See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statement
See the accompanying notes to the unaudited
condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
NOTE 1 – BUSINESS
Loop Media Inc. (the “Company”;
formerly Interlink Plus, Inc.) 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 of the Company’s
common stock at an exchange ratio of 1:1. Loop was incorporated on May 18, 2016 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 two companies that make up ScreenPlay. ScreenPlay is a combination of ScreenPlay, Inc. (“SPI”),
a state of Washington corporation incorporated in 1991, and SPE, Inc. (“SPE”), a state of 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 September 30, 2020,
the Company had cash of $1,971,923 and an accumulated deficit of $35,660,199. During the nine months ended September 30, 2020,
the Company used net cash in operating activities of $3,606,632. 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 these
unaudited condensed consolidated financial statements.
The Company's primary source
of operating funds since inception has been cash proceeds from debt and equity financing transactions. 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 its debt and equity financing efforts.
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.
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.
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 nine months ended September 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 in the United
States (“GAAP”) 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 its 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 September 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 Conversion
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 nine months ended September
30, 2020. (Note 8).
Fair Value of Financial
Instruments
The Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification 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, notes 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 3 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 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 of 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:
|
o
|
Delivery of streaming services including content encoding and hosting. The Company recognizes revenue
over the term of the service based on bandwidth usage.
|
|
o
|
Delivery of subscription content services in customized formats. The Company recognizes revenue
over the term of the service.
|
|
o
|
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 the hardware delivery.
The following table represents
revenue by category for the three months ended September 30, 2020 and 2019:
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Content and streaming services
|
|
$
|
293,901
|
|
|
$
|
420,438
|
|
Content subscription services
|
|
|
299,386
|
|
|
|
378,627
|
|
Hardware for ongoing subscription content
|
|
|
33,498
|
|
|
|
35,616
|
|
Total revenue
|
|
$
|
626,785
|
|
|
$
|
834,681
|
|
The following table represents
revenue by category for the nine months ended September 30, 2020 and 2019:
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Content and streaming services
|
|
$
|
1,053,658
|
|
|
$
|
1,271,351
|
|
Content subscription services
|
|
|
944,627
|
|
|
|
1,116,457
|
|
Hardware for ongoing subscription content
|
|
|
90,628
|
|
|
|
115,772
|
|
Total revenue
|
|
$
|
2,088,913
|
|
|
$
|
2,503,580
|
|
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 the delivered hardware and related 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 September 30, 2020 and December 31,
2019, represents the Company’s accounting for the timing difference between 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 (“ASC)” 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 September 30, 2020 and 2019, respectively, because their
inclusion would have been anti-dilutive.
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
8,312,306
|
|
|
|
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
|
|
|
6,908,637
|
|
|
|
5,841,558
|
|
Total common stock equivalent
|
|
|
46,505,019
|
|
|
|
33,226,046
|
|
Application of New Accounting
Standards
In August 2018, the
FASB issued Accounting Standards Update 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 September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Computers
|
|
$
|
13,803
|
|
|
$
|
8,623
|
|
Hasp keys
|
|
|
352
|
|
|
|
2,240
|
|
Loop player
|
|
|
24,920
|
|
|
|
17,532
|
|
Total
|
|
$
|
39,075
|
|
|
$
|
28,395
|
|
NOTE 4 – PROPERTY AND EQUIPMENT
The Company's property
and equipment consisted of the following at September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Equipment
|
|
$
|
467,209
|
|
|
$
|
456,610
|
|
Software
|
|
|
53,450
|
|
|
|
53,450
|
|
|
|
|
520,659
|
|
|
|
510,060
|
|
Less: accumulated depreciation
|
|
|
(490,580
|
)
|
|
|
(482,033
|
)
|
Total, net
|
|
$
|
30,079
|
|
|
$
|
28,027
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense charged
to operations amounted to $2,767 and $2,558, respectively, for the three months ended September 30, 2020 and September 30, 2019,
and $8,547 and $4,827 respectively, for the nine months ended September 30, 2020 and September 30, 2019.
