UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
[X] QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal quarter ended March 31, 2015
or
[ ] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _______________ to _______________.
Commission
files number 000-54074
ADAPTIVE
MEDIAS, INC.
(Exact
name of Registrant as specified in its charter)
Nevada |
|
26-0685980 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification No.) |
16795
Von Karman Avenue, Suite 240
Irvine,
CA 92606
(Address
of principal executive offices - Zip Code)
Registrant’s
telephone number, including area code: 949-525-4634
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered pursuant to Section 12(g) of the Act: Common Stock
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X] No [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer [ ] |
|
Accelerated
filer [ ] |
|
|
|
|
|
Non-accelerated
filer [ ] (Do not check if a smaller reporting company) |
|
Smaller reporting
company [X] |
Indicate
by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes [ ] No [X]
As
of May 12, 2015, there were 14,049,731 shares of the Registrant’s common stock outstanding.
ADAPTIVE
MEDIAS, INC.
Table
of Contents
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
ADAPTIVE
MEDIAS, INC.
Condensed
Consolidated Balance Sheet
(Unaudited)
| |
March
31, 2015 | | |
December
31, 2014 | |
Assets | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 209,450 | | |
$ | 2,255,784 | |
Accounts receivable, net | |
| 1,313,032 | | |
| 1,754,893 | |
Prepaid expenses | |
| 43,397 | | |
| 61,478 | |
Total Current Assets | |
| 1,565,879 | | |
| 4,072,155 | |
| |
| | | |
| | |
Furniture and fixtures, net | |
| 71,992 | | |
| 72,476 | |
Intangible assets, net | |
| 7,463,741 | | |
| 8,018,170 | |
Deposits | |
| 10,793 | | |
| 34,843 | |
Total Assets | |
$ | 9,112,405 | | |
$ | 12,197,644 | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 7,982,779 | | |
$ | 4,686,991 | |
Total Liabilities | |
| 7,982,779 | | |
| 4,686,991 | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value, 300,000,000 shares authorized; 14,049,731
and 13,869,771 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| 14,354 | | |
| 13,866 | |
Additional paid-in capital | |
| 48,246,648 | | |
| 47,669,503 | |
Accumulated deficit | |
| (47,131,376 | ) | |
| (40,172,716 | ) |
Total Stockholders’ Equity | |
| 1,129,626 | | |
| 7,510,653 | |
Total Liabilities and Stockholders’ Equity | |
$ | 9,112,405 | | |
$ | 12,197,644 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ADAPTIVE
MEDIAS, INC.
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
Three Months Ended | |
| |
March
31, | |
| |
2015
| | |
2014
| |
| |
(Unaudited) | | |
(Unaudited) | |
Revenue | |
$ | 1,167,719 | | |
$ | 731,604 | |
Cost of revenue | |
| 970,359 | | |
| 444,360 | |
Gross Profit | |
| 197,360 | | |
| 287,244 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Legal and professional fees | |
| 353,419 | | |
| 122,816 | |
Research and development | |
| 156,972 | | |
| 139,888 | |
General and administrative expenses | |
| 1,752,127 | | |
| 537,319 | |
Selling expenses | |
| 275,187 | | |
| 188,625 | |
Depreciation and amortization | |
| 655,562 | | |
| 119,612 | |
Stock compensation expense | |
| 3,941,118 | | |
| 319,304 | |
Total operating expenses | |
| 7,134,385 | | |
| 1,427,564 | |
| |
| | | |
| | |
Loss from operations | |
| (6,937,025 | ) | |
| (1,140,320 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
Other income | |
| 3,942 | | |
| 2,094 | |
Gain (loss) on extinguishment of debt | |
| - | | |
| (79,014 | ) |
Interest expense | |
| (25,577 | ) | |
| - | |
Total other income (expense) | |
| (21,635 | ) | |
| (76,920 | ) |
| |
| | | |
| | |
Net loss | |
$ | (6,958,660 | ) | |
$ | (1,217,240 | ) |
| |
| | | |
| | |
Basic and dilutive loss per common share | |
$ | (0.50 | ) | |
$ | (0.23 | ) |
Weighted average numbers of shares outstanding - basic and diluted | |
| 13,906,033 | | |
| 5,284,888 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ADAPTIVE
MEDIAS, INC.
