Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Basis of Presentation
History and Organization
VNUE, Inc. (formerly Tierra Grande Resources, Inc.) ("VNUE", "TGRI", or the "Company") was incorporated under the laws of the State of Nevada on April 4, 2006.
On May 29, 2015, VNUE, Inc. entered into a merger agreement with VNUE Washington, Inc. Pursuant to the terms of the Merger Agreement, all of the outstanding shares of any class or series of VNUE Washington were exchanged for an aggregate of 50,762,987 shares of TGRI common stock. As a result of the Merger, VNUE Washington became a wholly-owned subsidiary of the Company, and the transaction was accounted for as a reverse merger with VNUE Washington deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. The Company is developing a technology driven solution for Artists, Venues and Festivals to automate the capturing, publishing and monetization of their content.
The Company conducted a reverse stock split of the Company’s common stock at a ratio 1 for 10 of each share issued and outstanding on the effective date of April 15, 2017. The reverse was effective as to the market on August 7, 2017. All historical reported share amounts within have been adjusted to reflect the reverse stock split.
On July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive” or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live” recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license. In exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of the products and services. DiscLive is controlled by our Chief Executive Officer.
On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc., whereby the Company will acquire the assets of the digital live music distribution platform Set.fm from PledgeMusic. Additionally, the Company will offer PledgeMusic North America’s full suite of music business tools allowing artists to sell music, merchandise and live experiences directly to fans, enhancing the Company’s clients’ revenue opportunities on a shared revenue basis. Set.fm is a DIY platform that makes it easy for artists to record and sell their live shows directly to fans’ mobile devices, uploading simultaneously with their performance. The platform, which also features an innovative and easy-to-use studio app, already boasts thousands of artists and tens of thousands of fans using it. VNUE plans to update and improve the existing platform for indie artists and their fans, and to implement pro features for artists that VNUE and its affiliate DiscLive produce.
Basis of Presentation
The interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under the accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated balance sheet information as of December 31, 2016 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2017 (the “2016 Annual Report”). These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016 and notes thereto included in the 2016 Annual Report. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period.
Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the condensed consolidated financial statements, the Company had a stockholders’ deficit of $2,690,827 at September 30, 2017, and incurred a net loss of $1,081,526, and used net cash in operating activities of $318,757 for the reporting period then ended. Certain of the Company’s notes payable are also past due and in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The condensed consolidated financial statements do not include any adjustments related 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.
As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated financial statements were issued. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended December 31, 2016, has expressed substantial doubt about the Company’s ability to continue as a going concern.
Management estimates that the current funds on hand will be sufficient to continue operations through June 2018. The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and in its ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.
Note 2 - Significant and Critical Accounting Policies and Practices
Principles of Consolidation
The Company consolidates all wholly owned and majority-owned subsidiaries in which the Company’s power to control exists. The Company consolidates the following subsidiaries and/or entities:
Name of consolidated subsidiary or
Entity
|
|
State or other jurisdiction of
incorporation or organization
|
|
Date of incorporation or formation
(date of acquisition/disposition, if
applicable)
|
|
Attributable
interest
|
|
|
|
|
|
|
|
|
|
VNUE Inc. (formerly TGRI)
|
|
The State of Nevada
|
|
April 4, 2006 (May 29, 2015)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Inc. (VNUE Washington)
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE LLC
|
|
The State of Washington
|
|
August 1, 2013
(December 3, 2014)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Technology Inc.
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Media Inc.
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
89
|
%
|
VNUE Technology, Inc. and VNUE Media, Inc. were inactive corporations with no operations at September 30, 2017 and 2016, respectively. Inter-company balances and transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue on the sale of digital video disks (DVD) that contain the recording of live concerts and made available to concert viewers immediately after the show and on-line.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include the assumptions used to value the derivative liabilities, the valuation allowance for the deferred tax asset and the accruals for potential liabilities.
Fair Value of Financial Instruments
The Company follows the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below.
Level 1
|
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable reporting date as of the end of the period.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments.
The fair value of the derivative liabilities of $779,903 and $508,107 at September 30, 2017 and December 31, 2016, respectively, were valued using Level 2 inputs.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Loss per Common Share
Basic earnings (loss) per share are computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation as their effect is antidilutive.
For the three and nine months ended September 30, 2017 and 2016, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. As of September 30, 2017 and 2016, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive.
