The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial
statements and notes thereto contained in our Company's Form 10-K, filed with the SEC on February 14, 2017. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results
of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year ended October 31, 2017.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Business Activity
ProBility Media Corporation (formerly Panther
Biotechnology, Inc.) (the “Company”) was incorporated in the State of Nevada on July 11, 2011. The Company was originally
incorporated as New Era Filing Services Inc., changed its name to NEF Enterprises, Inc. on October 4, 2011, changed its name to
Panther Biotechnology, Inc. on October 29, 2014 and changed its name to ProBility Media Corporation on February 1, 2017. The Company
incorporated a wholly-owned subsidiary, PubCo Reporting Services, Inc., formerly known as New Era Filing Services, Inc., in Florida
on November 20, 2012. Effective June 1, 2015, the Company sold PubCo Reporting Services, Inc. to its then management.
On October 31, 2016 (the “Closing Date”),
we consummated the transactions contemplated by a Share Exchange Agreement (the “Exchange Agreement” or the “Business
Combination”), by and between the Company and Brown Technical Media Corporation (“Brown”). In connection with
the closing of the Exchange Agreement, we issued 32,000,000 restricted shares of our common stock, to the shareholders of Brown,
which included Evan M. Levine, our Chief Executive Officer and director (6,600,000 shares of common stock beneficially owned by
Mr. Levine, when including minor children and affiliates, who received shares in the exchange), Noah I. Davis, our President and
Chief Operating Officer (7,175,522 shares of common stock beneficially owned by Mr. Davis), and Steven M. Plumb, our Chief Financial
Officer (11,469,785 shares of common stock beneficially owned by Mr. Plumb, when including shares held by his minor children and
affiliates, who received shares in the exchange) in consideration for 100% of the outstanding capital stock of Brown, and Brown
became our wholly-owned subsidiary. This transaction has been accounted for as a reverse merger with Brown as the surviving entity.
The assets of the Company that existed prior to the transaction have been recorded at their historical value as of the closing
of the transaction and has been added to the historical cost basis of the assets of Brown.
Brown was incorporated on January 21, 2014
and is a provider of codes, standards, training materials and related materials in print and electronically to small, medium and
large businesses, government, and non-profit organizations in the United States.
Brown acquired a 51% interest on January 31,
2014 in Brown Book Shop, Inc., (“Brown Books”) a Texas corporation that was formed as Brown Book Shop, a sole-proprietorship,
in 1946, and on June 8, 1976 was incorporated in Texas as Brown Book Shop, Inc. The Company operates a number of e-commerce websites,
including www.browntechnical.org, www.1examprep.com, www.CranburyInternational.com, www.New-Providers.com, and www.WMarketingOnline.com.
On October 31, 2016, Brown acquired the remaining 49% of Brown Books.
On August 6, 2014, Brown formed Pink Professionals,
LLC (“Pink”) to develop and market social networking software aimed at female managers and professionals in certain
targeted professions, such as Oil and Gas, Finance and Information Technology. At the time of formation, Brown owned 75% of the
membership units of Pink. On October 31, 2014, Brown sold the rights to the use of the software in the Oil and Gas industry to
the 25% owner of Pink in exchange for cash consideration and the cancelation of such 25% owner’s membership units. Accordingly,
Brown now owns 100% of the equity in Pink.
On January 19, 2017, the Company acquired 100%
of the membership units of Premier Purchasing and Marketing Alliance LLC, a New York limited liability company, also known as National
Electrical Wholesale Providers (“NEWP”). The acquisition of NEWP was effective January 1, 2017.
On January 26, 2017, the Company acquired 100%
of the membership units of One Exam Prep, LLC, (“One Exam”) a Florida limited liability company. The acquisition of
One Exam was effective January 1, 2017.
On June 22, 2017, the Company acquired 100%
of the outstanding shares of W Marketing Inc. (“W Marketing”) a New York corporation. The acquisition of W Marketing
was effective May 1, 2017.
On July 31, 2017, the Company acquired 100%
of the outstanding shares of Cranbury Associates, LLC (“Cranbury”) a Vermont limited liability company. The acquisition
of Cranbury was effective May 1, 2017.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Financial Statements have been prepared
in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules
and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The Consolidated Financial Statements include
the accounts of the Company and its majority owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial
Statements in accordance with GAAP requires management to make use of certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial
Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical
experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which
form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from those estimates.
Business Combinations
The Company accounts for all business combinations
using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the
fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired
and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation
specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement
period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with
business combinations are expensed as incurred.
Cash
Cash and cash equivalents include short-term
investments with original maturities of 90 days or less. The recorded value of our cash and cash equivalents approximates their
fair value.
Accounts Receivable
Trade accounts receivable are recorded at the
invoiced amount and typically do not bear interest. The Company provides allowances for doubtful accounts related to accounts receivable
for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration
the overall quality of the receivable portfolio along with specifically-identified customer risks. The Company has an allowance
for doubtful accounts of $27,901 and $19,635 as of July 31, 2017 and October 31, 2016, respectively.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT’D)
Inventory
Inventory is valued at the lower of cost or
net realizable value. Cost is determined using the average cost method. Price protection is recorded when earned as a reduction
to the cost of inventory. The Company decreases the value of inventory for estimated obsolescence equal to the difference between
the cost of inventory and a realizable selling price less normal costs of disposal, based upon an aging analysis of the inventory
on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has
no allowance as of July 31, 2017 and October 31, 2016.
Property and Equipment
Property and equipment are stated at cost,
less accumulated depreciation. The Company calculates depreciation expense using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of their useful lives or the initial lease term. Expenditures
for major renewals and improvements that extend the useful life of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred. The estimated useful lives of property and equipment are as follows:
|
Classification
|
|
Estimated Useful Lives
|
|
Equipment
|
|
5 to 7 years
|
|
Leasehold improvements
|
|
4 to 5 years
|
|
Furniture and fixtures
|
|
4 to 7 years
|
|
Websites
|
|
3 years
|
Fair Value Measurements
Fair value is defined under GAAP 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. A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels
based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported
in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its
entirety. These levels are:
Level 1 – observable inputs such as quoted
prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active
and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable
and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow
models and similar techniques.
Revenue Recognition
The Company records revenue from sales transactions
when title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, shipment has occurred
and/or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. The Company’s
shipping terms typically specify F.O.B. origination, at which time title and risk of loss have passed to the customer.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT’D)
The Company leverages drop-shipment arrangements
with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at
its warehouses, thereby increasing efficiency and reducing costs. The Company recognizes revenue for drop-shipment arrangements
upon shipment to the customer with contract terms that typically specify F.O.B. shipping point.
The Company records freight billed to its customers
as revenue and the related freight costs as a cost of sales.
Sales Taxes
The State of Texas imposes a sales tax on the
Company’s sales to nonexempt customers. The Company collects that sales tax from customers and remits the entire amount to
the State. The Company’s accounting policy is to exclude the tax collected and remitted to the State from revenue and cost
of sales.