Condensed
Consolidated Statement of Stockholders’ Equity
| |
Common
Stock | | |
Additional
Paid-In | | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares
| | |
Amount
| | |
Capital | | |
Deficit | | |
Equity | |
Balance, December 31, 2014 | |
| 13,869,771 | | |
$ | 13,866 | | |
$ | 47,669,503 | | |
$ | (40,172,716 | ) | |
$ | 7,510,653 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation / common shares issued for services | |
| 179,960 | | |
| 488 | | |
| 577,145 | | |
| - | | |
| 577,633 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (6,958,660 | ) | |
| (6,958,660 | ) |
Balance, March 31, 2015 | |
| 14,049,731 | | |
$ | 14,354 | | |
$ | 48,246,648 | | |
$ | (47,131,376 | ) | |
$ | 1,129,626 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ADAPTIVE
MEDIAS, INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
For
the three months ended, | |
| |
March
31, | |
| |
2015
| | |
2014
| |
| |
(Unaudited) | | |
(Unaudited)
| |
Cash
flows from operating activities: | |
| | | |
| | |
Net
loss | |
$ | (6,958,660 | ) | |
$ | (1,217,240 | ) |
Adjustments
to reconcile from net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation
and amortization | |
| 655,562 | | |
| 119,612 | |
Allowance
for bad debts | |
| 72,847 | | |
| 32,481 | |
Loss
on extinguishment of debt | |
| - | | |
| 79,014 | |
Common
stock issued for services/interest | |
| 577,633 | | |
| 319,304 | |
Changes
in operating assets and liabilities | |
| | | |
| | |
Accounts
receivable | |
| 369,014 | | |
| (87,781 | ) |
Prepaid
expenses | |
| 18,081 | | |
| 103,010 | |
Deposits | |
| 24,050 | | |
| (61,050 | ) |
Accounts
payable and accrued expenses | |
| (3,295,788 | ) | |
| 255,795 | |
Net
cash used in operating activities | |
| (1,945,685 | ) | |
| (456,855 | ) |
| |
| | | |
| | |
Cash
flows from investing activities: | |
| | | |
| | |
Purchases
of property and equipment | |
| (4,860 | ) | |
| (800 | ) |
Purchases
and development of intangibles | |
| (95,788 | ) | |
| - | |
Net
cash used in investing activities | |
| (100,649 | ) | |
| (800 | ) |
| |
| | | |
| | |
Cash
flows from financing activities: | |
| | | |
| | |
Payments
of convertible notes payable | |
| - | | |
| (275,000 | ) |
Proceeds
from issuance of common stock | |
| - | | |
| 885,000 | |
Net
cash provided by financing activities | |
| - | | |
| 610,000 | |
| |
| | | |
| | |
Net
increase (decrease) in cash | |
| (2,046,334 | ) | |
| 152,345 | |
Cash,
beginning of period | |
| 2,255,784 | | |
| 22,188 | |
Cash,
end of period | |
$ | 209,450 | | |
$ | 174,533 | |
| |
| | | |
| | |
Supplemental
disclosure of cash flow information: | |
| | | |
| | |
Cash
paid during the period for: | |
| | | |
| | |
Interest | |
$ | 19,708 | | |
$ | 986 | |
Income
taxes | |
$ | - | | |
$ | - | |
Supplemental
disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Increase
in prepaid common stock compensation | |
$ | - | | |
$ | 166,667 | |
Common
stock issued to settle accounts payable | |
$ | - | | |
$ | 19,880 | |
Issuance
of common stock for repayment of convertible note payable | |
$ | - | | |
$ | 105,000 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization and Nature of Business
Adaptive
Medias, Inc., formerly known as “Mimvi, Inc.” and prior to that as “Fashion Net, Inc.” (“Adaptive
Medias” or the “Company”), was formed on August 7, 2007 under the laws of the State of Nevada. The Company,
through its core content monetization platform and technology, provides app developers, publishers and video content developers
one of the only end-to-end monetization platforms driven by programmatic algorithms. The Company provides these unique capabilities
to monetize content efficiently across multiple marketing channels, including mobile, video and online display advertising.
