Notes to Consolidated Financial Statements
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 historically reported share and per shares amounts within have been adjusted to reflect the reverse stock split as if it occurred as of the earliest period presented.
Going Concern
The Company’s 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 consolidated financial statements, the Company had a stockholders’ deficit of $2,749,637 at December 31, 2017, and incurred a net loss of $1,193,556, and used net cash in operating activities of $437,674 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 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.
Management estimates that the current funds on hand will be sufficient to continue operations through June 30, 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 December 31, 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. Revenue is recognized on the sale of a product when the risk of loss transfers to our customers, and collection of the receivable is reasonably assured, which generally occurs when the product is purchased.
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 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 perform impairment tests of long term assets, accruals for potential liabilities, determining the value of derivative liabilities, and the valuation of deferred tax assets.
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 $866,873 and $508,107 at December 31, 2017 and 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 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 12 months of the balance sheet date.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any losses related to these credit risks. The Company extends credit based on an evaluation of the customer's financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and intends to maintain allowances for anticipated losses, as required.
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 if their effect is antidilutive.
For the years ended December 31, 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 December 31, 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.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Convertible Notes Payable
|
|
|
102,153,714
|
|
|
|
13,646,291
|
|
Warrants
|
|
|
5,004,708
|
|
|
|
-
|
|
Total
|
|
|
107,158,422
|
|
|
|
13,646,291
|
|
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Intangible Assets
The Company accounts for intangible assets in accordance with the authoritative guidance issued by the FASB. Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit. The Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated undiscounted future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
At December 31, 2017, we had intangible assets of $320,833 (see Note 4). Management believes there were no indications of impairment based on management’s assessment of these assets at December 31, 2017. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy for our overall business, and significant negative industry or economic trends. If current economic conditions worsen causing decreased revenues and increased costs, we may have to record an impairment to our intangible assets.
Income Taxes
The Company follows the asset and liability method which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company’s tax years 2013 to 2017 remain subject to examination by major tax jurisdictions.
Pursuant to the Internal Revenue Code Section 382 ("Section 382"), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an "ownership change." In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
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. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures, but does not believe there will be a material effect, if any.
In February 2016, the FASB issued Accounting Standards Update (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 comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
In July 2017, the FASB issued ASU No. 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”). 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. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement presentation or disclosures.
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 consolidated financial statements.
Note 3 – Revision to Prior Year Financial Information
In 2016, the Company was served with a complaint by a vendor for a claim of payment for services provided. On April 12, 2018, the Company agreed to settle the outstanding claim of $61,529. This amount was not previously recorded by the Company. Management and the Company's Board of Directors determined that the amount of the claim should have been recorded as of December 31, 2016, and accordingly has decided to revise the accompanying 2016 financial statements and the amount of the settlement was accrued and recorded as expense for the year ended December 31, 2016. As a result of the aforementioned adjustment, the relevant annual financial statements for the year ending December 31, 2016 have been revised as follows:
|
|
As of December 31, 2016
|
|
|
|
As Previously Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
391,952
|
|
|
$
|
61,529
|
|
|
$
|
453,481
|
|
Accumulated deficit
|
|
$
|
(7,190,438
|
)
|
|
$
|
(61,529
|
)
|
|
$
|
(7,251,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
1,203,880
|
|
|
$
|
61,529
|
|
|
$
|
1,265,409
|
|
Net loss
|
|
$
|
(2,536,427
|
)
|
|
$
|
(61,529
|
)
|
|
$
|
(2,597,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,536,427
|
)
|
|
$
|
(61,529
|
)
|
|
$
|
(2,597,956
|
)
|
Accounts payable and accrued expenses
|
|
$
|
163,868
|
|
|
$
|
61,529
|
|
|
$
|
225,397
|
|
Note 4 – Intangible Assets and Purchase Liability
Intangible assets as of December 31, 2017, consist of the following:
|
|
Amount
|
|
|
|
|
|
Acquisition of Set.fm
|
|
$
|
350,000
|
|
Accumulated amortization
|
|
|
(29,167
|
)
|
Balance, December 31, 2017
|
|
$
|
320,833
|
|
On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc. (the “Seller”), whereby the Company acquired 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 do-it-yourself (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. The Company determined that the acquisition of Set.fm constituted the acquisition of an asset for accounting purposes.