Leases
All leases are reviewed for capital or operating
classification at their inception under the guidance of Accounting Standards Codification Topic 840, “Leases” (“ASC
840”). We conduct operations primarily under operating leases. For leases that contain rent escalations, we record the total
rent payable during the lease term, as defined above, on a straight-line basis over the term of the lease and record the difference
between the rents paid and the straight-line rent as a deferred rent liability.
Advertising Costs
We expense advertising costs as incurred and
recorded $661,033 and $142,194 during the nine months ended July 31, 2017 and 2016, respectively.
Income Taxes
Deferred income taxes are provided to reflect
the differences between the tax bases of assets and liabilities and their reported amounts in the Financial Statements using enacted
tax rates in effect for the year in which the differences are expected to reverse. The Company performs an evaluation of the realizability
of deferred tax assets on a quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers
all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in
the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.
The Company accounts for unrecognized tax benefits
based upon its assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
The Company reports a liability for unrecognized tax benefits resulting from unrecognized tax benefits taken or expected to be
taken in a tax return and recognizes interest and penalties, if any, related to its unrecognized tax benefits in income tax expense.
Intangible Assets
Intangible assets are amortized using the straight-line
method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account
events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible
assets are subject to amortization. The Company recognized impairment expense of $218,058 related to the Faulk patents during the
nine months ended July 31, 2017.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT’D)
Impairment of Long-Lived Assets
The Company reviews the carrying value of its
long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an
asset should no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the
future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted
cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s
carrying value and estimated fair value.
Investments in Equity Interest
The Company reviews its investments for other-than-temporary
impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully
recoverable. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment
is other-than-temporary and this analysis requires estimating the fair value of the investment. The determination of fair value
of the investment involves considering factors such as current economic and market conditions, the operating performance of the
companies including current earnings trends and forecasted cash flows, and other company and industry specific information.
Share-based Expenses
ASC 718 “
Compensation – Stock
Compensation”
prescribes accounting and reporting standards for all share-based payment transactions in which employee
services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity
instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including
grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values.
That expense is recognized over the period during which an employee is required to provide services in exchange for the award,
known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation
issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “
Equity – Based Payments
to Non-Employees”
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever
is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based
payment transaction is determined at the earlier of performance commitment date or performance completion date.
Fair Value of Financial Instruments
The Company believes that the fair value of
its financial instruments comprising cash, accounts receivable, cost investments, accounts payable, and convertible notes approximate
their carrying amounts. As of July 31, 2017 and October 31, 2016, the Company had no Level 1 or Level 2 financial assets or liabilities,
and Level 3 financial liabilities consisted of the Company’s derivative liability.
There are no level 3 fair value measurements as of July 31, 2017
since the convertible note was modified and no derivative liability exists as of July 31, 2017:
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
The following table presents the fair value measurement information
for the Company as of October 31, 2016:
|
|
|
Carrying Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
218,943
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
218,943
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT’D)
Loss per Share
Basic loss per common share equals net loss
divided by weighted average common shares outstanding during the period. Diluted loss per share includes the impact on dilution
from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from
contingent shares are determined by the treasury stock method. The Company incurred net losses for the three and nine months ended
July 31, 2017, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent
shares would be antidilutive. For the nine months ended July 31, 2017, the Company had 33,000 common stock warrants outstanding,
at an exercise price of $6.00 per share, expiring on August 31, 2020, that were excluded from the calculation of diluted net loss
per share because to do so would be anti-dilutive.
Recent Accounting Pronouncements
Balance Sheet Classification of Deferred
Taxes
In November 2015, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes, simplifying the balance sheet classification of deferred taxes by requiring all
deferred taxes, along with any related valuation allowance, to be presented as noncurrent. This ASU is effective for the Company
beginning in the first quarter of 2017, allows for early adoption and may be applied either prospectively or retrospectively. This
ASU is not expected to have a material impact on the Company’s Financial Statements.
Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory, amending the subsequent measurement of inventory by requiring
inventory to be measured at the lower of cost and net realizable value instead of the lower of cost or market value. This ASU is
effective for the Company beginning in the first quarter of 2017, allows for early adoption and must be applied prospectively after
the date of adoption. The Company has adopted ASU 2015-11 and the implementation had no material impact on the Company’s
Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), replacing most existing revenue recognition guidance under GAAP and eliminating
industry specific guidance. The core principal of the new guidance is that an entity should recognize revenue for the transfer
of goods and services equal to an amount it expects to be entitled to receive for those goods and services. In August 2015, the
FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective
date by one year. This ASU will be effective for the Company beginning in the first quarter of 2018, allows for early adoption
in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach.
The Company is currently analyzing the impacts of the guidance including the increased footnote disclosures.
Reclassifications
Certain reclassifications have been made to
the prior year financial statements to conform to the current year presentation.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 – GOING CONCERN AND LIQUIDITY
CONSIDERATIONS
The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has a cumulative net loss since inception of $5,006,296, negative working capital of
$1,385,864 and has required additional capital raises and credit card advances to support its operations. These factors raise substantial
doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation
as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving capital from shareholders
and other related parties and obtain financing from third parties. No assurance can be given that the Company will be successful
in these efforts.
The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment consists of the following:
|
|
|
July 31, 2017
|
|
|
October 31, 2016
|
|
|
Equipment
|
|
$
|
68,182
|
|
|
$
|
68,182
|
|
|
Web sites
|
|
|
44,600
|
|
|
|
32,956
|
|
|
Leasehold improvements
|
|
|
19,002
|
|
|
|
19,002
|
|
|
Office equipment
|
|
|
89,318
|
|
|
|
5,533
|
|
|
Property and equipment
|
|
|
221,102
|
|
|
|
125,673
|
|
|
Less: accumulated depreciation
|
|
|
(48,778
|
)
|
|
|
(27,163
|
)
|
|
Property and equipment, net
|
|
$
|
172,324
|
|
|
$
|
98,510
|
|
Depreciation expense for the nine months ended
July 31, 2017 and 2016, is $21,615 and $1,659, respectively.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following as of July 31, 2017
and October 31, 2016:
|
|
|
Useful life
|
|
July 31, 2017
|
|
|
October 31, 2016
|
|
|
Faulk Patents
|
|
10
|
|
$
|
–
|
|
|
$
|
274,000
|
|
|
Customer Lists
|
|
3
|
|
|
671,327
|
|
|
|
–
|
|
|
Copyrights
|
|
5
|
|
|
1,250,688
|
|
|
|
–
|
|
|
Accumulated amortization and impairment
|
|
|
|
|
(151,620
|
)
|
|
|
(35,392
|
)
|
|
Intangible assets, net
|
|
|
|
$
|
1,770,395
|
|
|
$
|
238,608
|
|
Amortization expense for the nine months ended
July 31, 2017 and 2016 is $172,169 and $0, respectively. The amortization included amortization of $20,550 on the Faulk Patents
and the Company recognized impairment of $218,058 related to the Faulk assets during the quarter ending July 31, 2017.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6 – RELATED PARTY TRANSACTIONS
On November 7, 2016, the Company agreed to
issue 500,000 shares of its restricted common stock to the Vice Chairman of the Board, Richard Corbin. The fair market value of
the common stock was $395,000 on the date of issuance.