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Convertible Notes Payable
|
|
|
110,015,835
|
|
|
|
15,951,363
|
|
Warrants
|
|
|
1,000,000
|
|
|
|
-
|
|
Total
|
|
|
111,015,835
|
|
|
|
15,951,363
|
|
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20 all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company will adopt the provisions of this statement in the first quarter of fiscal 2018.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.
In March 2016, the FASB issued the ASU 2016-09,
Compensation - Stock Compensation (Topic 718)
: Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that all income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.
In July 2017, the FASB issued ASU 2017-11
, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company plans to adopt ASU 2017-11 in the first quarter of 2018. The adoption of ASU 2017-11 is expected to have a material impact on the Company’s financial statements and related disclosures because derivative liabilities from financial instruments (or embedded conversion features) that have down round features will be reclassified from liabilities to additional paid-in capital, effective as of the beginning of the fiscal year.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 3 - Related Party Transactions
DiscLive Network
On July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive” or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live” recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license. In exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of the products and services. DiscLive is controlled by our Chief Executive Officer. Revenues of $37,825 and cost of revenues of $35,151 during the nine months ended September 30, 2017 resulted from the use of the assets licensed under this agreement.
Advances from Stockholders / Employees
From time to time, employees of the Company advance funds to the Company for working capital purposes. The advances are unsecured, non-interest bearing and due on demand. As of September 30, 2017 and December 31, 2016, the advances from the employees were $14,720 and $14,720, respectively.
Note payable to President and Significant Stockholder
On December 31, 2014 the Company entered into a note payable agreement with its President, and significant stockholder of the Company. The note is unsecured, non-interest bearing and due on December 31, 2024. As of September 30, 2017 and December 31, 2016, the note payable to the officer was $74,131 and $74,131, respectively.
Convertible Notes Payable to the Officers and Directors
In August 2014 the Company issued non-interest bearing convertible notes to certain Officers and Directors of the Company for working capital purposes. The notes are convertible at variable prices and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. See further discussion in Note 5.
Transactions with Louis Mann
On August 26, 2015, the Company entered into an Advisory Agreement with Louis Mann (“MANN”), a former officer and director with the Company who resigned from his officer and director on August 26, 2015. The Advisory Agreement provided for MANN’s continued and ongoing advisory services to the Company until December 31, 2015 and MANN was to be paid $25,000 for providing such advisory services, which was due and payable on or before December 31, 2015. Such amount is included in accrued expenses at September 30, 2017 and December 31, 2016, respectively.
Note 4 – Notes Payable
Notes payable as of September 30, 2017 and December 31, 2016 consist of the following
|
|
|
|
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Individual
|
|
(a)
|
|
|
$
|
9,000
|
|
|
$
|
9,000
|
|
Tarpon
|
|
(b)
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
9,000
|
|
|
$
|
34,000
|
|
______________
(a)
|
On December 17, 2015, the Company issued a Promissory Note in the principal amount of $9,000. The note is due within 10 business days of the Company receiving a notice of effectiveness of its Form S-1 filed on February 22, 2016. Failure to make payment during that 10 business day period shall constitute an Event of Default, as a result of which the note will become immediately due and payable and the balance will bear interest at 7%. The Company’s Form S-1 was declared effective on March 8, 2016 and payment was due before March 22, 2016. The Company did not repay the note before March 22, 2016; therefore, the note is in default with an interest rate of 7%.
|
|
|
(b)
|
On February 18, 2016, as a condition for the execution of an Equity Purchase Agreement with Tarpon (See Note 7), the Company issued a Promissory Note to Tarpon in the principal amount of $25,000 with an interest rate at 10% per annum and a maturity date of August 31, 2016. The note was recorded as financing cost upon issuance. On April 7, 2017, the Company and Tarpon entered into an amendment to the Promissory Note. The amendment added a conversion feature to the Note so that the Note and all accrued interest are convertible into shares of the Company’s common stock at a conversion price equal to 50% of the lowest closing bid price of the common stock for the 30 trading days preceding the conversion date, and the maturity date was extended to December 31, 2017. On April 7, 2017, Tarpon converted its remaining aggregate principal and interest balance of $27,116 into 3,873,377 shares of the Company’s common stock and the Note was retired. The market price on the date of conversion was in excess of the conversion price and as a result, the Company recorded a beneficial conversion feature on the conversion of $65,855 during the nine months ended September 30, 2017, which is included in financing costs in the Condensed Consolidated Statements of Operations.
