VNUE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of VNUE, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
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 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.
Overview of Business
The Company is developing a technology driven solution for Artists, Venues and Festivals to automate the capturing, publishing and monetization of their content.
Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the three months ended March 31, 2018, the Company incurred an operating loss of $196,974, used cash in operations of $104,362 and had a stockholders’ deficit of $2,902,650 as of March 31, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2017 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
At March 31, 2018, the Company had cash on hand in the amount of $15,916. Subsequent to March 31, 2018, the Company received additional borrowings of $87,500 (see Note 10). Management estimates that the current funds on hand will be sufficient to continue operations through June 2018. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. 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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis 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 at March 31, 2018 and 2017, respectively. Inter-company balances and transactions have been eliminated.
Revenue Recognition
In September 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (ASU No. 2014-09) regarding revenue recognition. The new standard provides authoritative guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services. The ASU became effective January 1, 2018. Due to the nature of the products sold by the Company, the adoption of the new standard has had no quantitative effect on the financial statements. However, the guidance requires additional disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.
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.
Under the new guidance, revenue is recognized when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company reviews its sales transactions to identify contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate performance obligations, if applicable. Revenue and costs of sales are recognized once products are delivered to the customer’s control and performance obligations are satisfied.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. 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. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:
|
·
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
·
|
Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
·
|
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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The carrying amounts of financial instruments such as cash, accounts receivable, inventories, and accounts payable and accrued liabilities, approximate the related fair values due to the short-term maturities of these instruments.
The fair value of the derivative liabilities of $711,178 and $866,873 at March 31, 2018 and December 31, 2017, 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 if their effect is antidilutive.
For the three months ended March 31, 2018 and 2017, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. As of March 31, 2018 and 2017, 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.
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Convertible Notes Payable
|
|
|
58,502,514
|
|
|
|
40,142,482
|
|
Warrants
|
|
|
8,004,708
|
|
|
|
-
|
|
Total
|
|
|
66,507,222
|
|
|
|
40,142,482
|
|
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 March 31, 2018 and December 31, 2017, we had intangible assets of $291,666 and $320,833, respectively (see Note 3). Management believes there were no indications of impairment based on management’s assessment of these assets at those dates. 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.
Recently Issued Accounting Pronouncements
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 – INTANGIBLE ASSETS AND PURCHASE LIABILITY
Intangible assets as of March 31, 2018 and December 31, 2017, consist of the following:
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Acquisition of Set.fm
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
Accumulated amortization
|
|
|
(58,334
|
)
|
|
|
(29,167
|
)
|
Balance
|
|
$
|
291,666
|
|
|
$
|
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. As of March 31, 2018, 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 three months ended March 31, 2018, was $29,167, which is included in general and administrative expense in the Condensed Consolidated Statements of Operations.
NOTE 4 – 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 $15,483 and cost of revenues of $23,124 during the three months ended March 31, 2018, were recorded using the assets licensed under this agreement. No similar activity was incurred during the prior year period.
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 March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, respectively.
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 three months ended March 31, 2018 and 2017, the Company incurred costs of $15,000 and $0 relating to these agreements, respectively. As of March 31, 2108 and December 31, 2017, $40,000 and $32,500 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 March 31, 2018 and December 31, 2017, respectively.
NOTE 5 – NOTE PAYABLE (IN DEFAULT)
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%. The balance of the note payable outstanding was $9,000 as of March 31, 2018 and December 31, 2017, respectively.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consist of the following:
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|
|
As of
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
Various Convertible Notes
|
(a)
|
$
|
55,000
|
|
$
|
55,000
|
|
Ylimit, LLC Convertible Notes
|
(b)
|
|
527,000
|
|
|
517,000
|
|
Crossover Capital Fund II, LLC Convertible Notes
|
(c)
|
|
99,500
|
|
|
61,000
|
|
Golock Capital, LLC Convertible Notes
|
(d)
|
|
231,750
|
|
|
191,750
|
|
DBW Investments
|
(e)
|
|
56,000
|
|
|
21,000
|
|
Total Convertible Notes
|
|
|
969,250
|
|
|
845,750
|
|
Discount
|
|
|
(123,120)
|
|
|
(198,025)
|
|
Convertible notes, net
|
|
$
|
846,130
|
|
$
|
647,725
|
|
__________
(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 March 31, 2018 and December 31, 2017, of which $30,000 was due to related parties.
