NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 1 – BUSINESS
Loop Media Inc. (f/k/a Interlink Plus,
Inc.) (the “Company”) is a Nevada corporation. The Company was incorporated under the laws of the State of Nevada on
May 11, 2015. On February 5, 2020, the Company and the Company’s wholly owned subsidiary, Loop Media Acquisition, Inc. (“Merger
Sub”), a Delaware corporation, closed the Agreement and Plan of Merger (the “Merger Agreement”) with Loop Media,
Inc. (“Loop”), a Delaware corporation. Pursuant to the Merger Agreement, Merger Sub merged with and into Loop with
Loop as surviving entity and becoming a wholly-owned subsidiary of the Company (the “Merger”).
Pursuant to the Merger Agreement,
the Company acquired 100% of the outstanding shares of Loop in exchange for 152,823,970 (number of shares is pre-stock split amount,
the post stock split amount would be 101,882,647 shares) of the Company’s common stock at an exchange ratio of 1:1. Loop
was incorporated on May 18, 2015 under the laws of the State of Delaware. As a result of such acquisition, the Company’s
operations now are focused on premium short-form video for businesses and consumers.
In connection with the Merger, on
February 6, 2020, the Company entered into a Purchase Agreement (the “Asset Purchase Agreement”) with Zixiao Chen (“Buyer”)
for the purchase of assets relating to the Company’s two major business segments: travel agency assistance services and convention
services (together, the “Business”). In consideration for the assets of the Business, Buyer transferred to the Company
2,000,000 shares of its common stock and agreed to assume and discharge any and all liabilities relating to the Business accruing
up to the effective time of the Asset Purchase Agreement. The shares were retired and restored to the status of authorized and
unissued shares.
Loop owns 100% of the capital
stock of ScreenPlay. ScreenPlay is a combination of ScreenPlay, Inc. (“SPI”), a Washington corporation incorporated
in 1991, and SPE, Inc. (“SPE”), a Washington corporation incorporated in 2008. ScreenPlay provides customized audiovisual
environments that support integrated brand strategies for clients in the retail, hospitality, and business services markets, and
for online content providers.
For
accounting purposes, Loop was the surviving entity. The transaction was accounted for as a recapitalization of Loop pursuant to
which Loop was treated as the accounting acquirer, surviving and continuing entity although the Company is the legal acquirer.
The Company did not recognize goodwill or any intangible assets in connection with the Merger. Accordingly, the Company’s
historical financial statements are those of Loop and its wholly-owned subsidiary, ScreenPlay, immediately following the consummation
of this reverse merger transaction.
On
June 8, 2020, a 1 for 1.5 reverse stock split of the Company’s common stock became effective. All share and per share information
in the accompanying unaudited condensed consolidated financial statements and footnotes has been retroactively adjusted for the
effects of the reverse split for all periods presented.
Going Concern and Management’s
Plans
As of June 30, 2020, the Company had cash
of $649,262 and an accumulated deficit of $30,224,821. During the six months ended June 30, 2020, the Company used net cash in
operating activities of $2,257,822. The Company has incurred net losses since inception. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern within one year from the issuance date of the unaudited condensed
consolidated financial statements.
The Company’s primary source of operating
funds since inception has been cash proceeds from debt and equity financing. The ability of the Company to continue as a going
concern is dependent upon its ability to generate sufficient revenue and its ability to raise additional funds by way of a debt
and equity financing.
Accordingly, the accompanying unaudited
condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization
of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented
in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated
financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Interim Financial Statements
The following (a) condensed consolidated
balance sheet as of December 31, 2019, which has been derived from audited financial statements, and (b) the unaudited condensed
consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule
8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative
of results that may be expected for the year ending December 31, 2020. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December
31, 2019 included in the Company’s Current Report on Form 8-K/A (Amendment No. 1), filed with the Securities and Exchange
Commission (“SEC”) on September 28, 2020.
Basis of Presentation and Principles
of Consolidation
The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary Screenplay. All inter-company transactions and balances
have been eliminated on consolidation.
Use of Estimates
The preparation of the unaudited condensed
consolidated financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates include assumptions used in the fair value of stock-based compensation,
the fair value of other equity and debt instruments, right-to-use assets, lease liabilities, fair value of intangible assets, useful
lives of assets and allowance for doubtful accounts.
Concentration of Credit Risk
The Company grants credit in the normal
course of business to their customers. Periodically, the Company reviews past due accounts and makes decisions about future credit
on a customer by customer basis. Credit risk is the risk that one party to a financial instrument will cause a loss for the other
party by failing to discharge an obligation. As of June 30, 2020 and December 31, 2019, the Company is exposed to credit risk to
the extent that its clients become unable to meet their payment obligations.
Induced Debt Extinguishment
On February 5, 2020, the Company issued
200,000 shares of Series B convertible preferred stock for $1,000,000 in cash and the exchange of a $1,000,000 loan to the Company
plus accrued interest of $6,594. The Company applied the guidance in ASC 470-20 resulting in the recording of an inducement charge
of $3,793,406 in the unaudited condensed consolidated statement of operations for the six months ended June 30, 2020. (Note 8).
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements
and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC 825, Financial
Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement
that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets
for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments and their expected realization and their current
market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level 2 inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level 3 inputs to the valuation methodology is one or more unobservable inputs which are significant to the fair value measurement.
|
The fair value of the Company’s accounts
receivable, short-term portion of notes receivable, payable for acquisition, and accounts payable approximate their carrying value,
due to their short-term nature. The fair value of the deposits, long-term portion of notes receivable and the amount due to stockholders,
and convertible notes approximate their fair values and are measured using Level 2 of the fair value hierarchy. The Company’s
cash is measured at fair value under the fair value hierarchy based on Level 1 quoted prices in active markets for identical assets
or liabilities.