The purchase price for the acquisition was comprised of $50,000 paid in cash, and a purchase liability of $300,000, for an aggregate purchase price of $350,000. The purchase liability is payable on the net revenues derived from VNUE’s live recording and content business and must be paid in full to the Seller no later than the three (3) year anniversary of the date of the agreement, or October 16, 2020. If the Company fails to pay the Seller the purchase liability on time, the Seller may request at any time within one hundred eighty days (180) days following the (3) year anniversary of the asset purchase agreement, that the Company immediately forfeit, convey, assign and transfer to the Seller all or any of the Purchased Assets so requested by the Seller for no additional consideration. For the year ended December 31, 2017, there was no net revenue derived from the acquired assets and accordingly, no payments were made on the earnout.
The Company assigned $350,000 of the purchase price to intellectual property which will be amortized over a three (3) year period. Total amortization expense during the year ended December 31, 2017, was $29,167, which is included in general and administrative expense in the Consolidated Statements of Operations. Total estimated future amortization expense with respect to intangible assets is as follows:
Years Ending December 31,
|
|
Amount
|
|
2018
|
|
$
|
116,667
|
|
2019
|
|
|
116,667
|
|
2020
|
|
|
87,499
|
|
Total
|
|
$
|
320,833
|
|
Note 5 – 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 twelve months ended December 31, 2017 were recorded using 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 December 31, 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 December 31, 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. The outstanding balance due under these notes was $30,000 at December 31, 2017 and 2016. See further discussion in Note 7.
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 as an 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.
On September 15, 2017, the Company entered into a new Advisory Agreement with MANN. The Advisory Agreement provides for MANN’s continued and ongoing advisory services to the Company for a period of six (6) months and with automatic six (6) months renewals, unless terminated in accordance with the agreement. MANN is to receive $5,000 per month and 20,000 shares of common stock per month.
During the years ended December 31, 2017 and 2016, the Company incurred costs of $15,583 and $0 relating to these agreements, respectively. As of December 31, 2017 and 2016, $32,500 and $25,000 of cash compensation is owed to MANN and included in accounts payable and accrued expenses, respectively. Additionally, 60,000 shares of common stock, valued at $578, are included in shares to be issued at December 31, 2017.
Note 6 – Notes Payable
Notes payable as of December 31, 2017 and 2016 consist of the following:
|
|
As of
|
|
|
|
December 31,
|
|
|
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, 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 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. Also, 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 twelve months ended December 31, 2017, which is included in financing costs in the Consolidated Statements of Operations.
|
Note 7 – Convertible Notes Payable
Convertible notes payable consist of the following:
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Various Convertible Notes
|
(a)
|
$
|
55,000
|
|
|
$
|
55,000
|
|
Tarpon Convertible Note
|
(b)
|
|
-
|
|
|
|
33,500
|
|
Ylimit, LLC Convertible Notes
|
(c)
|
|
517,000
|
|
|
|
300,000
|
|
Crossover Capital Fund II, LLC Convertible Notes
|
(d)
|
|
61,000
|
|
|
|
-
|
|
Golock Capital, LLC Convertible Notes
|
(e)
|
|
191,750
|
|
|
|
-
|
|
DBW Investments
|
(f)
|
|
21,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes
|
|
|
845,750
|
|
|
|
388,500
|
|
Discount
|
|
|
(198,025
|
)
|
|
|
(244,534
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes, net
|
|
$
|
647,725
|
|
|
$
|
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 December 31, 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 348,808 shares of the Company’s common stock. During the twelve months ended December 31, 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.
|
|
|
|
In addition, 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. During the twelve months ended December 31, 2017, the Company paid the outstanding principal and interest of $37,950 in cash and the note was retired.
|
(c)
|
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 December 31, 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. The Company also granted the note holder 10,000,000 shares of common stock, valued at $41,000, as additional consideration and recorded such shares as shares to be issued for the period ended December 31, 2016. Further consideration for amounts borrowed after the initial $100,000 was the transfer of the ownership of an aggregate of 35,000,000 common shares from two officers to the lender valued at $108,000 which has been recorded as financing costs in the period ended December 31, 2016. On November 30, 2016 and December 16, 2016, the Company received additional borrowings of $30,000 and $20,000, respectively. Further consideration for these amounts borrowed was the transfer of the ownership of an aggregate of 5,000,000 common shares from one officer to the lender valued at $10,000 which has been recorded as financing costs in the period ended December 31, 2016. The note was subsequently amended to reflect these additional borrowing on March 8, 2017, with the terms remaining the same. The balance of notes outstanding was $300,000 at December 31, 2016.
