted common stock after the execution of the settlement agreement.
We forfeited our rights to sell advertising and other products on websites previously controlled by Mr. Brar and related entities,
with the exception of
www.hdimax.com
. An outline of the significant terms of the Settlement Agreement
includes, but is not limited to, the following:
|
·
|
The 712,121,205 shares of HDIMAX Media, Inc. (formerly Indigo-Energy) common stock issued to Rajinder Brar, the owner of 100% of the previously issued outstanding stock of HDIMAX, Inc. immediately preceding the reverse acquisition transaction, were cancelled.
|
|
·
|
Rajinder Brar, Aneliya Vasileva, and Myles Pressey III, previously appointed as the Company’s officers and Board of Directors immediately following the completion of the reverse acquisition, resigned and forfeited future compensation terms associated with any and all previously agreed upon employment agreements, inclusive of the compensation accrued as of December 31, 2014.
|
|
·
|
Mr. James C. Walter Sr. was reappointed to serve as a Director charged with appointing new officers. Mr. Walter Sr. served as the Sole Officer and Director of the Company immediately preceding the completion of the reverse acquisition transaction.
|
|
·
|
The Company’s option agreement to acquire Fashion Style Magazine, Inc., an entity wholly owned by Rajinder Brar, was cancelled.
|
|
·
|
The Omnibus Agreement and License dated November 21, 2014, by and between the Company and Fashion Style Magazine, Inc. was terminated. The brands and assets wholly owned by Rajinder Brar through Fashion Style Magazine, Inc. were intended to be a core portion of the consolidated Company’s business operations subsequent to the completion of the reverse acquisition.
|
|
·
|
The Company forfeited all rights to Frontlinewire.com, a brand and website acquired in the reverse acquisition.
|
|
·
|
The Company maintained all rights to hdimax.com, a brand and website acquired in the reverse acquisition, but agreed to assign those assets back to their original owners by May 1, 2015. We do not intend to further develop or publish content at www.hdimax.com.
|
For additional details, including a copy
of the Settlement Agreement, please see our Current Report on Form 8-K filed on January 28, 2015.
On March 9, 2015 we changed our name to
Zonzia Media, Inc. and we are developing a new multi-platform entertainment distribution channel with the goal of being a unique
hybrid of a linear channel, a video-on-demand channel and an over-the-top channel. Our technology will allow our viewers instant
access to our available content.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have
been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and have been presented on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
Use of Estimates
In preparing financial statements in conformity
with generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues
and expenditures during the reported periods. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
We consider all highly liquid instruments
with an original maturity of 90 days or less at the time of purchase to be cash equivalents.
Fair Value Measurements
The fair value of a financial instrument
is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked
to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the
asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include
consideration of non-performance risk, including the party’s own credit risk.
Fair value measurements do not include
transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine
fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to
the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market
prices in active markets for identical assets or liabilities.
Level 2: Observable
market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable
inputs that are not corroborated by market data.
Income Taxes
Deferred taxes are provided on an asset
and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between
the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net Income/(Loss) Per Common Share
Income/ (loss) per share of common stock
is calculated by dividing the net income/ (loss) by the weighted average number of shares of common stock outstanding during the
period. The Company has no potentially dilutive securities in 2015 and 2014. Accordingly, basic and dilutive income (loss) per
common share are the same.
Advertising Costs
The Company expenses advertising costs
when incurred. Advertising costs incurred amount to $0 and $0 for the years ended December 31, 2015 and 2014, respectively.
Embedded Conversion Features and Other
Equity-linked Instruments
The Company classifies all of its common
stock purchase warrants and other derivative financial instruments as equity if the contracts (1) require physical settlement or
net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement
or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including
a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2)
give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or
(3) contracts that contain reset provisions. The Company assesses classification of its equity-linked instruments at each reporting
date to determine whether a change in classification between equity and liabilities (assets) is required.
Recently Issued Accounting Pronouncements
In June 2009, the FASB established the
Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with
generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP
for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change
did not impact our financial statements. The ASC does change the way the guidance is organized and presented.
We reviewed all other recently issued accounting pronouncements
and determined that the updates below could have an effect on the Company’s financial statements.
FASB Account Standards Update, No. 2014-15,
Going Concern, dated August 2014 says, in connection with preparing financial statements for each annual and interim reporting
period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that
raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the
financial statements are issued (or within one year after the date that the financial statements are available to be issued when
applicable).