Revenue Recognition
Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company
on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected
by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the
implementation of Topic 606. As sales are and have been primarily from delivery of streaming services, delivery of subscription
content services in customized formats, and delivery of hardware and ongoing content delivery through software and the Company
has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the
Company’s consolidated financial statements for the cumulative impact of applying this new standard, therefore there was
no cumulative effect adjustment required. The Company made no adjustments to its previously-reported total revenues, as those periods
continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
The Company recognizes revenue when it
satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration
the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified
by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a
manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration
and includes the following elements:
|
●
|
executed contracts with the Company’s customers that it believes are legally enforceable;
|
|
●
|
identification of performance obligations in the respective contract;
|
|
●
|
determination of the transaction price for each performance obligation in the respective contract;
|
|
●
|
allocation the transaction price to each performance obligation; and
|
|
●
|
recognition of revenue only when the Company satisfies each performance obligation.
|
Performance Obligations and Significant
Judgments
The Company’s revenue streams can
be categorized into the following performance obligations and recognition patterns:
|
●
|
Delivery of streaming services including content encoding and hosting. The Company recognizes revenue over the term of the service based on bandwidth usage.
|
|
●
|
Delivery of subscription content services in customized formats. The Company recognizes revenue over the term of the service.
|
|
●
|
Delivery of hardware for ongoing subscription content delivery through software. The Company recognizes revenue at the point of hardware delivery.
|
Transaction prices for performance obligations
are explicitly outlined in relevant agreements; therefore, the Company does not believe that significant judgments are required
with respect to the determination of the transaction price, including any variable consideration identified.
Disaggregation of Revenue
The Company’s revenues are disaggregated
into the following revenue streams. The content and streaming services revenue including content encoding and hosting are recognized
over the term of the service based on bandwidth usage. The content subscription services revenue in customized formats is recognized
over the term of the service. The hardware for ongoing subscription content delivery is recognized at the point of hardware delivery.
The following table represents revenue by category for the three months ended June 30, 2020 and 2019:
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Content and streaming services
|
|
$
|
376,216
|
|
|
$
|
417,641
|
|
Content subscription services
|
|
|
234,212
|
|
|
|
373,495
|
|
Hardware for ongoing subscription content
|
|
|
25,312
|
|
|
|
27,453
|
|
Total revenue
|
|
$
|
635,740
|
|
|
$
|
818,589
|
|
The following table represents revenue
by category for the six months ended June 30, 2020 and 2019:
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
Content and streaming services
|
|
$
|
759,757
|
|
|
$
|
850,913
|
|
Content subscription services
|
|
|
645,241
|
|
|
|
737,830
|
|
Hardware for ongoing subscription content
|
|
|
57,130
|
|
|
|
80,156
|
|
Total revenue
|
|
$
|
1,462,128
|
|
|
$
|
1,668,899
|
|
Customer Acquisition Costs
The Company records commission expense
associated with subscription revenue. The Company has elected the practical expedient that allows the Company to recognize the
incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company
otherwise would have recognized is one year or less.
Cost of Revenue
Cost of revenue represents the cost of
delivered hardware and bundled software and is recognized at the time of sale. For ongoing licensing and hosting fees, cost of
sales is recognized over time based on usage patterns.
Deferred Income
The Company bills subscription services
in advance of when the service period is performed. The deferred income recorded at June 30, 2020 and December 31, 2019, represents
the Company’s accounting for the timing difference in when the subscription fees are received and when the performance obligation
is satisfied.
Net Loss per Share
The Company accounts for net loss per share
in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which
requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for
all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS.
Basic net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during
each period. It excludes the dilutive effects of any potentially issuable common shares.
Diluted net loss per share is calculated
by including any potentially dilutive share issuances in the denominator. The following securities are excluded from the calculation
of weighted average diluted shares at June 30, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive.
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
8,312,307
|
|
|
|
5,812,307
|
|
Warrants to purchase common stock
|
|
|
8,217,376
|
|
|
|
21,572,181
|
|
Series A preferred stock
|
|
|
3,066,700
|
|
|
|
—
|
|
Series B preferred stock
|
|
|
20,000,000
|
|
|
|
—
|
|
Convertible debentures
|
|
|
6,788,027
|
|
|
|
5,710,611
|
|
Total common stock equivalent
|
|
|
46,384,410
|
|
|
|
33,095,099
|
|
Application of New Accounting Standards
In August 2018, the Financial Accounting
Standards Board (FASB) issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosures on
fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level
2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level
3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss).
The ASU is effective for public entities for fiscal years beginning after December 15, 2019. The Company has not historically
had any transfers between Level 1 and Level 2 or assets or liabilities measured at fair value under Level 3. The Company adopted
the standard effective January 1, 2020 with no material effect on its financial statements
Recent Accounting Pronouncements
There are various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 3 – INVENTORY
The Company’s inventory consisted
of the following at June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Computers
|
|
$
|
28,213
|
|
|
$
|
8,623
|
|
Hasp keys
|
|
|
5,760
|
|
|
|
2,240
|
|
Loop player
|
|
|
42,637
|
|
|
|
17,532
|
|
Total
|
|
$
|
76,610
|
|
|
$
|
28,395
|
|
NOTE 4 – PROPERTY AND EQUIPMENT,
NET
The Company’s property and equipment
consisted of the following at June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Equipment
|
|
$
|
467,209
|
|
|
$
|
456,610
|
|
Software
|
|
|
53,450
|
|
|
|
53,450
|
|
Less: accumulated depreciation
|
|
|
(487,813
|
)
|
|
|
(482,033
|
)
|
Total
|
|
$
|
32,846
|
|
|
$
|
28,027
|
|
Depreciation expense charged to operations
amounted to $2,767 and $2,558, respectively, for the three months ended June 30, 2020 and June 30, 2019, and $5,780 and $4,827
respectively, for the six months ended June 30, 2020 and June 30, 2019.
NOTE 5 – GOODWILL AND OTHER INTANGIBLE
ASSETS
As of June 30, 2020 and December 31, 2019,
the balance of goodwill was $583,086.