|
|
|
|
On August 25, 2017, the Note was amended to authorize total borrowings on this Note to $517,000, and as such an additional $217,000 was advanced to the Company with the terms remaining the same except that the conversion feature was modified to state that all borrowings under the note up to the first $100,000 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 as of December 31, 2017.
|
(d)
|
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. 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 December 31, 2017.
|
(e)
|
From September 1, 2017 to December 31, 2017, the Company issued convertible notes to Golock Capital, LLC (“Lender”) in the aggregate principal amount of $191,750 with an interest rate at 10% per annum and maturity dates between June 1, 2018 and August 31, 2018. The notes are convertible into shares of the Company’s common stock at prices between $0.015 and $0.02 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 4,804,708 shares of the Company’s common stock at a weighted average exercise price of $0.014 per share (see Note 9). 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 notes outstanding was $191,750 as of December 31, 2017.
|
|
|
(f)
|
On December 20, 2017, the Company issued a convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $21,000, which included an original issue discount of $1,000, with an interest rate at 10% per annum and a maturity date of September 20, 2018. The note is convertible into shares of the Company’s common stock at $0.015 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 200,000 shares of the Company’s common stock (see Note 9). The balance of the note outstanding was $21,000 as of December 31, 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 Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments.
The Company issued $300,000 of convertible notes during 2016 and created a derivative liability upon issuance with a fair value of $367,852, of which $300,000 was recorded as a valuation discount, and the remaining $67,852 was recorded as a financing cost. During the twelve months ended December 31, 2016, amortization of debt discount was $119,522. In addition $16,500 of discount was recorded as interest expense upon conversion of the notes. As of December 31, 2016, the unamortized debt discount was $244,534.
During the year ended December 31, 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 $594,952, of which $311,000 was recorded as a valuation discount, and the remaining $283,952 was recorded as a financing cost. In addition, the Company recorded an additional debt discount of $35,489 related to a warrant issued with the issuance of a convertible note during the period. During the twelve months ended December 31, 2017, amortization of debt discount was $392,998. The unamortized balance of the debt discount was $198,025 as of December 31, 2017.
During the period ended December 31, 2016, the Company amended the $50,000 Tarpon note to add a conversion feature which the Company determined created a derivative liability upon issuance with a fair value of $64,976, of which $50,000 was recorded as a valuation discount, and the remaining $14,976 was recorded as a financing cost.
For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Convertible notes payable, net
|
|
$
|
617,725
|
|
|
$
|
121,865
|
|
Convertible notes payable, related party, net
|
|
|
30,000
|
|
|
|
22,101
|
|
Total
|
|
$
|
647,725
|
|
|
$
|
143,966
|
|
Note 8 – 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 7 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 December 31, 2017 and 2016, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
|
December 31,
2017
|
|
|
Issued
During
2017
|
|
|
December 31,
2016
|
|
|
Issued
During
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
0.002 – 0.108
|
|
|
$
|
0.005 – 0.026
|
|
|
$
|
0.013 – 0.116
|
|
|
$
|
0.020 – 0.039
|
|
Stock Price
|
|
$
|
0.0109
|
|
|
$
|
0.006 - 0.035
|
|
|
$
|
0.044
|
|
|
$
|
0.015 - 0.037
|
|
Risk-free interest rate
|
|
0.84 – 1.24
|
%
|
|
0.94 – 1.23
|
%
|
|
0.59 – 0.85
|
%
|
|
0.68 – 0.80
|
%
|
Expected volatility
|
|
358
|
%
|
|
273% - 344
|
%
|
|
243
|
%
|
|
188% - 243
|
%
|
Expected life (in years)
|
|
|
1.000
|
|
|
0.792 – 1.292
|
|
|
0.583 – 1.833
|
|
|
1.375 – 1.833
|
|
Expected dividend yield
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Fair Value:
|
|
$
|
866,873
|
|
|
$
|
594,666
|
|
|
$
|
508,107
|
|
|
$
|
432,838
|
|
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 twelve months ended December 31, 2016, the Company recognized $169,786 as other income, which represented the change in the value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $432,828 upon issuance of convertible notes during the period and a gain of $21,308 during the twelve months ended December 31, 2016 which represented the extinguishment of derivative liabilities related to conversion of notes to common stock.