|
Note 5 – Convertible Notes Payable
Convertible notes payable consist of the following:
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|
|
|
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Various Convertible Notes
|
|
(a)
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
Tarpon Convertible Note
|
|
(b)
|
|
|
|
-
|
|
|
|
33,500
|
|
Tarpon Convertible Note
|
|
(c)
|
|
|
|
-
|
|
|
|
-
|
|
Ylimit, LLC Convertible Notes
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|
(d)
|
|
|
|
517,000
|
|
|
|
300,000
|
|
Crossover Capital Fund II, LLC Convertible Notes
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|
(e)
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|
|
|
61,000
|
|
|
|
-
|
|
Golock Capital, LLC Convertible Notes
|
|
(f)
|
|
|
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105,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes
|
|
|
|
|
|
738,000
|
|
|
|
388,500
|
|
Discount
|
|
|
|
|
|
(307,967
|
)
|
|
|
(244,534
|
)
|
|
|
|
|
|
|
|
|
|
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|
|
Convertible notes, net
|
|
|
|
|
$
|
430,033
|
|
|
$
|
143,966
|
|
______________
(a)
|
In August 2014 the Company issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a “pre-money” valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a “pre-money” valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $55,000 as of September 30, 2017 and December 31, 2016, of which $30,000 was due to related parties.
|
(b)
|
On June 15, 2015, as a condition for the execution of an Equity Purchase Agreement with Tarpon, the Company issued a Promissory Note to Tarpon in the principal amount of $50,000 with an interest rate at 10% per annum and a maturity date of December 31, 2015. The note was recorded as financing cost upon issuance. On February 26, 2016, the Company and Tarpon entered into an amendment to the Promissory Note. The amendment added a conversion feature to the Note so that the Note and all accrued interest are convertible into shares of the Company’s common stock at a conversion price equal to 80% of the lowest closing bid price of the common stock for the 30 trading days preceding the conversion date, and the maturity date was extended to December 31, 2016. During 2016, Tarpon converted aggregate principal and interest of $20,385 into 3,488,075 shares of the Company’s common stock. During the nine months ended September 30, 2017, Tarpon converted its remaining aggregate principal and interest balance of $36,405 into 3,307,959 shares of the Company’s common stock and the Note was retired.
|
|
|
(c)
|
On March 11, 2017 the Company issued a convertible note to Tarpon in the principal amount of $33,000 which included a 10% original issue discount, or $3,000, with an interest rate at 10% per annum and a maturity date of December 31, 2017. The Note Conversion was determined as follows: The note was convertible into shares of the Company’s common stock at the lessor of (i) 50% of the lowest closing bid price in the 30 trading days prior to the date that the note was issued or (ii) 50% of the lowest closing bid price in the 30 trading days prior to the day that the Holder requests conversion; unless otherwise modified by mutual agreement between the Parties (the “Conversion Price”); provided that if the closing bid price for the common stock on the Clearing Date (defined below) was lower than that used for the Conversion Price, then the Conversion Price shall be adjusted such that the Discount shall be taken from the closing bid price on the Clearing Date, and the Company shall issue additional shares to Holder to reflect such adjusted conversion price. During the nine months ended September 30, 2017, the Company paid the remaining outstanding principal and interest balance of $37,950 in cash and the Note was retired.
|
|
|
(d)
|
On May 9, 2016 the Company issued a convertible note in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. The note is secured by the Company’s rights, titles and interests in all the Company’s tangible and intangible assets, including intellectual property and proprietary software whether existing now or created in the future. The Note Conversion Price is determined as follows: if the Company receives equity funding of $1 million or more, then the Lender may choose to either convert the Note into shares of the Company’s common stock or request repayment of the principal and interest on the Note. If the Lender chooses to convert the Note, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest owed by the Company as of the date of the conversion divided by 85% of the per share stock price in the equity funding. If the Company borrows additional amounts above the initial $100,000, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest of those additional borrowings owed by the Company as of the date of the conversion divided by 75% of the per share stock price in the equity funding. On July 18, 2016, August 10, 2016 and September 30, 2016, the note was amended to authorize additional borrowings of $50,000 on each of the dates listed with the terms remaining the same except as noted above. During the nine months ended September 30, 2017, the Company received additional borrowings of $217,000 and on August 25, 2017, the Note was amended to authorize total borrowings on this Note to $517,000 with the terms remaining the same except that the conversion feature was modified to state that all borrowings under the note will be converted at 85% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. The balance of the notes outstanding was $517,000 and $300,000 as of September 30, 2017 and December 31, 2016, respectively.