The Company’s other intangible assets
consisted of the following at June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Software acquired as intellectual property
|
|
$
|
—
|
|
|
$
|
6,350,000
|
|
Screenplay brand
|
|
|
130,000
|
|
|
|
130,000
|
|
Customer relationships
|
|
|
1,012,000
|
|
|
|
1,012,000
|
|
Content library
|
|
|
198,000
|
|
|
|
198,000
|
|
Less: Impairment of intangible assets acquired in 2019
|
|
|
—
|
|
|
|
(6,350,000
|
)
|
Less: accumulated amortization
|
|
|
(324,028
|
)
|
|
|
(211,445
|
)
|
Total
|
|
$
|
1,015,972
|
|
|
$
|
1,128,555
|
|
Amortization expense charged to operations
amounted to $56,292 and $52,861, respectively, for the three months ended June 30, 2020 and 2019, and $112,583 and $105,722, respectively,
for the six months ended June 30, 2020 and 2019.
NOTE 6 – LEASES
Operating leases
The Company has operating leases for office
space and office equipment and automobiles. Many leases include one or more options to renew, some of which include options to
extend the leases for a long-term period, and some leases include options to terminate the leases within 30 days. In certain of
the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital
area maintenance, utilities, inflation and/or changes in other indexes.
Lease liability is summarized below:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total lease liability
|
|
$
|
422,268
|
|
|
$
|
507,827
|
|
Less: short term portion
|
|
|
135,520
|
|
|
|
147,458
|
|
Long term portion
|
|
$
|
286,748
|
|
|
$
|
360,369
|
|
Maturity analysis under these lease agreements
are as follows:
Six months ended December 31, 2020
|
|
$
|
81,907
|
|
2021
|
|
|
180,420
|
|
2022
|
|
|
185,834
|
|
2023
|
|
|
37,584
|
|
Total undiscounted cash flows
|
|
|
485,745
|
|
Less: 10% Present value discount
|
|
|
(63,477
|
)
|
Lease liability
|
|
$
|
422,268
|
|
Lease expense for the six months ended
June 30, 2020 and 2019 was comprised of the following:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Operating lease expense
|
|
$
|
88,888
|
|
|
$
|
149,098
|
|
Short-term lease expense
|
|
|
4,587
|
|
|
|
10,308
|
|
|
|
$
|
93,475
|
|
|
$
|
159,406
|
|
Operating lease expense is included in
selling, general and administration expenses in the condensed consolidated statement of operations.
For the six months ended June 30, 2020,
cash payments against lease liabilities totaled $87,976, accretion on lease liability of $23,242 and non-cash transactions totaled
$20,825 to recognize assumption of lease by a related party.
For the six months ended June 30, 2019,
cash payments against lease liabilities totaled $146,732, accretion on lease liability of $21,499 and non-cash transactions of
$444,112 to bring on leases as part of the adoption of ASC 842 and an added lease during the period of $75,274.
Weighted-average remaining lease term and
discount rate for operating leases are as follows:
Weighted-average remaining lease term
|
|
2.68 years
|
|
Weighted-average discount rate
|
|
|
10
|
%
|
NOTE 7 – ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
Accounts payable and accrued expenses consisted
of the following as of June 30, 2020 and December 31, 2019:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts payable
|
|
$
|
383,383
|
|
|
$
|
357,982
|
|
Interest payable
|
|
|
98,606
|
|
|
|
94,069
|
|
Accrued liabilities
|
|
|
419,229
|
|
|
|
566,696
|
|
Payroll liabilities
|
|
|
53,342
|
|
|
|
26,048
|
|
Total Accounts payable and Accrued expenses
|
|
$
|
954,560
|
|
|
$
|
1,044,795
|
|
NOTE 8 – LOANS PAYABLE
On December 18, 2019, the Company entered
to a loan agreement with a related party for $1,000,000. The loan provided an interest rate of 5% compounded annually and calculated
on a 360-day basis. The principal and accrued unpaid interest will be due on June 30, 2020. The loan is secured by a secondary
interest in all assets of both Loop and ScreenPlay.
On February 5, 2020, the Company issued
200,000 shares of Series B convertible preferred stock for (i) $1,000,000 in cash (Note 13) and (ii) the exchange of $1,000,000
loan to the Company plus accrued interest of $6,594. The fair value of the common stock into which the Series B convertible preferred
stock is convertible was $9,600,000 on the date of issuance. The Company applied the guidance in ASC 470-20.
The Company recognized an inducement expense equal
to the excess of the allocated fair value of the Series B Convertible preferred stock and the carrying value of the loan payable
as of the date the inducement offers were accepted. The excess of the fair value of the Series B Convertible preferred stock over
the carrying value of the loan payable was $3,793,406 which amount was included as an inducement expense in the
statement of operations for the six months ended June 30, 2020.
NOTE 9 – NOTE PAYABLE
Payroll Protection Program and Economic
Injury Disaster Loan Grant
The
Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided
for, among other things, the Payroll Protection Program (“PPP”). The CARES Act temporarily added the PPP Loan program
to the U.S. Small Business Administration’s (“SBA”) 7(a) Loan Program and provides for the forgiveness of up
to the full amount of qualifying loan plus accrued interest guaranteed under the program. Loop applied for and received on April
27, 2020, through a bank, $573,500 under this program. The loan provides for an annual interest rate of 1% and a term of two years
from the date the proceeds were received. Payments of principal and interest are deferred for the period up to the determination
of the forgiveness amount by the SBA. The program further provides that the payment of certain qualified expenses from the proceeds
received can be eligible for loan forgiveness. The qualified payments must consist of at least 60% for payroll costs and the remaining
amount up to a maximum of 40% can be used for certain non-payroll related costs such as mortgage interest, rent and utilities.
The bank that issued the loan will determine how much of the loan will be forgiven based upon the information provided by the Company
along with evidence of such costs. The $573,500 has been accounted for as a liability on Loop’s balance sheet as of June
30, 2020. Any amount that is forgiven will be accounted for as other income at the time the forgiveness is determined. Any amount
that is not forgiven will remain on the balance sheet as a long-term liability and accrued interest. The remaining balance will
be repaid with interest over the remaining term of the loan.