During the twelve months ended December 31, 2017, the Company recognized $48,902 as other expense, which represented the change in the fair value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $594,666 upon issuance of convertible notes during the period and a gain of $292,838 during the twelve months ended December 31, 2017, 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 9 – 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.
Common stock issued by officer to satisfy vendor balance
On October 31, 2017, a Company officer voluntarily transferred 2,000,000 shares of Common Stock held by him to satisfy an outstanding vendor obligation of the Company. The shares were valued at $18,000, the closing market price on date of transfer, and recorded as a general and administrative expense in the Consolidated Statements of Operations for the year ending December 31, 2017.
Common stock issued for cash
On February 26, 2016, the Company entered into a common stock purchase agreement with an individual pursuant to which it agreed to issue 47,847 shares of the Company’s common stock in exchange for proceeds of $5,000.
Shares issued for services
During the year ended December 31, 2017, the Company issued an aggregate of 4,575,000 shares of its common stock to certain employees and contractors for services valued at $111,702, based upon the closing market price on the date the shares were authorized to be issued.
Shares issued in settlement of outstanding claims
As of December 31, 2016, the Company had accrued an aggregate amount of $286,786 for past services due to certain former employees. In addition, the Company was to issue 1,010,000 shares of common stock which were initially valued at $651,835 during the year ended December 31, 2016. The shares were never issued but were reflected as common stock issuable at December 31, 2016. The former employees filed a claim against the Company on May 15, 2017, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, and other claims. VNUE, Inc. filed its counterclaims against Plaintiffs on November 20, 2017, alleging fraud. On March 27, 2018, the parties entered into a Settlement Agreement and Mutual Release effective as of April 2, 2018 whereby the Company agreed to transfer 3,813,000 shares of common stock of VNUE, Inc. to the former parties. Since the Company was able to determine the amount of the settlement before the filing of the Form 10-K, the Company adjusted the amounts to remove the previously recorded accrued compensation of $286,786 and reflected the fair value of the additional incremental 2,803,000 shares of common stock issuable of $56,060, resulting in a gain of $230,726.
The Company had accrued an aggregate amount of $191,642 for past services due to a certain former employee of which $103,642 was accrued at December 31, 2016. In addition, the Company was to issue 1,000,000 shares of common stock which were initially valued at $27,474 during the year ended December 31, 2016. The shares were never issued but were reflected as common stock issuable at December 31, 2016. On December 19, 2017, the parties entered into a settlement agreement whereby the parties agreed to cancel the outstanding obligation of $191,642 in return for the issuance of 3,090,363 shares of common stock. As such, the Company adjusted previously recorded accrued compensation of $191,642 and recorded the fair value of the additional incremental 2,090,363 shares of common stock issued of $14,633, resulting in a gain of $177,009.
Shares to be issued
On September 15, 2017, the Company entered into a consulting agreement which included, among other things, monthly compensation of 20,000 shares of common stock. As of December 31, 2017, 60,000 shares of common stock with a value of $578 were earned but were not issued, and were included in common shares to be issued in the accompanying consolidated balance sheet.
On January 2, 2016, the Company entered into an employment agreement with an officer pursuant to which it granted 1,000,000 shares of the Company’s common stock. The shares vested immediately and were recognized as stock based compensation expense during the period ended December 31, 2016 based on their fair value on the agreement date of $650,000. The shares due were not issued as of December 31, 2016 and were reflected as common shares to be issued in the accompanying consolidated balance sheet.
During 2015, the Company entered into a consulting agreement which included, among other things, monthly compensation of 79,167 shares of common stock. During the period ended December 31, 2016, the consultant earned 554,167 shares with a value of $46,970. As of December 31, 2017 and December 31, 2016, 712,500 shares of common stock with a value of $133,261 have not been issued and are included in common shares to be issued in the accompanying consolidated balance sheet.
On September 10, 2015, the Company entered into a one-year consulting agreement with a consultant, which included, among other things, compensation of $50,000 to be paid in shares of common stock based on the closing price of the Company’s common stock on the final trading day of the consulting agreement. During the year ended December 31, 2016 the Company recognized $33,333 of compensation for the value of the shares. As of December 31, 2017 and 2016, $50,000 of the value of the shares of common stock has been included in common shares to be issued in the accompanying consolidated balance sheet. Total shares to be issued at the end of the contract was 1,923,077.