|
(e)
|
On August 21, 2017, the Company issued a convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $61,000 with an interest rate of 8% per annum and a maturity date of August 21, 2018. The note included an original issue discount of 10%, or $6,000. The note is convertible into shares of common stock of the Company at 50% of the lowest closing bid price in the 20 trading days prior to the day that the Buyer request. The note may be prepaid with the following penalties prior to the 180
th
day from date of issuance:
|
Prepay Date
|
|
Prepay Amount
|
|
< 31 days
|
|
115% of principal plus accrued interest
|
|
31-60 days
|
|
120% of principal plus accrued interest
|
|
61-90 days
|
|
125% of principal plus accrued interest
|
|
91-120 days
|
|
130% of principal plus accrued interest
|
|
121-150 days
|
|
135% of principal plus accrued interest
|
|
151-180 days
|
|
140% of principal plus accrued interest
|
|
|
In the event of default, as defined in the note agreement, interest shall accrue at a default interest rate of 19% per annum or at the highest rate of interest permitted by law, whichever is less. If the Company loses the bid price for its stock in the market (including the OTC marketplace or other exchange) or the Company’s common stock is delisted from an exchange or if trading has been suspended for more than 10 consecutive days, the outstanding principal amounts would increase 20% or 50%, respectively. The Company is required to instruct its transfer agent to reserve 62,564,000 share of its common stock. The balance of the note outstanding was $61,000 as of September 30, 2017.
|
|
|
(f)
|
On September 1, 2017, the Company issued a convertible note to Golock Capital, LLC (“Lender”) in the principal amount of $105,000 with an interest rate at 10% per annum and a maturity date of August 31, 2018. The note is convertible into shares of the Company’s common stock at $0.02 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued a warrant to the Lender for 1,000,000 shares of the Company’s common stock (see Note 7). In addition, the Lender shall have the first right of refusal as to any future funding of Borrower in that Lender shall have the right to provide all or a portion of the funding upon the same terms as those offered in writing by any third party or contained in any private placement of borrower. The Lender, upon conversion, shall have piggy back registration rights for all of its common stock shares in any registration or post-effective amendment to any registration initiated by Borrower with the Securities and Exchange Commission. The balance of the note outstanding was $105,000 as of September 30, 2017.
|
The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Condensed Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments.
As of December 31, 2016, the unamortized debt discount was $244,534. During the nine months ended September 30, 2017, the Company issued $311,000 of convertible notes subject to a debt discount, and created a derivative liability upon issuance with a fair value of $668,557, of which $311,000 was recorded as a valuation discount, and the remaining $357,557 was recorded as a financing cost. In addition, the Company recorded an additional debt discount of $18,261 related to a warrant issued associated with the issuance of a convertible note during the period. During the nine months ended September 30, 2017, amortization of debt discount was $265,828. The unamortized balance of the debt discount was $307,967 as of September 30, 2017.
For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Convertible notes payable, net
|
|
$
|
400,033
|
|
|
$
|
121,865
|
|
Convertible notes payable, related party, net
|
|
|
30,000
|
|
|
|
22,101
|
|
Total
|
|
$
|
430,033
|
|
|
$
|
143,966
|
|
Note 6 – Derivative Liability
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion prices of the Notes described in Note 5 were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or they were variable. Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
As of September 30, 2017 and December 31, 2016, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
|
September 30,
2017
|
|
|
Issued During
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
0.002 – 0.108
|
|
|
$
|
0.005 – 0.026
|
|
|
$
|
0.013 – 0.116
|
|
Stock Price
|
|
$
|
0.008
|
|
|
$
|
0.006 - 0.035
|
|
|
$
|
0.044
|
|
Risk-free interest rate
|
|
|
0.84 – 1.24
|
%
|
|
|
0.94 – 1.23
|
%
|
|
|
0.59 – 0.85
|
%
|
Expected volatility
|
|
|
358
|
%
|
|
|
273% - 344
|
%
|
|
|
243
|
%
|
Expected life (in years)
|
|
|
1.000
|
|
|
|
0.792 – 1.292
|
|
|
|
0.583 – 1.833
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair Value:
|
|
$
|
779,903
|
|
|
$
|
594,666
|
|
|
$
|
508,107
|
|
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
During the nine months ended September 30, 2017, the Company recognized $38,068 as other income, compared to $194,912 as other income during the nine months ended September 30, 2016, which represented the change in the fair value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $602,702 upon issuance of convertible notes during the period and a gain of $292,838 and $21,308 during the nine months ended September 30, 2017 and 2016, respectively, which represented the extinguishment of derivative liabilities related to both the extinguishment of convertible notes with cash and the conversion of a note to common stock.