Pursuant
to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name
to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company’s emphasis on providing a supply-side
platform for mobile, video and online display advertising. In connection with the name change, effective on November 6, 2013,
the Company’s ticker symbol was changed to ADTM.
The
Company is a programmatic audience and content monetization company for website owners, app developers and video publishers who
want to more effectively optimize content through advertising. Adaptive Medias provides a foundation for publishers and developers
looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across
multiple devices. The Company meets the needs of its publishers with an emphasis on maintaining user experience, while delivering
timely and relevant ads through its multi-channel ad delivery and content platform.
Media
Graph Transaction
On
July 15, 2014, the Company executed a Stock Purchase Agreement (the “Agreement”), effective June 30, 2014, with OneScreen,
Inc., a Delaware corporation (“OneScreen”), Media Graph, Inc., a Nevada corporation and OneScreen’s spun-off
former subsidiary (“Media Graph”), and the shareholders of Media Graph (the “Selling Shareholders”) whereby
the Company acquired certain assets of OneScreen, which immediately prior thereto were held by Media Graph, in exchange for 5,000,000
shares of the Company’s common stock (the “Acquisition”). On July 15, 2014, the parties to the Agreement executed
the First Amendment to the Stock Purchase Agreement (the “Amendment”), which (i) amended the effective date of the
Agreement to July 15, 2014, (ii) limited the scope of Section 5.04 of the Agreement to apply only to the Restricted Selling Shareholders,
as defined in the Amendment, and (iii) added the Selling Shareholders as a signatory to the Agreement.
The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition
and the allocation of the purchase price to the fair value of net assets acquired:
Fixed assets | |
$ | 82,112 | |
Intangibles | |
| 6,320,000 | |
Goodwill | |
| 8,597,888 | |
Total purchase price allocated | |
$ | 15,000,000 | |
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted
in accordance with such rules and regulations.
On
April 14, 2014, the shareholders of the Company authorized its Board of Directors to effectuate a reverse stock split, in the
Board’s discretion (the “Reverse Stock Split”), which was ultimately declared effective by the Board of Directors
as of the close of business on July 14, 2014. As a result of the Reverse Stock Split, every thirty (30) issued and outstanding
shares of the Company’s common stock was changed and converted into one (1) share of common stock. Following the Reverse
Stock Split, the Company continues to have 300,000,000 shares of common stock authorized for issuance, but the number of outstanding
shares of the Company’s common stock was reduced from 192,364,735 shares to 6,412,225 shares. As required by the Financial
Accounting Standards Board’s (FASB”) Accounting Standards Codification (“ASC”) Topic 260-10-55-12 “Earnings
per Share” all share and per-share computations presented in these condensed consolidated financial statements are based
on the new number of shares after the Reverse Stock Split.
The
unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
included in the Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments considered necessary
for the fair presentation consisting solely of normal recurring adjustments, have been made. Operating results for the three months
ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Going
Concern
The
Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles
in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover
its operating costs and allow it to continue as a going concern. As of March 31, 2015, the Company had an accumulated deficit
of $47,131,376. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital
to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced
to cease or reduce its operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. As of March 31,
2015, the Company has attempted to continue to raise funds through the sale of its equity securities to obtain additional operating
capital. The Company is dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing
until the Company can earn revenue and realize positive cash flow from its operations. There are no assurances that the Company
will be successful in earning revenue and realizing positive cash flow from its operations. Without sufficient financing it would
be unlikely that the Company will continue as a going concern.
Based
on the Company’s current rate of cash outflows, cash on hand and proceeds from the prior sale of equity securities, management
believes that its current cash will not be sufficient to meet the anticipated cash needs for working capital for the next 12 months.