Change of Control – Transfer of Ownership
On May 12, 2016, as part of the appointment of the Company’s new Chief Executive Officer, the Company’s controlling shareholder transferred the ownership of half of his shares to the new Chief Executive Officer. The Company considered the provisions of Staff Accounting Bulletin (“SAB”) Topic 5T,
Accounting for Expenses or Liabilities Paid by Principal Stockholders
, and determined that the value of the shares was additional compensation cost and a contribution to capital by the controlling shareholder. As such, the Company recorded a charge of $491,153 during the year ended December 31, 2016 relating to the fair market value of the shares on the date of the share transfer.
Warrants
A summary of warrant activity for the year ended December 31, 2017 is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
exercise
|
|
|
|
warrants
|
|
|
price
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
Warrants granted
|
|
|
5,004,708
|
|
|
$
|
0.014
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding, December 31, 2017
|
|
|
5,004,708
|
|
|
$
|
0.014
|
|
Balance exercisable, December 31, 2017
|
|
|
5,004,708
|
|
|
$
|
0.014
|
|
Information relating to outstanding warrants at December 31, 2017, summarized by exercise price, is as follows:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise Price Per Share
|
|
Shares
|
|
|
Life
(Years)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.01 - $0.015
|
|
|
5,004,708
|
|
|
|
2.77
|
|
|
$
|
0.014
|
|
|
|
5,004,708
|
|
|
$
|
0.014
|
|
During the year ended December 31, 2017, the Company issued 5,004,708 warrants with a three (3) year expiration date and an exercise prices ranging from $0.01 to $0.015 per share, to purchase the Company’s common stock as an inducement to enter into certain convertible note agreement. The aggregate fair value of the warrants granted was determined to be $37,932 of which $27,739 was allocated and recorded as a debt discount and being amortized to financing costs over a term of the related convertible notes.
The fair value of each warrant on the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Risk free rate of return
|
|
|
1.43
|
%
|
|
|
-
|
|
Expected life (in years)
|
|
|
1.00
|
|
|
|
-
|
|
Annual volatility of stock price
|
|
|
326.04
|
%
|
|
|
-
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
-
|
|
The weighted-average remaining contractual life of warrants outstanding and exercisable at December 31, 2017 is 2.77 years. The intrinsic value of both outstanding and exercisable warrants outstanding warrants at December 31, 2017 was $1,395.
Note 10 – Income Taxes
Reconciliation between the expected federal income tax rate and the actual tax rate is as follows:
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Federal statutory tax rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
State tax, net of federal benefit
|
|
|
(6
|
)%
|
|
|
(6
|
)%
|
Total tax rate
|
|
|
(40
|
)%
|
|
|
(40
|
)%
|
Allowance
|
|
|
40
|
%
|
|
|
40
|
%
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The following is a summary of the deferred tax assets:
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,739,000
|
|
|
$
|
2,708,000
|
|
Accrued compensation
|
|
|
107,000
|
|
|
|
105,000
|
|
Deferred tax asset
|
|
|
1,846,000
|
|
|
|
2,813,000
|
|
Valuation allowance
|
|
|
(1,846,000
|
)
|
|
|
(2,813,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has no tax provision for any period presented due to our history of operating losses. As of December 31, 2017, the Company had net operating loss carry forwards of approximately $8,283,000 that may be available to reduce future years’ taxable income through 2032. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as management has determined that their realization is not likely to occur and accordingly, the Company has recorded a valuation allowance for the full value of the deferred tax asset relating to these tax loss carry-forwards.
The Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2017 no liability for unrecognized tax benefits was required to be recorded.
Note 11 - 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 December 31, 2017 and December 31, 2016.
Artist Agreement
On October 27, 2015, the Company entered into an Artist Agreement with I Break Horses, a Swedish duo based in Stockholm. The Artist Agreement is effective October 27, 2015 and has a term lasting as long as I Break Horses artist recordings are available via the VNUE Service. Under the terms of the Artist Agreement, the Company shall handle rights clearing and distribution for I Break Horses recordings and receive 30% of the Net Income generated thereby. For the years ended December 31, 2017 and 2016, respectively, the Company did not earn any revenue under this agreement.