|
(b)
|
On May 9, 2016 the Company issued a convertible note to YLimit, LLC 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. 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 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 and the balance of the debt discount was $137,358. During the three months ended March 31, 2018, the Company borrowed an additional $10,000. The balance of notes outstanding was $527,000 as of March 31, 2018 and the balance of the debt discount was $40,885 (see Note 10).
|
|
|
(c)
|
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 $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 balance of the note outstanding was $61,000 as of March 31, 2018 and December 31, 2017, respectively. The balance of the debt discount was $1,839 and $38,940 as of March 31, 2018 and December 31, 2017, respectively.
|
|
|
|
On March 2, 2018, the Company issued a second convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $38,500 with an interest rate of 10% per annum and a maturity date of December 2, 2018. The note included an original issue discount of $3,500. The note is convertible into shares of common stock of the Company at the lower of (i) $0.019 per share or, (ii) 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 25,000,000 share of its common stock. The balance of the note outstanding, and the related debt discount was $38,500 and $34,440 as of March 31, 2018, respectively.
|
(d)
|
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. 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 March 31, 2018 and December 31, 2017. The balance of the debt discount was $5,365 and $19,652 as of March 31, 2018 and December 31, 2017, respectively.
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|
|
|
On February 2, 2018, the Company issued a convertible note to Golock Capital, LLC (“Lender”) in the principal amount of $40,000 with an interest rate at 10% per annum and a maturity date of November 2, 2018. The note included an original issue discount of $5,000. 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 warrants to the Lender to acquire in the aggregate 2,500,000 shares of the Company’s common stock at an exercise price of $0.015 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 note outstanding, and the related debt discount was $40,000 and $31,648 as of March 31, 2018, respectively.
|
(e)
|
On December 20, 2017, the Company issued a convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $21,000 with an interest rate of 10% per annum and a maturity date of September 20, 2018. The note included an original issue discount of $1,000. 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 at an exercise price of $0.01 per share. The balance of the note outstanding was $21,000 as of March 31, 2018 and December 31, 2017. The balance of the debt discount was $1,309 and $2,073 as of March 31, 2018 and December 31, 2017, respectively.
|
|
|
|
On January 18, 2018, the Company issued a second convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $35,000, which included an original issue discount of $5,000, with an interest rate at 10% per annum and a maturity date of October 18, 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 warrants to the Lender to acquire in the aggregate 2,500,000 shares of the Company’s common stock at an exercise price of $0.015 per share. The balance of the note outstanding, and the related debt discount was $35,000 and $7,633 as of March 31, 2018, respectively.
|
For both YLimit, LLC (b) and Crossover Capital Fund II, LLC (c) above, 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 balance of the unamortized discount at December 31, 2017, was $198,205. During the three months ended March 31, 2018, the Company issued $48,500 of convertible notes whose conversion features created a derivative liability upon issuance with a fair value of $118,629, of which $37,531 was recorded as a valuation discount, and the remaining $81,098 was recorded as a financing cost. In addition, the Company recorded debt discount of $40,367 related to warrants issued with the issuance of convertible notes totaling $75,000 during the period and $13,500 relating to issuance costs. During the three months ended March 31, 2018 and 2017, amortization of debt discount was $166,303 and $56,581, respectively. The unamortized balance of the debt discount was $123,120 as of March 31, 2018.