The Company’s plans with respect to its liquidity issues include, but are not limited to, the following:
|
1) |
Continue
to issue restricted stock for compensation due to consultants and for its legacy accounts payable in lieu of cash payments;
and |
|
|
|
|
2) |
Seek
additional capital in the public equity markets to continue its operations as it rolls out its current products in development,
responds to competitive pressures, develops new products and services, and supports new strategic partnerships. The Company
is currently evaluating additional equity financing opportunities and may execute them when appropriate. However, there can
be no assurances that the Company can consummate such a transaction, or consummate a transaction at favorable pricing. |
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and achieve profitable operations. These condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Reclassifications
Certain
reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications
have been applied consistently to the periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. 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 periods. Actual
results could differ from those estimates.
Revenue
Recognition
The
Company recognizes revenue when earned and related costs of sales and expenses when incurred. The Company recognizes revenue in
accordance with FASB ASC Topic 605-10-599, Revenue Recognition, Overall, SEC Materials (“Section 605-10-599”).
Section 605-10-599 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability
is reasonably assured. Cost of revenue consists of the cost of the purchased goods and labor related to the corresponding sales
transaction. When a right of return exists, the Company defers revenues until the right of return expires. The Company recognizes
revenue from services at the time the services are completed.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
Intangible
assets
Intangible
assets consisting of websites, customer lists, content and publisher relationships, developed technology and trade names are stated
at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the
useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated
amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible
assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may no longer be recoverable.
Internal
Use Software Development Costs
The
Company incurs costs to develop software for internal use. The Company expenses all costs that relate to the planning and post
implementation phases of development as research and development expense. The Company capitalizes costs when preliminary efforts
are successfully completed, management has authorized and committed project funding, and it is probable that the project will
be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material
functionality are capitalized. The Company capitalized $95,788 and $0 in internal use software costs during the three months ended
March 31, 2015 and 2014, respectively, which are included in intangible assets on the accompanying unaudited condensed consolidated
balance sheets.
Amortization
commences when the software for internal use is ready for its intended use and the amortization period is the estimated useful
life of the related asset, which is generally two to three years. Amortization expense totaled $27,946 and $0 for the three months
ended March 31, 2015 and 2014, respectively.
Net
Income (Loss) Per Share
Net
loss per share is provided in accordance with FASB ASC 260-10, Earnings per Share. Basic net loss per common share (“EPS”)
is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average shares outstanding,
assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted average number of common
shares outstanding for computing basic and diluted EPS for the three months ended March 31, 2015 and 2014 were 13,906,033 and
5,284,888, respectively. Potential dilutive common shares for the three months ended March 31, 2015 and 2014 were 3,838,073 and
7,754,893, respectively, and were not used in the calculation of diluted EPS as the impact would be anti-dilutive.
Recently
Issued Accounting Pronouncements
In
July 2013, the FASB issued Accounting Standards Update (ASU) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). ASU 2013-11 requires that
unrecognized tax benefits be presented in the financial statements as a reduction to a deferred tax asset for a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances. When those circumstances
exist, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined
with deferred tax assets. The Company adopted this guidance effective January 1, 2014. The adoption of ASU 2013-11 did not have
a significant impact on the Company’s consolidated financial statements.
In
May 2014, the FASB and the International Accounting Standards Board jointly issued ASU No. 2014-9, Revenue from Contracts with
Customers, which clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and
International Financial Reporting Standards. The core principle of the guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods and services. The ASU is effective for public entities for annual and interim
periods beginning after December 15, 2016. Early adoption is not permitted under U.S. GAAP and retrospective application is permitted,
but not required. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial position
and results of operations. In April 2014, the FASB issued for public comment, a proposed accounting standard update that would
defer the effective date of ASU No. 2014-19 for one year.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statement-Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance under U.S. GAAP about
management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as
a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing
and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016,
and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU
No. 2014-15 is not expected to have a significant impact on the Company’s consolidated financial statements and related
disclosures.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
3 – Intangible Assets
The
following table summarizes the intangible assets as of March 31, 2015 and December 31, 2014.