The
CARES Act also provided that businesses affected by the Coronavirus pandemic would be eligible to apply for a loan under the Economic
Injury Disaster Loan (“EIDL”) Program of the SBA. However, a business can only apply for a loan under PPP or EIDL,
not both. Loop applied for an EIDL loan as well but accepted the PPP Loan and therefore was no longer eligible to borrow under
the EIDL Program. However, as part of the EIDL loan application process, Loop was able to request a $10,000 grant from the EIDL
Program. The grant does not have to be repaid as a result of not getting the EIDL. However, the $10,000 grant will be reduced against
the amount of the PPP loan qualifying to be forgiven. The $10,000 EIDL grant has been recognized as other income in the
accompanying financial statements.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Convertible Debentures issued to related parties, amended on October 23, 2020, interest at 10% per annum, unpaid interest accrued at 18% per annum through October 23, 2020 amounting to $179,803 is paid by making a cash payment of $97,979 and increasing the principal amount of the convertible note by $81,824 on the date of this agreement. From October 23, 2020 through March 31, 2021 interest will be accrued at 12.5% per annum and payable monthly in arrears beginning November 1, 2020. Beginning April 1, 2021, the Company will pay equal monthly installments of principal and interest at 10% per annum through December 1, 2023
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
Accrued interest rolled into the related party notes above
|
|
|
150,411
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Convertible Debenture issued to a founder and former officer of the Company in conjunction with redemption of 20,000,000 shares of common stock, interest at 10% per annum, amended terms as of October 22, 2020 provided that the unpaid interest accrued through May 31, 2020 of $43,011 plus principal of $29,324 and interest of $11,490 that were due under the original agreement (described below) beginning June 1, 2020 to October 1, 2020 is paid on October 22, 2020. The November 1, 2020 payment per the amendment will be deferred until December 1, 2020 while the terms of the conversion are discussed further. If the convertible note is not converted into the Company’s common stock by November 30, 2020, then the terms of the original note will resume on December 1, 2020, if agreement is reached to convert by November 30, 2020, the remaining balance of the convertible debenture amounting to $257,676 will be converted to 429,459 shares of the Company’s common stock. This $287,000 convertible debenture is secured by 5,000,000 shares of the Company’s common stock owned by the Company’s CEO
|
|
|
287,000
|
|
|
|
287,000
|
|
|
|
|
|
|
|
|
|
|
Secured(1) convertible debenture, interest at 11% per annum, accrued monthly and the outstanding principal and unpaid accrued interest is due January 8, 2021
|
|
|
326,143
|
|
|
|
326,143
|
|
Convertible debentures payable
|
|
|
3,763,554
|
|
|
|
3,613,143
|
|
Debt discount associated with Convertible payables
|
|
|
(2,083,085
|
)
|
|
|
(2,385,189
|
)
|
Total convertible debentures payable
|
|
$
|
1,680,469
|
|
|
$
|
1,227,954
|
|
|
|
|
(1)
|
Secured by primary interest in all assets of both Loop and ScreenPlay.
|
Convertible debentures –
related party $3,000,000
Original terms
On December 12, 2018, the Company issued
$3,000,000 in convertible debentures, which have a maturity date of December 1, 2023 (the “Maturity Date”). The debentures
accrue interest monthly at a rate of 10% per annum, simple interest. Accrued unpaid interest became payable monthly beginning February
1, 2019 through May 1, 2020. Any accrued unpaid interest outstanding at May 1, 2020 could be converted into shares or added to
the face amount of the loan. Beginning June 1, 2020 through January 1, 2021 the Company will make monthly installment of interest
only payments. Beginning January 1, 2021, the Company will make monthly installment of principal and interest through December
1, 2023. At the option of the debenture holders, the debentures are convertible at any time prior to the Maturity Date in whole
or in parts into common shares of the Company at a price of $0.60 per common share.
The convertible debentures also provide
that should the Company receive not less than $6,000,000 from the sale of its securities, it must either, at the discretion of
the holders, make a $750,000 principal payment plus the balance of any accrued unpaid interest or convert that amount into the
Company’s common stock. If the Company receives not less than $12,000,000 from the sale of its securities, the entire outstanding
principal balance plus any accrued and unpaid interest must be either paid or converted in common stock.
In connection with the issuance of the
convertible debentures, the Company issued 27,032,208 common share purchase warrants, with each warrant exercisable at $0.001 for
a period of 10 years. The Company evaluated the warrants in accordance with ASC Topic No. 815 – 40, Derivatives and
Hedging – Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s
common stock. The Company determined that the warrants did not meet the definition of a liability and therefore did not account
for them as a separate derivative liability.
The allocation of the $3,000,000 in gross
proceeds from issuance of convertible debentures based on the relative fair values resulted in an allocation of $2,387,687 to the
warrants and $612,313 to the convertible debentures. The relative fair value of the warrants above was determined on the date of
grant using the Black Scholes option-pricing model with the following parameters: (1) risk free interest rate of 2.00%; (2) expected
life in years of 10.0; (3) expected stock volatility of 45.0%; and (4) expected dividend yield of 0%. In addition, because the
effective conversion rate based on the $612,313 allocated to the convertible debentures was $0.08 per share which was less than
the fair value of the Company’s stock price on the date of issuance, a beneficial conversion feature was
present at the issuance date. The beneficial conversion feature totaled $612,313 and was recorded as a debt
discount. The Company also recorded the allocated fair value of the warrants $2,387,687 as additional debt discount. The total
initial unamortized debt discount was $3,000,000 and is amortized to interest expense using effective interest method over the
life of the convertible debentures.
As of June 30, 2020 and June 30, 2019,
the amortized debt discount recorded as interest expenses was $299,014 and $297,371, respectively.
Settlement – October 31, 2019
The Company was not able to make the payments
required under the terms of the convertible debentures and the holders filed suit on July 11, 2019. The convertible debenture holders
and the Company entered into a settlement agreement on October 31, 2019, and the lawsuit was dismissed as of October 31, 2019.