License Agreement
On November 2, 2015, the Company entered into a License Agreement with Universal Music Corp. (“Universal”). The License Agreement is effective September 8, 2015, and has a term of Two (2) Years from the Effective Date. Under the terms of the License Agreement, Universal is granting to VNUE a non-exclusive, non-transferable, non-sub-licensable license to create and distribute content using certain Universal compositions, more specified in the Grant of Right’s section of the License Agreement. The Company will then market and sell this content via the VNUE Service at certain agreed upon price points more specifically described in the Business Model and Price Points Section of the License Agreement, and the Company shall pay Universal royalties for each sale of the content as specified in the Royalty Rates section of the License Agreement.
In accordance with the Minimum Guarantee provision of the License Agreement, the Company shall pay to Universal a minimum first year fee of Fifty Thousand Dollars ($50,000), which is due within 10 days of execution and a second year minimum fee of Fifty Thousand Dollars ($50,000), which is due upon the commencement of the second year of the Term. The Company paid the first installment in September 2015 and recorded such amount as a prepaid asset. As of December 31, 2017, the entire $50,000 of this amount has been amortized and recorded as an operating expense. Upon mutual agreement of the parties the second payment has been deferred pending certain revisions of the agreement currently being negotiated between the parties.
Note 12 – Subsequent Events
Subsequent to December 31, 2017, the Company received additional borrowings of $107,500 and issued the lenders warrants to purchase a total of 3,000,000 shares of the Company’s common stock at an exercise price of $0.015 per share.
Subsequent to December 31, 2017, the Company issued 4,396,660 shares of the Company’s common stock in satisfaction of $526,769 of outstanding obligations to its officers.
On April 2, 2018, the Company, its Chief Executive Officer, Zach Bair, and Chief Operating Officer, Matthew Corona (collectively, “Defendants”) entered into a settlement agreement and mutual release by and between Seva Safris and Alex Yuryev (collectively, “Plaintiffs”). On May 15, 2017, the Plaintiffs filed a lawsuit against Defendants alleging breach of contract, breach of implied covenants of good faith and fair dealing, fraud, negligent misrepresentation, and other claim. On November 20, 2017, the Company filed counterclaims against Plaintiffs alleging fraud. Per the settlement agreement, the Defendants agreed to transfer 3,000,000 shares of the Company’s common stock to Mr. Safris and 813,000 shares of common stock to Mr. Yuryev. Both Mr. Safris and Mr. Yuryev are restricted from any trading in the shares of the Company’s stock for the first 6 months after receiving them. Zach Bair and Matthew Corona are restricted from selling any shares of common stock of the Company for one year after the effective date of the agreement. Matthew Corona agreed to pay $25,000 to Plaintiffs within 30 days of the agreement date and $25,000 to Plaintiffs’ counsel within nine (9) months of the agreement date. The parties agreed to execute a stipulation of dismissal with prejudice. In conjunction with the settlement agreement, the Company was no longer obligated to pay previously recorded balances of $286,786 in accrued outstanding compensation and recorded a gain of $230,726 that was included in other income and expense in the Consolidated Statements of Operations for the twelve months ended December 31, 2017.
On April 8, 2018, the Company entered into a conversion and cancellation of debt agreement relating to an outstanding convertible note. The Company agreed to convert the outstanding note balance of $10,000 into 200,000 shares of common stock, or $0.05 per share.
On April 12, 2018, the Company entered into a convertible promissory note and a conversion and cancellation of debt agreement relating to an outstanding obligation of $61,529. The convertible promissory note is in the principal amount of $15,000, with an interest rate at 10% per annum, a maturity date of January 12, 2019, and is convertible into shares of the Company common stock at $0.08 per share. The Company agreed to convert the remaining balance of $46,529 into 930,594 share of Common Stock, or $0.05 per share.
On April 12, 2018, the Company and Ylimit, LLC (see Note 7) entered into an amendment to the original secured convertible promissory note. The amendment increased the borrowing limit by $87,500 to a total of $604,500, adjusted the conversion rate for borrowings up to the first $100,000 to 75% of the closing bid price on date on the closest trading date prior to the notice to convert, however in no event shall the conversion price be less than $0.035 per share, and extended the maturity date to May 9, 2019.