NOTE 5 – GOODWILL AND OTHER INTANGIBLE
ASSETS
As of September 30, 2020
and December 31, 2019, the balance of goodwill was $583,086.
The Company's other intangible
assets consisted of the following at September 30, 2020 and December 31, 2019:
|
|
September 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
|
|
|
|
|
1,340,000
|
|
|
|
7,690,000
|
|
|
|
|
|
|
|
|
|
|
Less: Impairment of intangible assets acquired in 2019
|
|
|
—
|
|
|
|
(6,350,000
|
)
|
Less: accumulated amortization
|
|
|
(376,889
|
)
|
|
|
(211,445
|
)
|
|
|
|
(376,889
|
)
|
|
|
(6,561,445
|
)
|
|
|
|
|
|
|
|
|
|
Total, net
|
|
$
|
963,111
|
|
|
$
|
1,128,555
|
|
Amortization expense charged
to operations amounted to $52,861 and $52,861, respectively, for the three months ended September 30, 2020 and 2019, and $165,444
and $158,583, respectively, for the nine months ended September 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:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Short term portion
|
|
$
|
146,153
|
|
|
$
|
147,458
|
|
Long term portion
|
|
|
242,245
|
|
|
|
360,369
|
|
Total lease liability
|
|
$
|
388,398
|
|
|
$
|
507,827
|
|
Maturity analysis under
these lease agreements are as follows:
Three months ending December 31, 2020
|
|
|
$
|
43,908
|
|
2021
|
|
|
|
180,419
|
|
2022
|
|
|
|
185,834
|
|
2023
|
|
|
|
37,584
|
|
Total undiscounted cash flows
|
|
|
|
447,745
|
|
Less: 10% Present value discount
|
|
|
|
(59,347
|
)
|
Lease liability
|
|
|
$
|
388,398
|
|
Lease expense for the nine
months ended September 30, 2020 and 2019 was comprised of the following:
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
|
2019
|
|
Operating lease expense
|
|
$
|
133,850
|
|
|
$
|
199,438
|
|
Short-term lease expense
|
|
|
9,803
|
|
|
|
10,922
|
|
|
|
$
|
143,653
|
|
|
$
|
210,360
|
|
Operating lease expense
is included in selling, general and administration expenses in the condensed consolidated statement of operations.
For the nine months ended
September 30, 2020, cash payments against lease liabilities totaled $131,706, accretion on lease liability of $33,665 and non-cash
transactions totaled $20,825 to recognize assumption of lease by a related party.
For the nine months ended
September 30, 2019, cash payments against lease liabilities totaled $207,102, accretion on lease liability of $26,066 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 valued at $75,274.
Weighted-average remaining
lease term and discount rate for operating leases are as follows:
Weighted-average remaining lease term
|
|
2.43 years
|
|
Weighted-average discount rate
|
|
|
10
|
%
|
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
Accounts payable and accrued
expenses consisted of the following as of September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accounts payable
|
|
$
|
263,200
|
|
|
$
|
357,982
|
|
Interest payable
|
|
|
166,290
|
|
|
|
94,069
|
|
Accrued liabilities
|
|
|
528,363
|
|
|
|
566,696
|
|
Payroll liabilities
|
|
|
44,855
|
|
|
|
26,048
|
|
Total Accounts payable and Accrued expenses
|
|
$
|
1,002,708
|
|
|
$
|
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 was due on June 30, 2020.
The loan was 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 nine months ended September 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 September 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,
but 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
Convertible debentures, related party
$3,000,000, amended October 23, 2020,
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Convertible Debentures issued to related parties, amended October 23, 2020, interest at 10% per annum, unpaid interest accrued at 18% per annum through October 23, 2020 amounting to $179,803 was 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, beginning November 1, 2020.
Monthly payments of unpaid interest accrued at 12.5% per annum will be paid in arrears through March 31, 2021, 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 note 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 provide 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 was paid on October 22, 2020.