Pursuant to the settlement agreement the
payment terms for the convertible debentures were amended to provide for interest to be accrued from November 1, 2019 through April
2020 and at the sole discretion of the note holder to be paid either by common stock of the Company or added to the balance of
the loan. The note holders elected to add the accrued interest to the balance of the loan. It further provided that beginning June
1, 2020, monthly payments of unpaid accrued interest will be made through December 2020 and beginning January 1, 2021, the Company
will pay equal monthly installments of principal and interest through December 1, 2023 and any unpaid principal and interest outstanding
will be immediately due and payable on December 1, 2023.
Also as part of the settlement agreement,
the Company (i) issued 67,690 shares of Class B common stock to the convertible debenture holders for $30,000 cash; and (ii) issued
56,408 Class B common shares valued at $25,000 to the convertible debenture holders for the forgiveness of $5,221 in liabilities
owed by the Company, which resulted in a loss on settlement of obligations of $19,779 during the year ended December 31, 2019.
In addition, the settlement agreement further
provided that the Company would be released from any liability for accrued unpaid interest and other convertible debentures costs
from the date of the convertible debentures to the date of the settlement agreement. The Company was relieved of $192,557 of accrued
interest as of October 31, 2019 and recorded a gain on settlement of obligations during the year ended December 31, 2019.
Additionally, the settlement agreement
provided that the Company would merge the Class A common stock and Class B common stock into one class of common stock. On December
5, 2019, the Company merged Class A and Class B common stock.
On October 31, 2019, as part of the above
mentioned settlement agreement, the Company issued 27,032,208 Class B common shares upon the exercise of warrants, with an exercise
price of $0.001 per share, for a total value of $27,032. The exercise price was applied against the balance of accrued interest
on the convertible debentures.
Second Amendment of terms
Subsequent to June 30, 2020, the Company
did not make all of the payments due under the convertible loan agreement with the related party and entered into a second amendment
of this convertible loan on October 23, 2020. The second amendment provides for payment to be made for the unpaid interest accrued
at 18% per annum (default rate) through October 23, 2020 amounting to $179,803 by making a cash payment of $97,979 and increasing
the principal amount of the convertible note by $81,824. The second amendment further provides that interest will accrue from October
23, 2020 to March 31, 2021 at 12.5% per annum and will be paid monthly in arrears beginning November 1, 2020. Beginning April 1,
2021, the Company will pay equal monthly installments of principal and interest computed at 10% per annum through December 1, 2023.
The Company will preliminarily account for this amendment to the Note under ASC 470-50-40-10 as a debt extinguishment due to the
present value of the cash flows under the new amendment terms is at least 10% different from the present value of the remaining
cash flows of the current terms.
The following table presents the components
of the convertible debenture as of June 30, 2020 and December 31, 2019:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Short term portion
|
|
$
|
258,645
|
|
|
$
|
—
|
|
Long term portion
|
|
|
2,891,766
|
|
|
|
3,000,000
|
|
Less: unamortized debt discount
|
|
|
(2,061,884
|
)
|
|
|
(2,360,898
|
)
|
Balance, net
|
|
$
|
1,088,527
|
|
|
$
|
639,102
|
|
Convertible debentures - $287,000
Original terms
On December 1, 2018, the Company entered
into a redemption agreement with one of the former officers to repurchase 20,000,000 shares of Class A common stock. The terms
of this agreement required that the Company issue a convertible debenture to this shareholder in the amount of $287,000 and pay
the amount of accrued expenses owed to him of $134,000 in four quarterly payments beginning October 1, 2019. The first two quarterly
payments totaled $67,000 were paid in January 2020 but the remaining $67,000 has not been paid. The convertible debenture originally
provided for interest at 10% per annum, interest to accrue through September 1, 2019, beginning October 1, 2019 monthly payments
of unpaid accrued interest will be made through May 1, 2020, beginning June 1, 2020, the Company will pay equal monthly installments
of principal and interest through December 1, 2023.
At the option of the debenture holder,
the debenture shall be convertible at any time prior to December 1, 2023 in whole or in parts into common shares of the Company
at a price of $0.60 per common share. As the effective conversion rate based on the principal $287,000 was $0.60 per share which
was less than the fair value of the Company’s stock price on the date of issuance, a beneficial conversion feature was
present at the issuance date. The beneficial conversion feature totaled $30,996 and was recorded as a debt
discount.
The discount is amortized to interest expense
using effective interest method over the life of the convertible debentures. As of June 30, 2020 and December 31, 2019, the amortized
debt discount recorded as interest expenses was $3,090 and $3,073, respectively.
First Amendment of terms
The Company did not make all of the payments
due under the convertible loan agreement entered into with a founder and former officer of the Company and entered into a second
agreement to modify the payment terms on October 22, 2020. At the date of this amendment, the Company owed unpaid accrued interest
through May 31, 2020 amounting to $43,011 and unpaid principal and interest payments from June 1, 2020 to October 1, 2020 in the
amount of $40,814 for a total of $83,825. In an effort to remove the default, the Company amended the terms of the convertible
note on October 22, 2020 to provide for the unpaid interest accrued through May 31, 2020 plus the unpaid principal and interest
payments from June 1, 2020 to October 1, 2020 amounting to $83,825 to be paid on the date of this agreement. In addition, the amendment
required that the Company pay on October 22, 2020, $28,587 of the outstanding balance of accrued expenses due to the founder and
former officer in the amount of $67,000 for a total payment of $112,412. The amendment further provides that the remaining balance
of the $67,000 owed or $38,412 would be paid on March 31, 2021. Additionally, the amendment provides that the November 1, 2020
payment will be deferred to December 1, 2020 while the terms of the conversion are discussed further. If the convertible note is
not converted into the Company’s common stock by November 30, 2020, then the terms of the original note will resume on December
1, 2020. If the convertible note of the founder and former officer is converted by November 30, 2020, the balance of $257,676 will
convert into 429,460 shares of the Company’s stock based upon an exercise price of $0.60.