Management’s evaluation should be
based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued
(or at the date that the financial statements are available to be issued when applicable).
The amendments in this update are effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted. The Company has not chosen early adoption.
FASB Account Standards Update, No. 2014-09,
Revenue from Contracts with Customers, dated May 2014 says, an entity should recognize revenue to depict the transfer of promised
goods and services to customers in an amount that reflects the consideration to which the entity expects to entitled in exchange
for those goods and services.
To achieve that core principle, an entity
should apply the following steps:
-
Identify the contract(s) with a customer.
-
Identify the performance obligations in
the contract.
-
Determine the transaction price.
-
Allocate the transaction price to the
performance obligations in the contract.
-
Recognize revenue when (or as) the entity
satisfies a performance obligation.
For a public entity, the amendments in
this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that
reporting period. Early application is not permitted.
Going Concern
Since our inception on May 24, 2014, we
have generated immaterial revenues resulting in the incurrence of net losses through December 31, 2015. This has further led to
negative working capital, all which results in substantial doubt about the Company’s ability to continue as a going concern.
Our management, Board, and Advisory Board
has focused its efforts and our limited resources on raising additional capital through debt or equity offerings at terms not detrimental
to our planned future operations. As of the date of this report we do not have any firm funding commitments.
NOTE 3 – RELATED PARTY TRANSACTIONS
During the year-ended December 31, 2015
we settled prior obligations due to a related party totaling $340,163 via the issuance of 7,500,000 shares of restricted and unregistered
shares of common stock. The settled obligation also represents that balance outstanding as of December 31, 2014.
During the year-ended December 31, 2015
a total of four of our Officers agreed to waive all or portions of their base salaries or previously accrued bonuses earned during
the year ended December 31, 2014 and through December 31, 2015 totaling $388,988. Since we consider our Officers related parties
we have determined the bonus and salary forgiveness was in the nature of a capital contribution and no gain was recognized in the
accompanying statements of operations.
We issued a Director 250,000 shares of
restricted and unregistered shares of common stock for cash proceeds totaling $25,000 in January 2015.
As part of the Settlement Agreement we
entered into on January 22, 2015 we cancelled restricted stock award grants to two of our former officers. Since we did not replace
a cancelled award totaling 52,500,000 shares of restricted and unregistered shares of common stock, and effectively repurchased
the award for no consideration as assumed by the application of accounting principles generally accepted in the United States,
the unrecognized grant-date fair value of the award totaling $9,975,000 was recognized during the year-ended December 31, 2015.
Additionally, we cancelled a restricted stock award granted to our current Chief Executive Officer totaling 67,500,000 shares and
replaced the award with the grant of 125,000,000 shares of restricted and unregistered shares as part of a new employment agreement
on January 29, 2015. The total compensation cost recognized during the year-ended December 31, 2015 associated with the cancellation
and replacement of this restricted stock award was $47,500,000.
During the year-ended December 31, 2015
we issued 2,000,000 shares of unregistered and restricted common stock to an affiliate for consulting services valued at $680,000.
A promissory note in the amount of $35,000 was issued to the same affiliate of the company, for cash proceeds of $35,000 in April
2015. As additional consideration on the promissory note, this same affiliate received 215,000 shares of unregistered and restricted
common stock valued at $32,039. Upon renewal of this promissory note in May 2015 this affiliate received 100,000 shares of unregistered
and restricted common stock valued at $17,260.
Employment Agreement Amendment
On May 15, 2015, we amended our Chairman
and Chief Business Development Office, Mr. Myles Pressey III’s, employment agreement. Mr. Pressey III was originally going
to be granted 25,000,000 shares of fully vested restricted and unregistered shares of common stock on January 29, 2016 whereas
the amendment calls for Mr. Pressey III to receive up to 62,500,000 shares of restricted and unregistered common stock subject
to the achievement of performance benchmarks set by the Board of Directors. The modification of Mr. Pressey III’s equity
award resulted in the recognition of compensation totaling $10,262,819 during the nine months ended December 31, 2015.
NOTE 4 – STOCKHOLDERS’ EQUITY
The following provides information for
the shares of restricted and unregistered shares of common stock that we issued (or cancelled) from January 1, 2015 through the
date of this report:
In January 2015 we issued 75,000 shares
of restricted and unregistered common stock for consulting services valued at $25,000.
In January 2015 we issued 57,971 shares
restricted and unregistered shares of common stock for cash totaling $10,000.