On December 23, 2016, the Company sold 333,334
shares of restricted common stock to the Vice Chairman of the Board of Directors, Richard Corbin, for gross proceeds of $50,000.
On January 30, 2017, the Company borrowed $70,000
from Richard Corbin, the Vice Chairman of the Board. The loan was originally due on February 10, 2017, at which time the Company
was to repay the loan and $1,000 of interest. The loan has been amended and the maturity date was extended to June 2020. As of
July 31, 2017, the outstanding balance was $45,000.
As of July 31, 2017 and October 31, 2016, total
advances from certain officers, directors and shareholders of the Company were $88,000, which were used for payment of general
operating expenses. The related parties advances have no conversion provisions into equity, have no paperwork associated with them
and do not incur interest.
The Company uses credit cards of related parties
to pay for certain operational expenses. The Company has agreed to pay the credit card balances, including related interest. As
of July 31, 2017 and October 31, 2016, the Company has outstanding balances on these credit cards of $365,801 and $271,704, respectively.
During the nine months ended July 31, 2017,
the Company advanced $123,672 to an urgent care center that is managed by the President and CFO of the Company, who collectively
own 6% of the equity of the urgent care center. The Company owns 5% of the equity in the urgent care center. In August 2017, the
urgent care center’s assets were sold and the buyer assumed certain liabilities including relieving our officers of certain
financial responsibilities; therefore, we have recognized the original investment and advances totaling $169,638 as compensation
to our officers, which is included in impairment expense for the three and nine months ended July 31, 2017.
Officer Compensation
In November 2015, the board of directors authorized compensation
for Mr. Levine, the Chief Executive Officer of the Company, as follows:
|
|
·
|
A $25,000 lump sum payment;
|
|
|
·
|
2016 salary established at $15,000 per month commencing January 15, 2016;
|
|
|
·
|
Healthcare reimbursement of $1,000 per month; and
|
|
|
·
|
2016 bonus, if warranted, will be determined at the discretion of the compensation committee of the Board of Directors and
paid in a lump sum in November or December 2016. The bonus was not paid.
|
In April 2016, the Company retained Steven
M. Plumb, CPA as Chief Financial Officer, through a contract with his consulting firm, Clear Financial Solutions, Inc. (“Clear
Financial”). Clear Financial is paid $6,000 per month for Mr. Plumb’s services. In February 2014, Brown entered into
consulting agreements with Mr. Davis and Mr. Plumb. The agreements were modified on May 1, 2016 such that Mr. Davis, the President
and Chief Operating Officer is paid $11,000 per month by Brown and Mr. Plumb, the Chief Financial Officer, is paid $4,500 per month
by Brown. The contracts expire on December 19, 2017.
During the nine months ended July 31,
2017, Mr. Levine, Mr. Davis, and Mr. Plumb were paid $105,000, $93,500 and $126,000, respectively, which is current period
compensation and liquidation of amounts owed from prior periods.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 – NOTES PAYABLE
Notes payable consists of the following:
|
|
|
As of,
|
|
|
|
|
July 31, 2017
|
|
|
October 31, 2016
|
|
|
Note payable dated September 9, 2016, bearing interest at 14.9% per annum, due November 2017
|
|
$
|
52,000
|
|
|
$
|
49,799
|
|
|
Note payable dated May 14, 2015, bearing interest at 18% per annum, due September 2018, guaranteed by the officers of the Company.
|
|
|
100,983
|
|
|
|
100,496
|
|
|
Note payable dated May 19, 2015, bearing interest at 33% per annum, due September 14, 2017, and
guaranteed by the officers of the Company. The effective interest rate is 35.6% per annum. This note was paid in full at
maturity.
|
|
|
86,269
|
|
|
|
241,770
|
|
|
Note payable dated October 23, 2014, bearing interest at 10% per annum and due in August 2017.
This note was renewed at maturity and the due date was extended to February 2018
|
|
|
78,614
|
|
|
|
131,960
|
|
|
Note payable dated March 16, 2015 bearing interest at
9%, due June 30, 2017. The note is in default at July 31, 2017 which had no impact on the interest rate.
|
|
|
51,000
|
|
|
|
51,000
|
|
|
Note payable dated January 1, 2017, bearing interest at 8%, due September 30, 2017. The note is secured by the membership interest of Premier Purchasing and Marketing Alliance, LLC held by the Company
|
|
|
50,000
|
|
|
|
–
|
|
|
Non-interest bearing note payable dated January 1, 2017, due on March 1, 2017. The note is secured by the membership
interest of Premier Purchasing and Marketing Alliance, LLC held by the Company. The note is in default; however no notice of default
received at the date of filing.
|
|
|
36,830
|
|
|
|
–
|
|
|
Note payable dated January 17, 2017, bearing interest at 7%, due on January 17, 2018, and guaranteed by the officers of the Company.
|
|
|
158,466
|
|
|
|
–
|
|
|
Note payable dated March 14, 2017 bearing interest at 9%, due March 14, 2018
|
|
|
66,318
|
|
|
|
–
|
|
|
Note payable dated July 26, 2017 bearing interest at 16.216%, due on July 26, 2018
|
|
|
229,908
|
|
|
|
–
|
|
|
Line of credit with a maximum value of $125,000 dated January 4, 2008 bearing interest at the prime rate plus 2%.
|
|
|
52,081
|
|
|
|
–
|
|
|
Total notes payable
|
|
|
962,469
|
|
|
|
575,025
|
|
|
Less original issue discount
|
|
|
(156,240
|
)
|
|
|
(156,240
|
)
|
|
Amortization of discount
|
|
|
143,886
|
|
|
|
82,063
|
|
|
Notes payable, net of discount
|
|
|
950,115
|
|
|
|
500,848
|
|
|
Less, current portion
|
|
|
(950,115
|
)
|
|
|
–
|
|
|
Long term portion of notes payable
|
|
$
|
–
|
|
|
$
|
–
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 – NOTES PAYABLE (CONT’D)
Notes payable related to certain acquisitions consists of the following:
|
|
|
As of,
|
|
|
|
|
July 31, 2017
|
|
|
October 31, 2016
|
|
|
Notes payable dated June, 22, 2017, bearing
interest at 8% per annum, due August 22, 2018 with monthly principal and interest payments totaling $3,306 beginning August
22, 2017. The notes are to the former owners of W Marketing.
|
|
$
|
75,000
|
|
|
$
|
–
|
|
|
Note payable dated July, 31, 2017, bearing interest at 6% per annum, due November 30, 2019 with monthly principal and interest payments totaling $4,153 beginning November 1, 2017. The notes are to the former owner of Cranbury.