The following table presents the components
of the convertible debenture as of June 30, 2020 and December 31, 2019:
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Short term portion
|
|
$
|
287,000
|
|
|
$
|
—
|
|
Long term portion
|
|
|
—
|
|
|
|
287,000
|
|
Less: Unamortized debt discount
|
|
|
(21,201
|
)
|
|
|
(24,291
|
)
|
Balance, Net
|
|
$
|
265,799
|
|
|
$
|
262,709
|
|
Convertible debentures - $326,143
Original terms
On July 12, 2019, the Company entered into
a loan agreement with a lender for a loan amount up to $200,000. The loan provided an interest rate of 10% accrued monthly with
principal and accrued unpaid interest due on January 8, 2021. The loan required the Company to pay a loan fee of 2% ($4,000) upon
execution. The loan provides for a prepayment penalty of 4% of the amount prepaid plus all interest accrued to the date of the
prepayment. The loan was secured by a primary interest in all assets of both Loop and ScreenPlay.
Amendment 1
By August 20, 2019, the amount borrowed
under the $200,000 loan agreement amounted to $252,473 and the loan agreement was amended to provide for an increase in the maximum
loan amount to $400,000.
In addition, the loan was restructured
as a convertible debenture. At the option of the debenture holder, the debenture is convertible at any time prior to the maturity
date in whole or in parts into Class A common shares of the Company. The conversion price was deemed to be the lesser of $0.40
per common share or the offering price paid by unaffiliated investors for one share of the current merger target’s common
stock, no par value under a planned private offering of such securities by the current merger target in connection with the proposed
merger transaction with the Company. The proposed merger with merger target failed to close so the conversion price was deemed
to be $0.40 per common share.
The Company evaluated the embedded
conversion feature in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging – Contracts in Entity’s
Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined
that the embedded conversion feature did not meet the definition of a liability and therefore did not account for it as a separate
derivative liability. The embedded conversion feature was fair valued at $146,678 using the Black Scholes Method and recorded
as loss on extinguishment of debt and offset to additional paid-in capital. The Company also charged the additional loan fees of
$6,473 to loss on extinguishment of debt.
The Company evaluated the embedded conversion
feature as the effective conversion rate based on the principal $252,473 was $0.40 per share which was less than the fair value
of the Company’s stock price on the date of issuance and determined that a beneficial conversion feature was
present at the issuance date. The beneficial conversion feature totaled $29,967 and was recorded as a debt
discount and offset to additional paid-in capital.
The amendment also provided that at the
lender’s request, the Company will issue one share of its Class A common stock for every dollar loaned. The total amount
borrowed under this loan as of December 31, 2019 is $326,143, the Company recorded the obligation to issue 326,143 Class A common
shares with a value of $135,144 as Class A common stock subscribed but not yet issued and debt discount.
Amendment 2 – November 26, 2019
The Company changed its merger target to
Interlink Plus, Inc. (Interlink). On November 26, 2019, the $400,000 convertible loan agreement was amended again to change the
conversion price to the lesser of $0.25 per common share or the offering price paid by unaffiliated investors for one share of
Interlink common stock.
As of November 26, 2019, the amortized
debt discount recorded as interest expense was $23,448, and upon execution of Amendment 2, the Company wrote off the remaining
unamortized debt discount of $141,663 as loss on extinguishment of debt.
Upon execution of Amendment 2, a new embedded
conversion feature was re-calculated as $110,281 which was charged to additional-paid-in-capital. The difference of $36,397 was
offset against loss on extinguishment of debt.
The following table presents the components
of the convertible debenture as of June 30, 2020 and December 31, 2019:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Short term portion
|
|
$
|
326,143
|
|
|
$
|
—
|
|
Long term portion
|
|
|
—
|
|
|
|
326,143
|
|
Balance, net
|
|
$
|
326,143
|
|
|
$
|
326,143
|
|
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company may be involved
in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance. There are no such loss contingencies that are included in the financial statements
as of June 30, 2020.
The Company entered into a Framework Digital
Distribution Agreement with Sony Music Entertainment (SME) to digitally distribute audio-visual musical recordings that they own
or control in agreed forms via certain approved distribution channels (See Note 15). The agreement also requires that the Company
pay SME a non-refundable advance recoupable solely during the term of this agreement against all service fees payable to SME in
connection with access to the SME content for the service territory. The non-refundable amounts require payments of $227,000 in
October 2020, April 2021 and October 2021.
NOTE 12 – RELATED PARTY TRANSACTIONS
Related parties are natural
persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence
over the party making financial and operating decisions. Related parties include other parties that are subject to common control
or that are subject to common significant influences.
The Company has borrowed
funds for business operations from certain shareholders through convertible debt agreements and have remaining balances, including
accrued interest amounting to $3,175,887 and $3,050,137 as of June 30, 2020 and December 31, 2019, respectively. The Company incurred
interest expense for these convertible notes in the amounts of $152,925 and $78,130 for the six months and three months ended June
30, 2020, respectively. The Company also incurred interest expense for these convertible notes in the amounts of $148,767 and $74,794
for the six months and three months ended June 30, 2019, respectively.
One of the above shareholders and convertible
note holders also assumed the Company’s corporate apartment lease at the beginning of 2020 for their own personal use. The
Company wrote off the remaining balance of the right of use asset and lease liability, both amounting to $20,825.
As part of the reverse merger with Interlink
Plus, Inc. on February 5, 2020, the Company assumed a $180,000 debt to Interlink’s controlling shareholder who the Company
was also indebted to in the amount of $1,000,000. The $1,000,000 was exchanged as part of his purchase of 200,000 shares of series
B preferred stock. The $180,000 debt was retired as part of the issuance to him of 2,666,667 warrants to purchase the Company’s
common stock. The warrants were recorded at their fair value (see Note 14). Due to the transaction being with a related party the
gain/loss is charged to additional paid in capital and not to the statement of operations.
NOTE 13 – STOCKHOLDERS’
EQUITY (DEFICIT)
Convertible Preferred Stock
The Company is authorized to issue 16,666,667
shares of its $0.0001 par value preferred stock. As of June 30, 2020, and December 31, 2019, the Company had 30,667 and 0
shares of Series A convertible preferred stock issued and outstanding, respectively. As of June 30, 2020, and December 31, 2019,
the Company had 200,000 and 0 shares of Series B convertible preferred stock issued and outstanding, respectively.