We issued a Director 250,000 shares of
restricted and unregistered shares of common stock for cash proceeds totaling $25,000 in January 2015.
In January 2015 we issued a total of 145,000,000
shares of restricted and unregistered shares of common stock as compensation to our officers, directors, and other consultants
valued at $63,991,061.
In January 2015 we issued 5,000,000 shares
of restricted and unregistered shares of common stock to a former employee of HDIMAX, Inc. valued at $1,900,000.
In January 2015, in accordance with the
terms of our Settlement Agreement with our former Chairman and Chief Executive Officer, we cancelled 712,121,205 shares of unregistered
and restricted common stock. We recognized settlement expense, included in the general and administrative expenses in the accompanying
statement of operations, totaling $107,901 and reversed the previously recognized accumulated deficit adjustment of $820,022 associated
with the Settlement. Rajinder Brar received 3,000,000 shares of newly restricted common stock after the execution of the settlement
agreement.
In February 2015 we issued 142,500 shares
of restricted and unregistered common stock for accounting and legal services valued at $21,179.
In February 2015 we issued a total of 200,000
shares of restricted and unregistered shares of common stock as compensation directors valued at $38,348.
In February 2015 we issued 3,750,000 shares
of restricted and unregistered common stock for consulting services valued at $719,021.
In February 2015 we issued 177,777 restricted
and unregistered shares of common stock for cash totaling $32,800.
In February 2015 we issued 7,500,000 shares
of restricted and unregistered common stock in settlement of previously accrued related party liabilities totaling $340,163.
In March 2015 we issued 100,000 restricted
and unregistered shares of common stock for cash totaling $28,050.
In April 2015 we issued 440,000 shares
of restricted and unregistered common stock in conjunction with the issuance of notes payable for total consideration of $64,770.
In April 2015 we issued 4,500,000 shares
of restricted and unregistered common stock for consulting services valued at $927,054.
In April 2015 we issued a total of 5,000,000
shares of restricted and unregistered shares of common stock as compensation to our officers valued at $1,500,000.
In April 2015 we issued 25,445 shares of
restricted and unregistered shares of common stock for cash totaling $5,000.
In May 2015 we issued a total of 3,200,000
shares of restricted and unregistered shares of common stock as compensation to our officers and directors valued at $968,000.
In May 2015 we issued 509,524 shares of
restricted and unregistered common stock for consulting services valued at $112,621.
In May 2015 we issued 1,641,929 shares
of restricted and unregistered shares of common stock for cash totaling $170,000.
In May 2015 we issued Warrants for the
Purchase of 1,500,000 shares of restricted and unregistered shares of common stock as additional incentive for a $150,000 cash
investment in the company that was part of the $170,000 in the previous footnote.
In May 2015 we issued 250,000 shares of
restricted and unregistered shares of common stock for interest on outstanding notes and payables valued at $45,582.
In June 2015 we issued a total of 150,000
shares of restricted and unregistered shares of common stock as compensation to our officers and directors valued at $49,500.
In June 2015 we issued 250,000 shares of
restricted and unregistered common stock for consulting services valued at $50,000.
In June 2015 we issued 476,915 shares of
restricted and unregistered shares of common stock for cash totaling $85,000.
In July 2015 we issued 1,152,564 shares
of restricted and unregistered shares of common stock for cash totaling $70,000.
In July 2015 we issued 150,000 shares of
restricted and unregistered shares of common stock to a Director for services totaling $7,747.
In August 2015 we issued 50,000 shares
of restricted and unregistered common stock for services valued at $3,364.
In September 2015 we issued 225,000 shares
of restricted and unregistered common stock for services valued at $18,145.
In September 2015 we issued 31,058 shares
of restricted and unregistered shares of common stock for interest on outstanding notes valued at $3,711.
In November 2015 we issued 191,327 shares
of restricted and unregistered shares of common stock for cash totaling $15,000.
In December 2015 we issued 402,273 shares
of restricted and unregistered common stock for services valued at $14,309.
In December 2015 we issued 4,500,000 shares
of restricted and unregistered common stock as compensation valued at $141,250.
Warrants
During the year-ended December 31, 2015
we issued warrants to certain investors as part of the private placements of our restricted and unregistered common stock.