|
|
|
100,000
|
|
|
|
–
|
|
|
Notes payable dated January 31, 2014 bearing interest at
8%, due February 1, 2019 with monthly principal and interest payments totaling $4,629. The notes are due to the former
owners of Brown Book Store.
|
|
|
350,676
|
|
|
|
370,056
|
|
|
Total notes payable
|
|
|
525,676
|
|
|
|
370,056
|
|
|
Less, current portion
|
|
|
(137,974
|
)
|
|
|
(26,311
|
)
|
|
Long term portion of notes payable
|
|
$
|
387,702
|
|
|
$
|
343,745
|
|
|
Years ending July 31,
|
|
Future
Principal
Payments
|
|
|
2018
|
|
$
|
137,974
|
|
|
2019
|
|
|
387,702
|
|
|
2020
|
|
|
–
|
|
|
2021
|
|
|
–
|
|
|
2022
|
|
|
–
|
|
|
Thereafter
|
|
|
–
|
|
|
|
|
$
|
525,676
|
|
The fair values approximate the related carrying
values of the Company’s long-term debt, including current maturities.
NOTE 8 – STOCK PAYABLE
As of October 31, 2016, the Company has 324,000
shares of its restricted common stock that were fully vested and have not been issued. The shares have a fair market value of $118,230
as of October 31, 2016, of which 300,000 shares valued at $84,562 is owed to related parties. The 324,000 common shares were issued
during the nine months ended July 31, 2017 and the stock payable balance was $0 on July 31, 2017.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 – CONVERTIBLE NOTES PAYABLE
|
|
|
July 31,
|
|
|
October 31,
|
|
|
Description
|
|
2017
|
|
|
2016
|
|
|
On August 20, 2015, the Company executed a convertible note payable to Typenex Co-Investment, L.LC. in the original principal amount of $247,000 for net proceeds of $220,000, payable on March 31, 2018 bearing interest at 10% per annum. This note is convertible into the Company’s common stock at $7.50 per share unless the market capitalization of the Company falls below $15,000,000, at which point the conversion price will equal the market price of the Company’s common stock on the date of conversion. On October 29, 2015, the market capitalization of the Company fell below $15,000,000 and the variable conversion feature became permanent. The note is unsecured. On May 12, 2017 the note holder sold this note to an unrelated third party. See additional information below.
|
|
$
|
125,000
|
|
|
$
|
265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended October 31, 2016, the Company sold convertible promissory notes in aggregate amount of $87,000 to three investors. During the six months ending April 30, 2017, the Company sold an additional note with a face value of $50,000. The notes bear interest at 10% per annum and may be converted into the common stock of the Company upon the completion of a capital raise of $500,000 by December 31, 2016 (a “Qualified Raise”). The notes may be converted into common stock at 75% of the price of the capital raised in the Qualified Raise. On December 31, 2016, notes with a principal and accrued interest balance of $88,626 were converted into 709,008 shares of the Company’s common stock. The remaining note is due on December 31, 2017.
|
|
|
50,000
|
|
|
|
87,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 20, 2017, the Company executed a non-interest bearing convertible note in the original principal amount of $300,000, payable on January 20, 2018. The note is convertible into the Company’s common stock at $0.50 per share, no earlier than one year from the date of the note. The note is secured by the membership units of One Exam Prep, LLC held by the Company.
|
|
|
300,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2017, the Company sold convertible notes payable of $356,000 to 8 investors. The notes bear interest
at 15%, are due in one year and are convertible at $0.15 per share. In connection with the issuance, the company recorded a discount
of $356,000 from the beneficial conversion feature that will be amortized over the life of the note.
|
|
|
356,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2017, the Company sold a convertible note payable of $200,000 to an investor. The note bears interest
at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest
payments of $2,000 per month to the note holder. In connection with the issuance, the company recorded a discount of $184,000 from
the beneficial conversion feature that will be amortized over the life of the note.
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 18, 2017, the Vice Chairman of the Board, who holds a $45,000 note dated January 30, 2017, with the Company agreed to convert the principal balance on his note into a convertible note that bears interest at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest payments of $500 per month to the note holder.
|
|
|
45,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, net
|
|
$
|
1,076,000
|
|
|
$
|
352,000
|
|
|
Less: net discount on convertible notes payable
|
|
|
(505,222
|
)
|
|
|
–
|
|
|
Less, current portion
|
|
|
(525,778
|
)
|
|
|
(352,000
|
)
|
|
Long term portion of convertible notes payable
|
|
|
45,000
|
|
|
|
–
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONT’D)
On October 11, 2016, the Company entered into
a Settlement Agreement with Typenex Co-Investment, LLC (“Typenex”), whereby the Company and Typenex agreed to modify
the terms of the Secured Convertible Promissory Note dated August 20, 2015 (the “Note”) between the Company and Typenex.
Under the terms of the Settlement Agreement, the parties agreed that the Company will repay $265,000 plus accrued interest (the
“Settlement Amount”) in fourteen payments. The first thirteen payments will be in the amount of $20,000 and the fourteenth
payment will be in the amount of the unpaid balance of the Settlement Amount. The first payment was due and paid on October 21,
2016. Subsequent payments are due on the fifth day of each month thereafter. The Company will make the first thirteen payments
as follows: (i) $10,000 in cash, and (ii) if elected by Typenex in its sole discretion, up to $10,000 in shares of Company’s
common stock. The conversion price of the portion of the payment to be made in the Company’s common stock will be based upon
the market price which shall mean 60% multiplied by the average of the three (3) lowest Closing Bid Prices in the ten (10) Trading
Days immediately preceding the applicable payment date.
On May 12, 2017, Typenex sold the Note
to an unrelated third party. In connection with the sale of the Note, the Company and the purchaser agreed to modify the terms
of the Note so as to change the conversion price from a variable conversion rate to a fixed conversion price of $0.04 per share.
In connection with the change to fixed conversion terms the Company no longer has a derivative liability and recorded a beneficial
conversion feature of $205,000 which is included with interest expense. The note bears interest at 10% per annum and is due on
demand.
On June 21, 2017, the debt holder converted
$80,000 in accordance with the conversion terms for 2,000,000 shares of common stock.
NOTE 10 – CAPITALIZED LEASES
The Company has an obligation under a capitalized
lease for certain equipment with a lease term of five years, expiring through May 2021. The capital lease obligation totaled $71,578
at July 31, 2017, and require monthly payments of $2,044. Interest is imputed at an average rate of approximately 18.00%. At July
31, 2017, the cost of rental equipment under capital leases amounted to $76,410 and related accumulated depreciation amounted to
$9,905. The rental equipment may be repurchased at favorable prices by the Company upon expiration of the lease term (generally
at the fair market value of the equipment at the expiration of the lease). The liability under each lease is secured by the underlying
equipment on the lease.