The Series A convertible preferred stock
have a liquidation preference of $0.10 per share, have super voting rights of 100 votes per share, and each share of Series A may
be converted into 100 shares of common stock.
On January 31, 2020, the Company filed
a certificate of designation with the Nevada Secretary of State and designated 3,333,334 shares of Series B Convertible Preferred
Stock. The terms of the Series B Convertible Preferred Stock are substantially similar to those of the Series A Convertible Preferred
Stock, except that in the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary
or involuntary, the holders of the Series B Convertible Preferred Stock then outstanding shall be entitled to receive, out of the
assets of the Company available for distribution to its stockholders, an amount equal to $1.00 per share of Series B Convertible
Preferred Stock before any payment shall be made or any assets distributed to the holders of common stock or Series A Convertible
Preferred Stock.
The Series B Convertible Preferred Stock
is convertible at any time at the discretion of the holder thereof into shares of common stock at a conversion rate of one hundred
(100) shares of common stock for every one (1) share of Series B Convertible Preferred Stock. Furthermore, the holders of Series
B Convertible Preferred Stock have the right to cast one hundred (100) votes for each one (1) share of Series B Convertible Preferred
Stock held of record on all matters submitted to a vote of holders of the common stock, including the election of directors, and
all other matters as required by law.
The Company evaluated the features of Convertible
Preferred Stock under ASC 480, and classified them as permanent because the Convertible Preferred stock is not being mandatorily
or contingently redeemable at the shareholder’ option and the liquidation preference that exist does not fall within the
guidance of ASR 268.
Change in Number of Authorized and Outstanding
Shares
On June
8, 2020, a 1 for 1.5 reverse stock split of
the Company’s common stock became effective. All share and per share information in the accompanying unaudited condensed
consolidated financial statements and footnotes has been retroactively adjusted for the effects of the reverse split for all periods
presented.
Common stock
The Company is authorized to issue 316,666,667
shares of its $0.0001 par value common stock. As of June 30, 2020 and December 31,
2019, there were 112,131,578 and 101,882,647, respectively, shares of common stock issued and outstanding.
Six months ended June 30, 2019
During the six months ended June 30, 2019,
the Company issued an aggregate of 2,800,000 Class B Shares with a value of $1,890,000 which were reserved for issuance as a common
stock subscribed at December 31, 2018. These were issued for consulting services received during the year ended December 31, 2018.
During the six months ended June 30, 2019,
the Company issued an aggregate of 37,605 Class A common shares in satisfaction of common stock subscribed of $25,000.
During the six months ended June 30, 2019,
the Company issued 1,866,667 Class B Shares with a value of $1,240,960 in connection with a settlement with former employees upon
the termination of their employment contracts.
During the six months ended
June 30, 2019, the Company as part of settlement agreement (see Note 10) issued 45,127 shares of Class B common shares to the note
holders for $30,000 cash and issued 37,605 Class B common shares valued at $25,000 to the note holders for the forgiveness of $5,221
in liabilities owed by the Company, which resulted in a loss on settlement of obligations of $19,779
Six months ended June
30, 2020
During the six months ended June 30, 2020,
the Company issued an aggregate of 1,040,000 shares of its common stock for proceeds of $390,000.
During the six months ended June 30, 2020,
the Company issued 40,000 shares of its common stock to satisfy common stock subscribed of $15,000.
During the six months ended June 30, 2020,
the Company issued 4,000,000 shares of its common stock for consulting services valued at $1,500,000.
During the six months ended June 30, 2020,
the Company issued 5,168,931 shares of its common stock and 30,667 shares of Preferred A shares as part of the merger with Interlink.
The Company also assumed debt to a related party of $180,000 and accrued interest of $3,842 and charged $80,134 of legal expenses
related to reverse merger charged to additional paid in capital.
During the six months ended June 30, 2020,
the Company issued 200,000 shares of its Series B convertible preferred stock in exchange for (i) $1,000,000 in cash and (ii) loan
and accrued interest forgiveness of $1,006,594. The fair value of the common stock into which the Series B convertible preferred
stock is convertible was $9,600,000 on the date of issuance. The Company applied the guidance in ASC 470-20.
The allocated fair value of the Series
B convertible preferred stock exceeded the $1,000,000 cash proceeds by $3,800,000 which was recorded by the Company as a deemed
dividend.
During the six months ended June 30, 2020,
the Company received $20,000 for common stock subscribed of 53,333 shares.
NOTE 14 – STOCK OPTIONS AND WARRANTS
Options
Option valuation models require the input
of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model
with a volatility figure derived from using the Company’s historical stock prices. The Company accounts for the expected
life of options based on the contractual life of options for non-employees. For employees, the Company accounts for the expected
life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options,
as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S.
Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
The
following table summarizes the stock option activity for the six months ended June 30, 2020:
|
|
|
|
|
Weighted-
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
|
Intrinsic
Value
|
|
Outstanding at December 31,
2019
|
|
|
5,812,307
|
|
|
$
|
0.70
|
|
|
|
8.41
|
|
|
$
|
—
|
|
Grants
|
|
|
2,500,000
|
|
|
|
0.89
|
|
|
|
9.96
|
|
|
|
4,150,000
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at June 30, 2020
|
|
|
8,312,307
|
|
|
$
|
0.76
|
|
|
|
6.97
|
|
|
$
|
14,911,327
|
|
Exercisable
at June 30, 2020
|
|
|
5,812,307
|
|
|
$
|
0.70
|
|
|
|
8.53
|
|
|
$
|
10,761,327
|
|
The
aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise
price less than the Company’s stock price of $2.55 as of June 30, 2020, which would have been received by the option holders
had those option holders exercised their options as of that date.