The following table presents a summary
of our warrant activity through December 31, 2015:
|
|
As of December 31, 2015
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Term (years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding, December 31, 2014
|
|
|
871,591
|
|
|
$
|
0.88
|
|
|
|
2.83
|
|
|
$
|
–
|
|
Warrants granted
|
|
|
3,000,000
|
|
|
|
0.22
|
|
|
|
2.43
|
|
|
|
–
|
|
Warrants exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Warrants expired, cancelled, forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2015
|
|
|
3,871,591
|
|
|
$
|
0.37
|
|
|
|
2.52
|
|
|
$
|
–
|
|
The warrants did not have any intrinsic
value as of December 31, 2015 and 2014 and were fully vested. Of the outstanding warrants, 862,500 are contingently exercisable
only in the event that other equity-linked instruments are exercised.
Options
In August 2015, outstanding options and
warrants with an aggregate fair value of $493,161 were reclassified from equity to derivative liability.
As of December 31, 2015 and 2014 the Company
had 568,182 stock options outstanding. During the periods presented there were no options granted, exercised, cancelled, or forfeited,
correspondingly, no additional compensation expense was recognized for the periods presented. All options outstanding are exercisable
and do not have any intrinsic value as of December 31, 2015 and 2014 and are set to expire in October of 2017. At December 31,
2015 the weighted average exercise price of the outstanding options was $6.60 with a weighted average remaining term of 1.84 years.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
The Company has entered into various convertible
debt financing transactions with third party investors (“Investors”). As of December 31, 2015 the Company issued convertible
notes to Investors in the aggregate principal amount of $309,000. The notes are unsecured, and provide for the conversion of all
principal and interest outstanding under the notes into shares of the Company’s common stock beginning six months after the
issuance date of the respective notes (“conversion date”) at conversion rates of 55%-60% of the lowest listed market
price of the Company’s common stock for the previous twenty to twenty-five trading days immediately prior to the conversion
date.
The conversion price of the notes are subject
to adjustment in the event of stock splits, dividends, distributions and similar adjustments to our capital stock. The number of
shares of common stock subject to the Notes may be adjusted in the event of mergers, distributions, sale of substantially all of
the Company’s assets, tender offers and dilutive issuances.
The Company has determined the resetting
terms of the conversion rates are separable into two elements:
i) Fixed Conversion Rate element –
since a fixed minimum
discount to the listed market price ranging from forty to forty-five percent of any listed market price has been determined to
be a predominant element of the conversion feature, we determined the fixed conversion element results in a fixed value of common
stock to the Investor at any conversion date; and
ii) Variable Conversion Rate element –
the volatility in our listed
market prices and wide ranging bid and ask spreads on a daily basis results in an additional variable amount of common stock value
being received by the Investors upon conversion. The fixed conversion element, resulting in the determination of stock settled
debt, is recognized as a debt discount at intrinsic value on the issuance date and is not re-valued in the subsequent periods.
The variable conversion element is classified as a derivative liability and is revalued on an on-going basis.
Convertible notes payable consist of the
following:
|
|
As of December 31, 2015
|
|
|
|
Face Value of Note
|
|
|
Intrinsic Value of Fixed Conversion Element
|
|
|
Unamortized Discount
|
|
|
Net Balance
|
|
JMJ Financial: 12% Convertible note due August 24, 2017
|
|
$
|
27,500
|
|
|
$
|
20,833
|
|
|
$
|
(17,804
|
)
|
|
$
|
30,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auctus Fund, LLC; 8% Convertible note due May 28, 2016
|
|
|
56,250
|
|
|
|
46,023
|
|
|
|
(27,766
|
)
|
|
|
74,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Capital Funding, LLC; 8% Convertible note due August 21, 2016
|
|
|
27,000
|
|
|
|
22,091
|
|
|
|
(15,594
|
)
|
|
|
33,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St George Investment, LLC; 8% Convertible note due September 9, 2016
|
|
|
32,000
|
|
|
|
26,182
|
|
|
|
(19,737
|
)
|
|
|
38,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carebourn Capital, LP; 12% Convertible note due July 5, 2016
|
|
|
87,500
|
|
|
|
87,500
|
|
|
|
(65,846
|
)
|
|
|
109,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Capital Funding, LLC; 8% Convertible note due October 9, 2016
|
|
|
78,750
|
|
|
|
78,750
|
|
|
|
(65,427
|
)
|
|
|
92,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes
|
|
$
|
309,000
|
|
|
$
|
281,379
|
|
|
$
|
(212,174
|
)
|
|
$
|
378,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not have any convertible
notes outstanding as of December 31, 2014.