At July 31, 2017, future minimum lease payments
by year and the present value of future minimum capital lease payments are as follows:
|
Years ending July 31,
|
|
Amount
|
|
|
2018
|
|
$
|
24,528
|
|
|
2019
|
|
|
24,528
|
|
|
2020
|
|
|
24,528
|
|
|
2021
|
|
|
24,528
|
|
|
2022
|
|
|
4,171
|
|
|
Total minimum payments
|
|
$
|
102,283
|
|
|
Less amount representing interest
|
|
|
(30,705
|
)
|
|
Present value of minimum lease payments
|
|
|
71,578
|
|
|
Less: current portion
|
|
|
(12,654
|
)
|
|
Total long-term portion
|
|
$
|
58,924
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 11 – DERIVATIVE LIABILITIES
On August 20, 2015, the Company issued a convertible
note agreement with a variable conversion feature that gave rise to an embedded derivative instrument. The derivative feature has
been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company’s
business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and small-cap
companies. Increases or decreases in the Company’s share price, the volatility of the share price, changes in interest rates
in general, and the passage of time will all impact the value of the derivative instrument. The Company re-values the derivative
instrument at the end of each reporting period and any changes are reflected as changes in derivative liabilities in the consolidated
statements of operations. Beginning in May 2017 the Company no longer had any derivative liabilities due to a modification in the
convertible feature of certain notes. See note 9 for a discussion of the convertible note. The assumptions used are as follows:
|
|
|
July 31, 2017
|
|
|
October 31, 2016
|
|
|
Market value of common stock on measurement date (1)
|
|
$
|
n/a
|
|
|
$
|
0.56
|
|
|
Adjusted conversion price (2)
|
|
$
|
n/a
|
|
|
$
|
0.2304
|
|
|
Risk free interest rate (3)
|
|
|
n/a
|
|
|
|
0.68%
|
|
|
Life of the note in years
|
|
|
n/a
|
|
|
|
1.726 years
|
|
|
Expected volatility (4)
|
|
|
n/a
|
|
|
|
360.57%
|
|
|
Expected dividend yield (5)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1)
|
The market value of common stock is based on closing market price as of initial valuation date.
|
|
|
(2)
|
The adjusted conversion price is calculated based on conversion terms described in the note agreement.
|
|
|
(3)
|
The risk-free interest rate was determined by management using the 2 year Treasury Bill as of the respective offering or measurement date.
|
|
|
(4)
|
The volatility factor was estimated by management using the historical volatilities of the Company’s stock.
|
|
|
(5)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
There was no derivative liability as of July
31, 2017. The valuation of the derivative liability was $218,943 on October 31, 2016. During the nine months ended July 31, 2017,
the Company recognized derivative expense of $136,703 related to the change in fair value and gain on debt extinguishment of $82,240
as a result of principal payments totaling $60,000.
NOTE 12 – STOCKHOLDERS’
EQUITY
On November 7, 2016, the Company agreed to
issue 500,000 shares of its restricted common stock to the Vice Chairman of the Board, Richard Corbin. The fair market value of
the common stock was $395,000 on the date of issuance.
On November 7, 2016, the Company agreed to
issue 75,000 shares of restricted common stock to James Sapirstein, a former director of the Company, for his service as a director.
The fair market value of the common stock was $59,250 on the date of issuance.
On November 7, 2016, the Company formed a Scientific
Advisory Board (“SAB”) comprised of David Barshis, John Norton, and Heinz-Josef Lenz. The Company agreed to issue 150,000
shares of its restricted common stock to each member of the SAB or a total of 450,000 shares of common stock as compensation for
their service on the SAB. The fair market value of the common stock was $355,500 on the date of issuance.
On November 8, 2016, the Company issued 23,187
shares of restricted common stock to the former Chairman of the Board for the settlement of stock payable. The fair market value
of the common stock was $60,287 on the date of issuance.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 12 – STOCKHOLDERS’
EQUITY (CONT’D)
On November 8, 2016, the Company issued 25,317
shares of restricted common stock to a consultant as compensation. The fair market value of the common stock was $20,000 on the
date of issuance.
On November 8, 2016, the Company issued 180,000
shares of restricted common stock to Steven Plumb, the Company’s Chief Financial Officer, as compensation. These shares had
been authorized by the board of directors in March 2016 and were vesting on a monthly basis. In November 2016, the board of directors
agreed to accelerate the vesting of the shares and issue all of the shares originally granted. The fair market value of the common
stock was $150,505 on the date of grant.
On November 22, 2016, the Company sold 566,666
shares of restricted common stock for gross proceeds of $85,000.
On December 23, 2016, the Company sold 333,334
shares of restricted common stock to the Vice Chairman of the Board of Directors, Richard Corbin, for gross proceeds of $50,000.
On December 31, 2016, investors holding convertible
notes with a face value of $87,000 converted their notes into 709,008 shares of restricted common stock according to the terms
of the agreement.
In December 2016 and January 2017, the Company
sold an aggregate of 1,256,667 shares of restricted common stock for gross proceeds of $188,500.
On January 19, 2017, the Company issued 25,253
shares of restricted common stock to a consultant for services rendered. The fair market value of the shares on the date of issuance
was $25,000.
On January 19, 2017, the Company issued 645,000
shares of restricted common stock under the terms of an Exchange Agreement with the owners of Premier Purchasing and Marketing
Alliance, LLC. The fair market value of the shares on the date of issuance was $370,875.
On January 30, 2017, the Company sold 53,333
shares of restricted common stock for gross proceeds of $8,000.
On February 6, 2017, the Company issued 12,500
shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on February
15, 2017. The fair market value of the common stock was $7,188 on the date of issuance.
On February 10, 2017, the Company sold 166,667
shares of restricted common stock for gross proceeds of $25,000.
On March 1, 2017, the Company sold 500,000
shares of restricted common stock to two investors for gross proceeds of $75,000.
On March 7, 2017, the Company issued 27,778
shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18,
2017. The fair market value of the common stock $25,000 on the date of issuance.
On March 20, 2017, the Company issued 48,077
shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18,
2017. The fair market value of the common stock $25,000 on the date of issuance.
On April 20, 2017, the Company issued 47,170
shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18,
2017. The fair market value of the common stock $25,000 on the date of issuance.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 12 – STOCKHOLDERS’
EQUITY (CONT’D)
On April 14, 2017, the Company sold 66,667
shares of restricted common stock to an investor for gross proceeds of $10,000.
On May 1, 2017, the Company authorized the
issuance of 670,000 shares of common stock to Evan Levine, CEO of the Company, and has agreed to issue 670,000 shares of common
stock to both Noah Davis, COO and Steven Plumb, CFO, and 223,000 shares of common stock to Rich Corbin, Jr., Chairman of the Board
of Directors, as compensation. The fair market value of the grants to Levine, Davis, and Plumb on the date of grant was $368,500,
for a total of $1,105,500. The fair market value of the grant to Corbin was $122,833 on the date of grant.
On May 1, 2017, the Company issued 40,744 shares
to two consultants for services. The fair market value of the common stock was $24,949 on the date of issuance.