The
following table presents information related to stock options at June 30, 2020:
Options
Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
Options
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
Price
|
|
Options
|
|
|
In
Years
|
|
|
Options
|
|
$0.86
|
|
|
1,148,372
|
|
|
|
6.3
|
|
|
|
1,148,372
|
|
0.66
|
|
|
4,663,935
|
|
|
|
8.3
|
|
|
|
4,663,935
|
|
0.89
|
|
|
2,500,000
|
|
|
|
9.9
|
|
|
|
—
|
|
Total
|
|
|
8,312,307
|
|
|
|
8.5
|
|
|
|
5,812,307
|
|
Stock-based
compensation
The
Company recognizes compensation expense for all stock options granted using the fair value based method of accounting. During
the six months ended June 30, 2020, the Company issued 2,500,000 options valued at $0.3645per option.
The
Company calculated the fair value of options issued using the Black-Scholes option pricing model, with the following assumptions:
|
|
June
30, 2020
|
|
Weighted average fair value
of options granted
|
|
$
|
0.3645
|
|
Expected life
|
|
|
5.15 – 5.75
years
|
|
Risk-free interest rate
|
|
|
0.33 - 0.44
|
%
|
Expected volatility
|
|
|
44.69 – 45.32
|
%
|
Expected dividends yield
|
|
|
0
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
The
stock-based compensation expense related to option grants was $171,798 and $27,898, respectively for the three months ended June
30, 2020 and 2019, and $171,798 and $55,796, for the six months ended June 30, 2020 and 2019, respectively.
Warrants
The
following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common
stock:
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
$
|
0.86
|
|
|
|
5,550,709
|
|
|
|
7.52
|
|
|
$
|
0.86
|
|
|
|
5,550,709
|
|
|
|
7.52
|
|
$
|
0.75
|
|
|
|
2,666,667
|
|
|
|
9.70
|
|
|
|
0.75
|
|
|
|
2,666,667
|
|
|
|
9.70
|
|
The
following table summarizes the warrant activity for the three months ended June 30, 2020:
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
Outstanding at December 31,
2019
|
|
|
5,550,709
|
|
|
$
|
0.86
|
|
Issued
|
|
|
2,666,667
|
|
|
|
0.75
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Outstanding at
June 30, 2020
|
|
|
8,217,376
|
|
|
$
|
0.82
|
|
During
first quarter 2020, the Company assumed a related party note of $180,000 and associated accrued interest of $3,842 as part of
the reverse merger with Interlink. On March 11, 2020, the Company issued 2,666,667 warrants valued at $702,219 to retire the $180,000
debt and $5,563 of accrued liabilities.
The
Company calculated the fair value of options issued using the Black-Scholes option pricing model, with the following assumptions:
|
|
June
30, 2020
|
|
Weighted average fair value
of options granted
|
|
$
|
0.2633
|
|
Expected life
|
|
|
10 years
|
|
Risk-free interest rate
|
|
|
0.82
|
%
|
Expected volatility
|
|
|
48.46
|
%
|
Expected dividends yield
|
|
|
0
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
NOTE
15 – DEPOSIT ON DISTRIBUTION AGREEMENT
On
April 16, 2020, the Company’s wholly owned subsidiary, Loop Media, Inc. (Loop) entered into a Framework Digital Distribution
Agreement with Sony Music Entertainment (“SME”) to digitally distribute audio-visual musical recordings that it owns
or controls in agreed forms to consumers via certain approved distribution channels. This agreement requires Loop to pay royalties
and make minimum guaranteed payments, or advances, and includes marketing commitments, advertising inventory, and financial and
data reporting obligations. Rights to sound recordings granted pursuant to this agreement are expected to account for a significant
part of its streams in the foreseeable future. This license agreement has a duration of two years, is not automatically renewable,
and applies to the United States, Canada, and certain Latin American countries. The license agreement also allows for the record
label to terminate the agreement in certain circumstances, including, for example, Loop’s failure to timely pay sums due
within a certain period, a breach of material terms, and in some situations which could constitute a “change of control”
of Loop. This agreement provides that SME has the right to audit Loop for compliance with the terms of the agreement. Further,
it contains a “most favored nation” provision, which requires that certain material contract terms be at least as
favorable as the terms agreed to or will agree with any other record label. The first payment of an advance was made in April
2020 and is included in Deposit in the Balance sheet.
NOTE
16 – SUBSEQUENT EVENTS
COVID-19
The
spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility
in U.S. and international markets. The Company experienced a 17% decline in revenues in the nine months ended September 30, 2020
as compared to the nine months ended September 30, 2019, which was directly related to business closures of key customers.
Share
Purchase Agreement
The
Company entered into a Share Purchase Agreement dated August 1, 2020 for the private offer to a limited number of accredited investors
of up to $6,500,000 worth of restricted shares of common stock of the Company at an issue price of $1.25 per share. The offer
is ongoing and will remain open until October 31, 2020, unless earlier terminated or extended for an additional thirty (30) days
in the sole discretion of the Company. The Shares are subject to restriction on resales until that date that is 365 days following
the relevant closing date for any individual investor. As of October 20, 2020 the Company had raised an aggregate of $2,950,000
and issued 2,360,000 shares under the Share Purchase Agreement, with all but 344,000 shares issued prior to October 1.
Acquisition
On
October 13, 2020, the Company acquired from SPKR INC., a Delaware corporation (“Seller”), the Seller’s Website
and Internet Domain Name, Spkr.com (the “Website”) and a mobile application Seller developed (the “App”),
available in the Apple Inc. IOS Store as Spkr: Curated Podcast Radio, and related assets (the Website, the App and all other assets
associated with Seller’s audio network business that were acquired, the “Acquired Assets”) pursuant to an Asset
Acquisition Agreement dated the same date (the “Purchase Agreement”) entered into by and between the Company, Seller
and PTK Investments, LLC, a Delaware limited liability company (dba PTK Capital), in its capacity as the Seller representative
under the Purchase Agreement (the “Acquisition”). The purchase price for the Acquired Assets consisted of consideration
of 1,369,863 shares of the Company’s common stock, par value $0.0001 per share, (the “Shares”) valued at $3,000,000.
The Shares were issued to the Seller on October 13, 2020. The Shares are subject to restriction on resales until that date that
is one year following the closing of the Acquisition, or, if sooner, the date that is 90 days after the Company’s securities
begin trading on the NASDAQ which is binding on any holder receiving any of the Shares from Seller.