The November 1, 2020 payment 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 convert to 429,460 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 which are owned by the Company’s President.
|
|
|
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
|
|
|
(1,930,374
|
)
|
|
|
(2,385,189
|
)
|
Total convertible debentures payable
|
|
$
|
1,833,180
|
|
|
$
|
1,227,954
|
|
|
(1)
|
Secured by primary interest in all assets of both Loop and ScreenPlay.
|
Maturity analysis under these convertible agreements
are as follows:
Three months ending December 31, 2020
|
|
|
$
|
287,000
|
|
2021
|
|
|
|
1,030,432
|
|
2022
|
|
|
|
1,148,108
|
|
2023
|
|
|
|
1,298,014
|
|
Convertible debentures payable
|
|
|
|
3,763,554
|
|
Less: Debt Discount on Convertible debentures payable
|
|
|
|
(1,930,374
|
)
|
Total Convertible debentures payable
|
|
|
$
|
1,833,180
|
|
Convertible debentures
– related party $3,000,000, December 12, 2018
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.
For the nine months ended
September 30, 2020 and September 30, 2019, the amortized debt discount recorded as interest expenses was $450,164 and $448,521,
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 September
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 beginning November 1, 2020, monthly payments of unpaid interest accrued at 12.5% per annum will be paid in arrears
through March 31, 2021, 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 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 September 30, 2020 and December 31, 2019:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Short term portion
|
|
$
|
523,809
|
|
|
$
|
—
|
|
Long term portion
|
|
|
2,626,602
|
|
|
|
3,000,000
|
|
|
|
|
3,150,411
|
|
|
|
3,000,000
|
|
Less: unamortized debt discount
|
|
|
(1,910,734
|
)
|
|
|
(2,360,898
|
)
|
Balance, net
|
|
$
|
1,239,677
|
|
|
$
|
639,102
|
|
Convertible debentures
- $287,000, December 1, 2018
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. For the nine months ended September
30, 2020 and September 30, 2019, the amortized debt discount recorded as interest expenses was $4,651 and $4,634, 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 conversion price of $0.60.
The following table presents
the components of the convertible debenture as of September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Short term portion
|
|
$
|
287,000
|
|
|
$
|
—
|
|
Long term portion
|
|
|
—
|
|
|
|
287,000
|
|
Less: Unamortized debt discount
|
|
|
(19,640
|
)
|
|
|
(24,291
|
)
|
Balance, Net
|
|
$
|
267,360
|
|
|
$
|
262,709
|
|
Convertible debentures
- $326,143, July 12, 2019
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
between the embedded conversion feature calculated in Amendment 1 of $146,678 and the recalculated amount of $110,281 or $36,397
was offset against loss on extinguishment of debt.
The following table presents
the components of the convertible debenture as of September 30, 2020 and December 31, 2019:
|
|
September 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 September 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. The $227,000 payment required in October 2020 was paid and recorded as
a deposit.
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 has remaining balances, including
accrued interest amounting to $3,228,538 and $3,050,137 as of September 30, 2020 and December 31, 2019, respectively. The Company
incurred interest expense for these convertible notes in the amounts of $232,332 and $79,408 for the nine months and three months
ended September 30, 2020, respectively. The Company also incurred interest expense for these convertible notes in the amounts of
$221,918 and $75,616 for the nine months and three months ended September 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
to whom the Company was also indebted in the amount of $1,000,000. The Company issued 200,000 shares of its Series B convertible
preferred stock in exchange for (i) $1,000,000 in cash and (ii) the exchange of the $1,000,000 loan 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 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.
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 nine months ended September 30, 2020.
The $180,000 debt plus accrued interest of
$5,563 was retired as a 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). Because the transaction was a related party any gain or loss is recorded and reported
as a change to additional paid in capital (the effects of the transaction do not affect the Consolidated Statements of Operations).
The Company incurred interest
expense for these notes in the amounts of $6,721 and $0 for the nine months and three months ended September 30, 2020, respectively.
The Company did not incur any interest expense for these notes for the nine months and three months ended September 30, 2019, respectively.