On May 18, 2017 and June 18, 2017, the Company
issued 58,548 and 53,442 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement
entered on January 18, 2017. The fair market value of each issuance of the common stock was $25,000 on the date of issuance.
On June 1, 2017, the Company issued 62,552
shares to two consultants for services. The fair market value of the common stock was $24,937 on the date of issuance.
On June 21, 2017, a debt holder of the
Company converted $80,000 of debt in accordance with the conversion terms for 2,000,000 shares of common stock at $0.04 per
share. See Note 9.
On June 22, 2017 the Company issued 900,000
shares of common stock related to the acquisition of W Marketing. See Note 13.
On July 1, 2017, the Company issued 53,900
shares to two consultants for services. The fair market value of the common stock was $24,946 on the date of issuance.
On July 31, 2017, the Company issued 784,313
shares of common stock related to the acquisition of Cranbury. See Note 13.
NOTE 13 – ACQUISITIONS
Premier Acquisition
On January 19, 2017, the Company executed a
Share Exchange Agreement (the “Premier Exchange Agreement”), by and between the Company, Premier Purchasing and Marketing
Alliance LLC (“Premier”), and the sole member of Premier, Scott Schwartz. In connection with the closing of the transactions
contemplated by the Premier Exchange Agreement (the “Premier Exchange”), we acquired 100% of the outstanding membership
interests of Premier from Mr. Schwartz in consideration for $557,705 in consideration as follows:
|
|
·
|
$136,830 in notes payable;
|
|
|
·
|
$370,875 of common stock - 645,000 shares of restricted common stock (the “Premier Shares”).
|
The amounts owed under the First Note, Second
Note and Hill Note are secured by a Security Agreement, providing Mr. Schwartz a first priority security interest in all of the
membership interests of Premier. The Premier Exchange has an effective date of January 1, 2017.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The Premier Share Exchange included standard
and customary representations, warranties and indemnification rights. Premier, also known as National Electrical Wholesale Providers
(NEWP), is in the business of servicing electrical wholesalers throughout the United States with electrician related study material
including the National Electrical Code. Premier provides a complete line of printed reference materials in addition to eBooks,
downloadable digital formatting, and mobile applications to all distributors.
Premier has significant corporate accounts
with electrical wholesale conglomerates making them one of the largest wholesalers of National Electrical Codes in the United States.
Premier also covers HVAC, Plumbing, Industrial and Residential trade reference materials with online training for product education,
certification and current code practices.
Premier services several multibillion dollar
companies such as Consolidated Electrical Distributors and Home Depot reaching thousands of accounts in locations throughout the
United States.
The following preliminary information summarizes
the allocation of the fair values assigned to the assets at the purchase date:
|
|
|
Amount
|
|
|
Cash and cash equivalents
|
|
$
|
–
|
|
|
Inventory
|
|
|
58,524
|
|
|
Customer list
|
|
|
55,702
|
|
|
Copyrights
|
|
|
443,479
|
|
|
Total identifiable assets
|
|
|
557,705
|
|
|
Less: liabilities assumed
|
|
|
–
|
|
|
Total purchase price
|
|
$
|
557,705
|
|
The following table summarizes the costs of amortizable intangible
assets related to the Premier acquisition:
|
|
|
Estimated Cost
|
|
|
Useful life
(years)
|
|
Customer list
|
|
$
|
55,702
|
|
|
3
|
|
Copyrights
|
|
|
443,479
|
|
|
5
|
|
Total
|
|
$
|
499,181
|
|
|
|
One Exam Prep Acquisition
On January 26, 2017, the Company executed a
Share Exchange Agreement (the “One Exam Exchange Agreement”), by and between the Company, One Exam Prep LLC (“One
Exam”), and the sole member of One Exam, Rob Estell. In connection with the closing of the transactions contemplated by the
One Exam Exchange Agreement (the “One Exam Exchange”), we acquired 100% of the outstanding membership interests of
One Exam from Mr. Estell in consideration for the Non-Recourse Secured Convertible Promissory Note (the “Secured Note”).
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The amount owed under the Secured Note is secured
by a Security and Pledge Agreement, providing Mr. Estell a first priority security interest in all of the membership interests
of One Exam, and allowing him to take over control and ownership of One Exam if we default in our obligations under the Secured
Note. The One Exam Exchange has an effective date of January 1, 2017. The One Exam Share Exchange included standard and customary
representations, warranties and indemnification rights.
As additional consideration for agreeing to
the terms of the transaction, we agreed to issue Mr. Estell up to 1,000,000 shares of restricted common stock of the Company, as
an earn-out, with shares being issued in fiscal 2017 and/or fiscal 2018 (up to a maximum of 1,000,000 in aggregate for both years
(the “Earn-Out Shares”)), based on the following calculation: (a) total annual revenue of One Exam (for the years ended
December 31, 2017 and 2018, as applicable) minus $1,000,000, divided by three, (b) plus total net profit of One Exam minus $100,000,
multiplied by three, multiplied by (c) 0.30. For example:
|
Annual revenue of One Exam
|
|
$
|
4,000,000
|
|
|
Less: $1,000,000
|
|
|
(1,000,000
|
)
|
|
Sub-total
|
|
|
3,000,000
|
|
|
Divided by 3
|
|
|
Divided by 3
|
|
|
Sub-total
|
|
|
1,000,000
|
|
|
Net profit of One Exam
|
|
|
200,000
|
|
|
Less: $100,000
|
|
|
(100,000
|
)
|
|
Sub-total
|
|
$
|
1,100,000
|
|
|
Times .30
|
|
|
Times 0.30
|
|
|
Common shares up to 1,000,000
|
|
|
330,000
|
|
One Exam is in the business of exam preparation
with a focus on construction training and certification. One Exam offers eLearning courses and weekly training classes and certification
in a wide variety of topics for contractors with continuing education in 22 states with a goal of servicing all 50 states. One
Exam owns over 70 domains pertaining to contractor licensing and continuing education throughout the United States. One Exam has
written dozens of courses which are offered both in an online e-learning setting or in a classroom.
The Non-Recourse Secured Convertible Promissory
Note (the “Secured Note”) provided to Mr. Estell at closing evidences the principal amount of $300,000 owed to Mr.
Estell, which does not accrue interest. Beginning on the first business day which falls thirty days after the earlier of (a) January
20, 2018; and (b) the date we determine in our sole discretion, and continuing month to month thereafter, a portion of the principal
amount of the Secured Note equal to the lesser of (A) ten percent (10%) of the total trading volume of our common stock for the
thirty (30) days prior to such applicable date; and (B) such number of shares of common stock as equals 4.99% of our then outstanding
shares of common stock, multiplied by $0.50 per share, automatically converts into common stock. Additionally, on the first business
day following January 20, 2019, the remaining balance of the Secured Note converts into common stock at a conversion price of $0.50
per share. If we fail to comply with any of the provisions of the Secured Note, Mr. Estell’s sole remedy is to take back
ownership of the membership interests representing 100% of the ownership of One Exam. The Secured Note contains standard and customary
events of default and may be prepaid at any time without penalty. Mr. Estell also entered into a Lock-Up Agreement with us in connection
with the closing.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
As part of the One Exam Exchange, we
entered into a Consulting Agreement with Mr. Estell. The Consulting Agreement continues until December 31, 2020, terminable
by either party with 90 days prior notice at any time, or 10 days’ notice by us upon the material breach of any term of
the Consulting Agreement by Mr. Estell. We agreed to pay Mr. Estell compensation of $1,500 per week during the first year of
the term; $1,575 per week during the second year of the term; and $1,654 per week during the third year of the term and Mr.