| |
Useful
Lives | |
March
31, 2015 | | |
December
31, 2014 | |
| |
| |
| | |
| |
Websites | |
2
years | |
$ | 11,297 | | |
$ | 11,297 | |
Customer
lists | |
1
years | |
| 306,505 | | |
| 306,505 | |
Developed
technology | |
3
years | |
| 4,978,823 | | |
| 4,883,034 | |
Trade
names | |
3
years | |
| 85,607 | | |
| 85,607 | |
| |
| |
| 5,382,232 | | |
| 5,286,443 | |
| |
| |
| | | |
| | |
Less:
accumulated amortization | |
| |
$ | (2,316,455 | ) | |
$ | (1,666,237 | ) |
| |
| |
| | | |
| | |
Identifiable
intangibles, net | |
| |
| 3,065,777 | | |
| 3,620,206 | |
| |
| |
| | | |
| | |
Goodwill | |
| |
| 4,397,964 | | |
| 4,397,964 | |
| |
| |
| | | |
| | |
Intangible
assets, net | |
| |
$ | 7,463,741 | | |
$ | 8,018,170 | |
For
the three months ended March 31, 2015 and 2014, the amortization of intangible assets was $650,218 and $119,373 respectively.
Note
4 – Income Taxes
The
Company had net operating loss carryforwards (“NOLs”) as of December 31, 2014 of approximately $35.5 million for federal
tax purposes and approximately $34.7 million for state tax purposes, portions of which are expiring at various years through 2034.
The Company may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are
subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of
NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carryforwards are
subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has
not undergone an IRC Section 382 analysis, it is possible that the utilization of the NOLs could be significantly limited.
No provision for income taxes has been recorded during the three month
periods ended March 31, 2015 and 2014 due to the losses incurred.
Note
5 – Notes Payable
As
of March 31, 2015, there were no outstanding notes payable. On February 10, 2014, the Company settled all obligations under a
previously issued convertible note payable and cancelled the 133,334 warrants in exchange for: (i) the conversion of $105,000
of note principal at $2.25 per share, for a total of 46,667 shares of Company common stock, pursuant to the terms of the convertible
note; and (ii) a cash payment of $275,000. The terms of this settlement were memorialized in the Settlement and General Release
Agreement. This agreement settled all outstanding obligations with the note holder. In connection with this transaction, the Company
recognized a loss on the settlement of the debt in the amount of $79,014 in its operating results for the period ending March
31, 2014.
Note
6 – Stockholders’ Equity
Issuance
of Common Stock
During
the three months ended March 31, 2015, the Company issued 179,960 shares of its common stock to various employees and consultants
in exchange for services rendered with an aggregate fair value of $577,633. The total number of shares outstanding as of March
31, 2015 was 14,049,731.
During
the three months ended March 31, 2014, the Company issued 148,509 shares of its common stock to various consultants in exchange
for services rendered with an aggregate fair value of $319,304. The Company also issued 46,667 shares of its common stock in connection
with the settlement of a convertible note with a fair value of $105,000 (see Note 5). Additionally, the Company issued and sold
393,333 shares of its common stock to several accredited investors for an aggregate purchase price of $885,000. Finally in the
three months ended March 31, 2014, the Company issued 5,664 shares of its common stock for settlement of $19,880 of accounts payable.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7 – Warrants and Options
Stock
Option Plans
The
Company’s shareholders approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”) on November
2, 2010. The Plan provides for the grant of non-statutory or incentive stock options, stock appreciation rights, restricted stock,
restricted stock units, and other stock-based awards to the Company’s employees, Officers, Directors or consultants. The
Company’s Board of Directors administers the 2010 Plan, selects the individuals to whom options will be granted, determines
the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms
of the 2010 Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of
the grant. The term of the options granted under the 2010 Plan cannot be greater than 10 years. Options vest at varying rates
generally over three to five years along with performance based options.
In
September 2013, the Company approved the increase in the number of shares issuable pursuant to the 2010 Plan to 15,000,000. In
December 2013, the Company’s Board of Directors approved an amendment to the Amended and Restated 2010 Stock Incentive Plan
which increased the number of shares issuable pursuant to the Plan by 15,000,000 to 30,000,000 shares. Both amendments have also
been approved by the Company’s shareholders. Upon completion of the Reverse Stock Split on April 14, 2014, the Company continues
to have 30,000,000 shares issuable pursuant to the 2010 Plan.