For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:
|
|
March 31,
2018
|
|
|
December 31, 2017
|
|
Convertible notes payable, net
|
|
$
|
816,130
|
|
|
$
|
617,725
|
|
Convertible notes payable, related party, net
|
|
|
30,000
|
|
|
|
30,000
|
|
Total
|
|
$
|
846,130
|
|
|
$
|
647,725
|
|
NOTE 7 – 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 6 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 March 31, 2018 and December 31, 2017, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
|
March 31,
2018
|
|
|
Issued During
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
0.005 – 0.035
|
|
|
$
|
0.005 – 0.035
|
|
|
$
|
0.002 – 0.108
|
|
Stock Price
|
|
$
|
0.02
|
|
|
$
|
0.010 - 0.020
|
|
|
$
|
0.109
|
|
Risk-free interest rate
|
|
1.76 – 2.09
|
%
|
|
|
1.79 – 2.09
|
%
|
|
0.84 – 1.24
|
%
|
Expected volatility
|
|
|
345
|
%
|
|
|
306% - 345
|
%
|
|
|
358
|
%
|
Expected life (in years)
|
|
|
1.000
|
|
|
|
1.000 – 1.304
|
|
|
|
1.000
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair Value:
|
|
$
|
711,178
|
|
|
$
|
118,629
|
|
|
$
|
866,873
|
|
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 three months ended March 31, 2018, the Company recognized $274,324 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 $118,629 upon issuance of convertible notes during the period.
NOTE 8 – STOCKHOLDERS’ DEFICIT
Shares to be issued
As of March 31, 2018 and December 31, 2017, the Company had not yet issued 6,537,352 shares of common stock with a value of $932,734 due for past services provided.
Warrants
A summary of warrant activity for the three months ended March 31, 2018, is as follows:
|
|
Number
|
|
|
Weighted - Average
|
|
|
|
of
Warrants
|
|
|
Exercise
Price
|
|
Outstanding at December 31, 2017
|
|
|
5,004,708
|
|
|
$
|
0.014
|
|
Granted
|
|
|
3,000,000
|
|
|
|
0.015
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2018
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
Exercisable at March 31, 2018
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
Information relating to outstanding warrants at March 31, 2018, summarized by exercise price, is as follows:
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Exercise
|
|
Shares
|
|
|
Life in Years
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.01 - $0.15
|
|
|
8,004,708
|
|
|
|
2.64
|
|
|
$
|
0.014
|
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
|
|
|
8,004,708
|
|
|
|
|
|
|
|
|
|
|
|
8,004,708
|
|
|
|
|
|
During the three months ended March 31, 2018, the Company issued 3,000,000 warrants with a three (3) year expiration date and an exercise price of $0.015 per share to purchase the Company’s common stock as an inducement to enter into certain convertible note agreements. The aggregate fair value of the warrants granted was determined to be $46,774 of which $40,367 was allocated and recorded as a debt discount and is being amortized to financing costs over the term of the related convertible notes.
The weighted-average remaining contractual life of warrants outstanding and exercisable at March 31, 2018 was 2.64 years. The intrinsic value of both outstanding and exercisable warrants at March 31, 2018 was $47,774.
NOTE 9 – 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 March 31, 2018 and December 31, 2017. The balance outstanding as of March 31, 2018 was $118,065 and included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. On April 12, 2018, the Company and Hughes Media Law Group, Inc. (“HLMG”) entered into a conversion and cancellation of debt agreement relating to the outstanding obligation. The Company agreed to convert the outstanding obligation of $118,065 into 3,935,512 shares of common stock, or $0.03 per share.
NOTE 10 – SUBSEQUENT EVENTS
Subsequent to March 31, 2018, 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 entered into a conversion and cancellation of debt agreement relating to an outstanding vendor obligation. The Company agreed to convert the outstanding obligation of $5,000 into 100,000 shares of common stock, or $0.05 per share.
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 6) 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, and extended the maturity date to May 9, 2019. Subsequent to March 31, 2018, the Company received $87,500 under the amendment.
On May 11, 2018, the Company issued 300,000 shares of common stock for services received relating to a consulting agreement.
Asset Acquisition
On April 23, 2018, the Company entered into an agreement with MusicPlay Analytics, LLC (d/b/a Soundstr) (“Soundstr”) whereby the Company acquired the assets of Soundstr, a technology that aims to help businesses pay fairer music license fees based on actual music usage. The Company purchased the assets of Soundstr by issuing 2,275,000 shares of the Company’s common stock and the Company agreed to assume and pay approximately $234,500 of identified Soundstr obligations within 60 days of April 23, 2018.