Estell agreed to customary confidentiality and work made for hire terms in the agreement. We also agreed that Mr. Estell
would be paid a $60,000 signing bonus, payable in four installments of $15,000 each on April 30, 2017, May 30, 2017, June 30,
2017 and July 30, 2017, and that Mr. Estell could earn a bonus on June 30th and December 31st, of each year during the term
of the agreement, beginning with periods after January 1, 2017 equal to (a) total revenue generated by One Exam and other
related companies and assets we may acquire in the future, less (i) $500,000, less (ii) 50% of the total revenue for the
prior annual period of any related companies and assets we may acquire in the future, (b) divided by 100 (rounded down to the
nearest $250,000 increment); plus (x) total gross profit generated by One Exam and other related companies and assets we may
acquire in the future, less (i) $37,500, less (ii) 50% of the total gross profit for the prior annual period of any related
companies and assets we may acquire in the future; (y) divided by 100 (rounded down to the nearest $25,000 increment) (the
“ Bonus ”). We are required to calculate the Bonus as soon as practicable after each June 30th and December 31st,
and pay the Bonus due promptly after such calculation is made. In the event that the revenue or gross profit calculation
above is negative, we shall decrease the applicable Bonus, provided that the Bonus may not be less than $0, provided further
that any negative Bonus calculation for any period ending June 30th, carries over and adjusts downward any positive Bonus for
any period ending December 31st.
The following preliminary information summarizes
the allocation of the fair values assigned to the assets at the purchase date:
|
|
|
Amount
|
|
|
Cash and cash equivalents
|
|
$
|
14,232
|
|
|
Inventory
|
|
|
159,961
|
|
|
Property and equipment
|
|
|
76,410
|
|
|
Copyrights
|
|
|
443,091
|
|
|
Total identifiable assets
|
|
|
693,694
|
|
|
Less: liabilities assumed
|
|
|
(121,694
|
)
|
|
Less: contingent consideration and bonus consideration
|
|
|
(272,000
|
)
|
|
Total purchase price (less contingent and bonus consideration)
|
|
$
|
300,000
|
|
The following table summarizes the costs of
amortizable intangible assets related to the One Exam acquisition:
|
|
|
Estimated Cost
|
|
|
Useful life
(years)
|
|
Copyrights
|
|
$
|
443,091
|
|
|
5
|
|
Total
|
|
$
|
443,091
|
|
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
W Marketing Acquisition
On June 22, 2017, we consummated the transactions
contemplated by a Share Exchange Agreement (the “
W Marketing Exchange Agreement
”), by and between the Company,
W Marketing Inc. (“
W Marketing
”), and the two shareholders of W Marketing (the “
W Marketing Shareholders
”).
In connection with the closing of the transactions contemplated by the W Marketing Exchange Agreement (the “
W Marketing
Exchange
”), we acquired 100% of the outstanding shares of capital stock of W Marketing from the W Marketing Shareholders
in consideration for 900,000 shares of restricted common stock (the “
W Marketing Shares
”), the assumption of
an outstanding promissory note in the amount of $70,000 owed by W Marketing to Citibank and $75,000 in W Marketing Notes (defined
below). The W Marketing Exchange has an effective date of May 1, 2017. The W Marketing Share Exchange Agreement included standard
and customary representations, warranties and indemnification rights.
As additional consideration for agreeing to
the terms of the transaction, we agreed to issue the W Marketing Shareholders an additional $50,000 of shares of restricted common
stock (based on the closing sales price of the Company’s common stock on July 31, 2018), in the event the revenue generated
by W Marketing exceeds $1.5 million during the 12 calendar months ended July 31, 2018 (the “
W Marketing Earn-Out
”
and the “
W Marketing Earn-Out Shares
”).
W Marketing, located in Hauppauge, New York,
provides the latest National Electrical Code (NEC) through its nationwide network of electrical distributors, which includes bookstores,
trade/vocational schools, universities, retail chains, specialty retailers, and independent hardware stores. The NEC is a regionally
adoptable standard for the safe installation of electrical wiring and equipment in the United States. It is part of the National
Fire Codes series published by the National Fire Protection (NFPA), a private association. First published in 1897, the NEC is
updated and published every three years. W Marketing’s library of published products includes courses and exam preparation
materials.
We provided Promissory Notes (the “
W
Marketing Notes
”) to each of the two W Marketing Shareholders at closing, which each evidence the principal amount of
$37,500 ($75,000 in aggregate) owed to such W Marketing Shareholders. The W Marketing Notes accrue interest at the rate of 8% per
annum (12% upon the occurrence of an event of default), beginning June 22, 2017, and are payable at the rate of $3,306 per month,
beginning August 22, 2017, through the maturity date of such notes, August 22, 2018. The W Marketing Notes contain standard and
customary events of default and may be prepaid at any time without penalty.
As part of the W Marketing Exchange, on June
22, 2017, and effective June 23, 2017, we entered into an employment agreement with Jeffrey S. Spellman, one of the employees of
W Marketing (“
Employment Agreement
”). Pursuant to the Employment Agreement, we agreed to pay Mr. Spellman, $50,000
per year, pay Mr. Spellman a commission of 4% of the net profit originated through his personal direct sales efforts, issue him
$1,000 worth of shares of restricted common stock of the Company at the end of each calendar quarter during the term of the agreement
(beginning September 30, 2017)(the “
Employment Agreement Shares
”), and pay him one month of salary as severance
pay in the event the agreement is terminated by Mr. Spellman with good reason or terminated by the Company without cause. The agreement
includes standard and customary indemnification, work for hire, confidentiality, arbitration and trade secret provisions.
In the event that Mr. Spellman’s employment
with the Company is terminated by Mr. Spellman, terminated by the Company for cause, or terminated due to Mr. Spellman’s
death or disability (a “
Triggering Termination
”), prior to September 20, 2017, the principal amount of the W
Marketing Notes are each automatically decreased by the lesser of (a) $7,500; or (b) the then principal amount of such notes. In
the event that Jeffrey S. Spellman’s employment with the Company is terminated due to a Triggering Termination prior to December
19, 2017, the W Marketing Earn-Out is deemed terminated and no Earn-Out Shares are due whatsoever to the W Marketing Shareholders.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The shares issued pursuant to the W Marketing
Exchange Agreement are subject to a lock-up agreement (the “
Lock-Up Agreement
”), which prohibits the sale of
any such shares for a period of one year and restricts the sale of any of the shares in any thirty day period, for an additional
one year thereafter, to 10% of the total volume of our common stock which traded in the prior 30 days, on a rolling basis.