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 September 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 September 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 the Convertible Preferred Stock under ASC 480, and classified them as permanent because the Convertible Preferred stock
is not mandatorily or contingently redeemable at the shareholder’ option and the liquidation preference that exists does
not fall within the guidance of SEC Accounting Series Release No. 268 – Presentation in Financial Statements of “Redeemable
Preferred Stocks” (“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 September 30,
2020 and December 31, 2019, there were 114,320,911 and 101,882,647, respectively, shares of common stock issued and outstanding.
Nine months
ended September 30, 2019
During the nine months
ended September 30, 2019, the Company issued an aggregate of 2,800,000 Class B Shares with a value of $1,890,000 which was 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 nine months
ended September 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 nine months
ended September 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 nine
months ended September 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
During the nine
months ended September 30, 2019, the Company issued an aggregate of 260,782 Class A common shares in satisfaction of $67,000 of
common stock subscribed and additional proceeds of $59,990.
During the nine
months ended September 30, 2019, the Company reserved 277,473 Class A shares as common stock subscribed with a value of $122,976.
Nine months
ended September 30, 2020
During the nine months
ended September 30, 2020, the Company issued an aggregate of 3,176,000 shares of its common stock for proceeds of $3,060,000.
During the nine months
ended September 30, 2020, the Company issued 93,333 shares of its common stock in satisfaction of a common stock subscription of
$35,000.
During the nine months
ended September 30, 2020, the Company issued 4,000,000 shares of its common stock for consulting services valued at $1,500,000.
During the nine months
ended September 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 nine months
ended September 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 nine months
ended September 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 nine months ended September 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
|
|
|
$
|
7,564,559
|
|
Grants
|
|
|
|
2,500,000
|
|
|
|
0.89
|
|
|
|
9.96
|
|
|
|
2,775,000
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2020
|
|
|
|
8,312,307
|
|
|
$
|
0.76
|
|
|
|
8.28
|
|
|
$
|
10,339,559
|
|
Exercisable at September 30, 2020
|
|
|
|
6,438,307
|
|
|
$
|
0.72
|
|
|
|
7.86
|
|
|
$
|
8,259,419
|
|
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 $2.00 as of September 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 September 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
|
|
|
|
5.87
|
|
|
|
1,148,372
|
|
0.66
|
|
|
|
4,663,935
|
|
|
|
7.14
|
|
|
|
4,663,935
|
|
0.89
|
|
|
|
2,500,000
|
|
|
|
9.71
|
|
|
|
626,000
|
|
Total
|
|
|
|
8,312,307
|
|
|
|
8.28
|
|
|
|
6.438,307
|
|
Stock-based compensation
The Company recognizes compensation expense
for all stock options granted using the fair value based method of accounting. During the nine months ended September 30, 2020,
the Company issued 2,500,000 options valued at $0.3645per option. The Company recorded stock based compensation of $316,033 for
the above options.
The Company calculated the fair value of options
issued using the Black-Scholes option pricing model, with the following assumptions:
|
|
September 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 $144,235 and $0, respectively for the three months ended September 30, 2020 and 2019, and
$316,033 and $55,796, for the nine months ended September 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
|
|
|
|
6.26
|
|
|
$
|
0.86
|
|
|
|
5,550,709
|
|
|
|
6.26
|
|
$
|
0.75
|
|
|
|
2,666,667
|
|
|
|
9.45
|
|
|
|
0.75
|
|
|
|
2,666,667
|
|
|
|
9.45
|
|
The following table summarizes
the warrant activity for the three months ended September 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 September 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 warrants
issued using the Black-Scholes option pricing model, with the following assumptions:
|
|
September 30, 2020
|
|
|
|
|
|
Weighted average fair value of warrants 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 –DISTRIBUTION AGREEMENT
On
April 16, 2020, the Company entered into a Framework Digital Distribution Agreement with Sony Music Entertainment (“SME”)
(See Note 11) 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, 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. Future minimum guarantee payments are material and represent a significant portion of the Company’s contractual
obligations and commercial commitments.
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 31, 2020, the Company had raised an aggregate of $3,450,000
and issued 2,760,000 shares under the Share Purchase Agreement.
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.