Note 7 – Stockholders’ Deficit
Common stock returned by officer
On March 15, 2017, a Company officer voluntarily returned 5,000,000 shares of Common Stock held by him to the Company for no consideration. The shares were subsequently cancelled.
Shares issued for services
During the nine months ended September 30, 2017, the Company issued an aggregate of 2,575,000 shares of its common stock to certain employees and contractors for services valued at $95,125, based upon the closing market price on the date the shares were authorized to be issued.
Warrants
A summary of warrants for the nine months ended September 30, 2017 is as follows:
|
|
Number of
|
|
|
Weighted - Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
0.01
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2017
|
|
|
1,000,000
|
|
|
$
|
0.01
|
|
Exercisable at September 30, 2017
|
|
|
1,000,000
|
|
|
$
|
0.01
|
|
On September 1, 2017, the Company issued 1,000,000 warrants to purchase the Company’s common stock as an inducement to enter into a convertible note payable with Golock Capital LLC (See Note 5). The fair value of the warrants granted was determined to be $18,261 and was recorded as a debt discount and being amortized to financing costs over a term of the related convertible note of 12 months. The fair value of the warrant was calculated using the Black-Scholes option pricing model using the following assumptions – stock price of $0.01; exercise price of $0.01; expected life of 1 year; volatility of 358%; no dividend rate and a discount rate of 1.31%.
Additional information regarding warrants outstanding as of September 30, 2017 is as follows:
Warrants Outstanding at
September 30, 2017
|
|
|
Warrants Exercisable at
September 30, 2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
Range of
|
|
|
Shares
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
Exercise
|
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01
|
|
|
|
1,000,000
|
|
|
|
2.92
|
|
|
$
|
0.01
|
|
|
|
1,000,000
|
|
|
$
|
0.01
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
The weighted-average remaining contractual life of warrants outstanding and exercisable at September 30, 2017 is 2.92 years.
Note 8 - Commitment and Contingencies
Litigation – Hughes Media Law Group, Inc.
On December 11, 2015, Hughes Media Law Group, Inc. (“HLMG”) filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,553 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with
VNUE Washington
, for legal work performed by HMLG for
VNUE Washington
prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue
VNUE Washington
, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. On July 25, 2016, the court issued judgment awarding HLMG $133,482 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying consolidated balance sheets as of September 30, 2017 and December 31, 2016.
Note 9 – Subsequent Events
Asset Acquisition
On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc., whereby the Company will acquire the assets of the digital live music distribution platform Set.fm from PledgeMusic. Additionally, the Company will offer PledgeMusic North America’s full suite of music business tools allowing artists to sell music, merchandise and live experiences directly to fans, enhancing the Company’s clients’ revenue opportunities on a shared revenue basis.
Set.fm is a DIY platform that makes it easy for artists to record and sell their live shows directly to fans’ mobile devices, uploading simultaneously with their performance. The platform, which also features an innovative and easy-to-use studio app, already boasts thousands of artists and tens of thousands of fans using it. VNUE plans to update and improve the existing platform for indie artists and their fans, and to implement pro features for artists that VNUE and its affiliate DiscLive produce.
PledgeMusic has a growing base of 3 million music fans directly engaging with the artists they love. The platform has launched more than 50,000 campaigns across a wide range of artists with inventive ways to connect with those fans, creating newfound revenue and strategic marketing and engagement opportunities.
Convertible Note Payable
Subsequent to September 30, 2017, the Company received additional borrowings of $50,000 and issued the Lender a warrant to purchase 3,454,708 shares of the Company’s common stock at an exercise price of $0.015 per share.