The following preliminary information summarizes
the allocation of the fair values assigned to the assets at the purchase date:
|
|
|
Amount
|
|
|
Cash and cash equivalents
|
|
$
|
26,343
|
|
|
Accounts receivable
|
|
|
46,245
|
|
|
Inventory
|
|
|
162,871
|
|
|
Copyrights
|
|
|
462,847
|
|
|
Total identifiable assets
|
|
|
698,306
|
|
|
Less: liabilities assumed
|
|
|
(123,306
|
)
|
|
Less: contingent consideration and bonus consideration
|
|
|
(50,000
|
)
|
|
Total purchase price (less contingent and bonus consideration)
|
|
$
|
525,000
|
|
The following table summarizes the costs of
amortizable intangible assets related to the One Exam acquisition:
|
|
|
Estimated Cost
|
|
|
Useful life
(years)
|
|
Copyrights
|
|
$
|
462,847
|
|
|
5
|
|
Total
|
|
$
|
412,847
|
|
|
|
Cranbury Acquisition
On July 31, 2017, we consummated the transactions
contemplated by a Share Exchange Agreement (the “
Cranbury Exchange Agreement
”), by and between the Company,
Cranbury Associates, LLC (“
Cranbury
”), and the sole member of Cranbury (the “
Cranbury Member
”).
In connection with the closing of the transactions contemplated by the Cranbury Exchange Agreement (the “
Cranbury Exchange
”),
we acquired 100% of the outstanding membership interests of Cranbury from the Cranbury Member in consideration for 784,313 shares
of restricted common stock, valued at $400,000 on the closing date (the “
Cranbury Shares
”), and a promissory
note in the amount of $100,000 (described below). The Cranbury Exchange has an effective date of May 1, 2017. The Cranbury Share
Exchange Agreement included standard and customary representations, warranties and indemnification rights. The Cranbury Shares
are to be held in escrow in order to secure the indemnification requirements of the Cranbury Member pursuant to the terms of the
Cranbury Exchange Agreement, until January 1, 2018.
As additional consideration for agreeing to
the terms of the transaction, we agreed to issue the Cranbury Member an additional $100,000 of shares of restricted common stock
(based on the closing sales price of the Company’s common stock on July 31, 2018), in the event the revenue generated by
Cranbury exceeds $2.0 million during the 12 calendar months ended July 31, 2018 (the “
Cranbury Earn-Out
” and
the “
Cranbury Earn-Out Shares
”).
Cranbury, established in 2010, sells training
and educational materials to governmental institutions and private sector markets in Brazil, Mexico, Columbia, Trinidad, and other
international regions. The Company markets and represents approximately 40 major publishers in international markets.
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
We provided a Promissory Note (the “
Cranbury
Note
”) to the Cranbury Member at closing, which evidences the principal amount of $100,000 owed to such Cranbury Member.
The Cranbury Note accrues interest at the rate of 6% per annum (10% upon the occurrence of an event of default), beginning August
31, 2017, and is payable at the rate of $4,153 per month, beginning November 1, 2017, through the maturity date of such note, November
30, 2019. The Cranbury Note contains standard and customary events of default and may be prepaid at any time without penalty.
As part of the Cranbury Exchange, on and effective
July 31, 2017, we entered into a Consulting Agreement with Ethan Atkin, the Cranbury Member (the “
Consulting Agreement
”).
Pursuant to the Consulting Agreement, which has a term of one year, we agreed to pay Mr. Atkin, $3,750 per month and Mr. Atkin
agreed to provide us 120 hours of services for each of the first three months of the term and 100 hours per month thereafter, in
connection with the integration of Cranbury’s operations into those of the Company, the training of a new head of international
sales at the Company, and introductions to contacts of Mr. Atkin and Cranbury in connection with Cranbury’s operations and
the change in control and management. The agreement includes standard and customary work for hire, confidentiality, and trade secret
provisions. In the event that the Consulting Agreement is terminated by Mr. Atkin, terminated by the Company for cause, or terminated
due to Mr. Atkin’s death or disability, prior to 180 days after the closing date, the earn-out is terminated and no earn-out
Shares are due.
The Cranbury Shares issued pursuant to the
Cranbury Exchange Agreement are subject to a lock-up agreement (the “
Lock-Up Agreement
”), which prohibits the
sale of any such shares for a period of one year and restricts the sale of any of the shares in any thirty day period, for an additional
one year thereafter, to 10% of the total Cranbury Shares, on a rolling basis.
The following preliminary information summarizes
the allocation of the fair values assigned to the assets at the purchase date:
|
|
|
Amount
|
|
|
Cash and cash equivalents
|
|
$
|
–
|
|
|
Accounts receivable
|
|
|
319,097
|
|
|
Property and equipment
|
|
|
–
|
|
|
Customer list
|
|
|
516,896
|
|
|
Total identifiable assets
|
|
|
835,993
|
|
|
Less: liabilities assumed
|
|
|
(235,993
|
)
|
|
Less: contingent consideration and bonus consideration
|
|
|
(100,000
|
)
|
|
Total purchase price (less contingent and bonus consideration)
|
|
$
|
500,000
|
|
The following table summarizes the costs of
amortizable intangible assets related to the One Exam acquisition:
|
|
|
Estimated Cost
|
|
|
Useful life
(years)
|
|
|
Customer list
|
|
$
|
516,896
|
|
|
5
|
|
|
Total
|
|
$
|
516,896
|
|
|
|
|
|
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
Combined Proforma
The results of One Exam and Premier are included
in the consolidated financial statements effective January 1, 2017.
The results of W Marketing and Cranbury are
included in the consolidated financial statements effective May 1, 2017.
The following schedule contains pro-forma consolidated
results of operations for the nine months ended July 31, 2017 and 2016 as if the acquisitions occurred on November 1, 2015. The
pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations
that would have been achieved if the acquisition had taken place on November 1, 2015, or of results that may occur in the future.
|
|
|
Nine months ended July 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
Revenue
|
|
$
|
5,972,276
|
|
|
$
|
7,986,698
|
|
|
$
|
2,232,990
|
|
|
$
|
4,362,853
|
|
|
Income (loss) from operations
|
|
|
(3,937,621
|
)
|
|
|
(3,809,111
|
)
|
|
|
(101,191
|
)
|
|
|
(188,204
|
)
|
|
Net income (loss)
|
|
$
|
(4,235,810
|
)
|
|
$
|
(4,115,689
|
)
|
|
$
|
(241,908
|
)
|
|
$
|
(341,611
|
)
|
|
Earnings (loss) per common share-Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
Earnings (loss) per common share-Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
NOTE 14 – SUBSEQUENT EVENTS
In September 2017, the Company issued 207,150
shares of stock to consultants for professional services. The fair market value of the common stock on the date of issuance was
$113,375.