During the year-ended December 31, 2015
the Company recognized discount accretion totaling $69,205 included in interest expense in the accompanying results of operations.
Since the Company has determined the convertible notes will be stock settled, beginning six months after the date of each issuance,
all of the convertible notes payable have been classified as current in the accompanying balance sheet.
NOTE 6 – EMBEDDED DEBT CONVERSION FEATURES AND OTHER
EQUITY-LINKED INSTRUMENTS
The Company accounts for variable conversion
elements embedded in its convertible instruments that meet the definition of a derivative as liabilities. The variable conversion
elements are re-measured at fair value with the changes in the value reported as a component of other income (expense) in the accompanying
results of operations. The Company estimates the fair value of the variable conversion element using a Black-Scholes Merton Pricing
model based on the variable number of additional shares of common stock the Company is required to issue upon conversion.
The Company periodically, or when specific
transactions occur that may have material impacts on the presentation of the financial statements, reviews it outstanding equity
and equity-linked instruments to determine the appropriate classification in the accompanying balance sheet, equity or liability
(asset). During the year ended December 31, 2015 the company reclassified all of its previously outstanding options and warrants
from equity to liability. The determination to reclassify the previously outstanding options and warrants resulted from the issuance
of convertible notes payable that are potentially convertible into an unlimited number shares of common stock.
The Company measures and re-measures the
fair value of the instruments not classified as permanent equity using a Black Scholes Merton pricing model. The following assumptions
were used to estimate the fair value of the Company’s derivative liabilities:
Expected volatility
|
445.55%
|
Expected term (years)
|
.040 to 2.50
|
Dividend yield
|
0.0%
|
Discount Rate
|
0.16%
|
During the year-ended December 31, 2015
the Company recognized a derivative liability, and corresponding finance fee, with an initial fair value totaling $148,755 associated
with the variable conversion element embedded in the convertible notes payable. Finance fees are included as a component of interest
expense in the accompanying results of operations.
In August 2015, outstanding options and
warrants with an aggregate fair value of $493,161 were reclassified from equity to derivative liability.
As of December 31, 2015 the Company had
derivative liability obligations with an aggregate fair value totaling $664,426. During the year-ended December 31, 2015 the Company
recognized a gain on the change in the fair value of derivative liabilities totaling $22,510 included as a component of other income
(expense) in the accompanying statements of operations.
Financial liabilities measured at fair
value on a recurring basis are summarized below:
|
|
Fair value measurements
|
|
|
|
December 31,
|
|
|
Quoted price in active markets for unobservable identical assets
|
|
|
Significant other inputs
|
|
|
Significant observable inputs
|
|
|
|
2015
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivative liability
|
|
$
|
664,426
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
664,426
|
|
The derivative liabilities are measured
at fair value using a Black Sholes Merton Pricing Model. The model is based on assumptions including quoted market prices and estimated
volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level
3 of the valuation hierarchy.
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring
basis:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Beginning Balance
|
|
$
|
–
|
|
|
$
|
–
|
|
Aggregate fair value of derivative issued
|
|
|
148,755
|
|
|
|
–
|
|
Liability reclassification for other equity linked instruments
|
|
|
493,161
|
|
|
|
–
|
|
Change in fair value of derivative included in results of operations (gain) loss
|
|
|
22,510
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
664,426
|
|
|
$
|
–
|
|
NOTE 7 – ACCRUED EXPENSES
During the year-ended December 31, 2015
our management, with the assistance of our defense attorney, analyzed the merit and likelihood of an unfavorable outcome in the
matter of
Congoo, LLC v. HDIMAX Max Media, Inc. Civ. Action No. 3:15-cv-01423
. Based on the facts and circumstances, we
determined the likelihood of an unfavorable outcome to be remote. Correspondingly, we reversed the previously accrued obligation
of $422,448, as presented in sales and marketing expense, in the accompanying statement of operations.
NOTE 8 – LICENSED CONTENT
The Company entered into a content licensing
and distribution agreement with an entertainment company in which we will distribute, on our available platforms, the following:
|
i.
|
Fifty-two (52) twenty three minute (0:23) episodes of a series known as “Behind the Velvet Rope”
|
|
ii.
|
Ancillary content including a minimum of ten to twenty event compilations approximately five to seven minutes in length each; and
|
|
iii.
|
Thirty to forty individual interviews approximately one to three minutes in length each.
|
The agreement calls for us to advance $480,000
to the entertainment company to be used for production of the series. After paying the advance, we are entitled to recoup the advanced
amount plus an additional $10,000 (a total of $490,000) after which time the gross revenue generated under the agreement will be
split on a 50/50 basis. The non-refundable advance obligation and capitalized licensed content are presented in accounts payable
and current assets, respectively, in the accompanying balance sheet.
NOTE 9 – COMMITMENTS, CONTINGENCIES
AND UNCERTAINTIES
Operating Lease
The Company is currently obligated under
an operating lease for office space and associated building expenses. The lease expires in January 2017. As of December
31, 2015, future minimum payments for all lease obligations are as follows:
Year
|
|
Amount
|
|
2016
|
|
$
|
4,950
|
|
2017
|
|
|
450
|
|
|
|
$
|
5,400
|
|
NOTE 10 – LEGAL
The Company is currently under negotiations
to pay a vendor claim. The possible exposure of the claim ranges from $95,000 to $150,000, the company has accrued $129,306, as
of December 31, 2015.
NOTE 11 – SUBSEQUENT EVENTS
ASC 855-16-50-4 establishes accounting
and disclosure requirements for subsequent events. ASC 855 details the period after the balance sheet date during which we should
evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances
under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the
required disclosures for such events. We have evaluated all subsequent events through the date these consolidated financial statements
were issued, and determined the following are material to disclose:
In January 2016 we issued 500,000 shares
of restricted and unregistered shares of common stock for cash proceed of $15,000.
In January 2016 we entered into a lease
agreement for office space with a 12 month term. Company pays $450 a month for space rented.
In January 2016 we issued a total of 2,500,000
shares of restricted and unregistered shares of common stock as compensation to our officers, valued at $142,250.
In February 2016, a convertible note holder
converted $4,275 of principal for 250,000 shares of the Company’s common stock.
In February 2016, a convertible note holder
converted $58,482, total principal and interest for 3,744,015 of the Company’s common stock.
In February 2016, a convertible promissory
note was modified to remove the conversion feature while the remaining note terms stayed the same.
In February 2016 we issued 75,000 shares
of restricted and unregistered shares of common stock to a Director for services totaling $14,250.
In February 2016 we entered in a $50,000
web development services agreement that included the issuance of 603,449 shares of restricted and unregistered shares of common
stock for website development services totaling $35,000.
In February 2016 we issued 100,000 shares
of restricted and unregistered shares of common stock for consulting services totaling $5,690.
In February 2016 we issued 150,000 shares
of restricted and unregistered shares of common stock for consulting services totaling $8,535.
In February 2016 we issued 35,000 shares
of restricted and unregistered shares of common stock for consulting services totaling $1,992.
In February 2016 we settled $3,850 payment
related to legal claim conducted via Quitclaim.
In February 2016 we issued 2,898,551 shares
of restricted and unregistered shares of common stock for cash totaling $100,000.
In February 2016 we obtained a $250,000
promissory note with a 15% interest rate due on June 2016 and this transaction also included issuance of 100,000 shares of restricted
and unregistered shares of common stock as in incentive totaling $5,800.
In February 2016 the board of directors
presented an option to the Company’s chairman to convert his cash compensation accrual for year ended December 31, 2015 to
stock and the offered is extended until the end of the 1
st
Quarter of 2016.
In February 2016 we issued 1,428,575 shares
of restricted and unregistered shares of common stock as a $50,000 payment for a $209,000 balance owed to one of our service providers.
In February 2016 we entered into a contract
agreement for communications and formulate capital strategies in global markets, the term of the agreement is 12 months and cost
associated with it ranges from $3,500 to $5,000 per month.
In February 2016 we issued 340,136 shares
of restricted and unregistered shares of common stock for cash totaling $25,000.
In February 2016 we issued 136,054 shares
of restricted and unregistered shares of common stock for cash totaling $10,000.
In March 2016, a convertible note holder
converted $5,000 of principal and interest for 193,010 of the Company’s common stock.
In March 2016, a convertible note holder
converted $9,000 of principal and $414 of interest for 570,560 shares of the Company’s common stock.
In March 2016, a convertible note holder converted $5,400 of
principal for 300,000 shares of the Company’s common stock.
In March 2016 we obtained a $44,000 convertible
promissory note with a 12% interest rate due on December 2016.