During
the three months ended March 31, 2015, 151,334 options were granted, 148,097 were exercised, and 704,893 were forfeited and cancelled.
As of March 31, 2015, 778,485 options were outstanding and 28,370,689 shares available for future grant. For the options granted,
the Company recorded compensation expense of $220,577 using the Black-Scholes option pricing model based upon the following assumptions:
term of 3 years, average risk free interest rate of .99%, a dividend yield of 0% and a volatility of 338%.
During
the year ended December 31, 2014, options for 1,058,770 shares had been granted, with 0 shares exercised, 122,849 shares were
forfeited and cancelled and 1,477,977 remained outstanding at December 31, 2014 and 28,522,023 shares were available for future
grant.
The
following table reflects the option activity during the three months ended March 31, 2015:
| |
Common | | |
Average | |
| |
Shares | | |
Exercise Price | |
Outstanding as of December 31, 2014 | |
| 1,477,977 | | |
$ | 1.11 | |
Granted | |
| 151,334 | | |
| 1.86 | |
Exercised | |
| (148,097 | ) | |
| 0.35 | |
Forfeited, cancelled, expired | |
| (702,728 | ) | |
| 1.34 | |
Outstanding as of March 31, 2015 | |
| 778,486 | | |
$ | 0.68 | |
Warrants
The
following table reflects warrant activity during the three months ended March 31, 2015:
| |
Warrants for | | |
Weighted | |
| |
Common | | |
Average | |
| |
Shares | | |
Exercise
Price | |
Outstanding and exercisable as of
December 31, 2014 | |
| 2,879,627 | | |
$ | 4.00 | |
Granted | |
| - | | |
| - | |
Exercised – cash | |
| - | | |
| - | |
Exercised - cash-less exercise | |
| - | | |
| - | |
Forfeited, cancelled, expired | |
| - | | |
| - | |
Outstanding as of March 31, 2015 | |
| 2,879,627 | | |
$ | 4.00 | |
There
were no warrants issued during the three months ended March 31, 2015. As of March 31, 2015 and December 31, 2014, the Company
maintained total outstanding warrants to purchase 2,879,627 shares of its common stock at an average exercise price of $4.00 per
share.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
8 – Commitments and Contingencies
Office
Lease Agreements
The
Company leases office space in Irvine, California under two leases that expire at various dates through March 2017. The current
monthly rent was approximately $13,100 per month.
Minimum
Fees
On
July 1, 2014, the Company entered into an agreement to purchase bandwidth for a period of 18 months with a total minimum amount
of $413,775 due. Under the agreement, the Company expensed $68,963 during the three months ended March 31, 2015.
Legal
Proceedings
In
July 2013, the Company became aware that a default judgment had been entered against Mimvi (now Adaptive Medias, Inc.) in favor
of Mario Armando Wilson and against the Company in the amount of $62,141 and the balance has been accruing interest. In 2014,
the Company and Mr. Wilson reached a settlement agreement in which the Company granted Mr. Wilson 19,629 unregistered shares of
stock and a commitment that the shares will be tradable on June 3, 2015 at a value of $74,000 with any shortfall being paid in
cash.
The
Company was a party to an arbitration case entitled Felix Chan v. Mimvi (now Adaptive Medias, Inc.) which was a proceeding
before the American Arbitration Association. On December 12, 2014, the Arbitrator issued an award against the Company in the amount
of $348,803. On April 9, 2015, the Court sided with Plaintiff, and granted his Petition to Confirm the Award, rejecting the Petition
to Vacate the Award filed by this office. The Judgment will be entered in Plaintiffs favor for approximately $358,387.01. As of
March 31, 2015 and December 31, 2014, the Company has accrued $350,000 related to this matter.
On
September 20, 2013, Eric Rice, a former employee, sued the Company (Rice v. Adaptive Medias, etc., et al., LASC No. LC100816,
Van Nuys Superior Court). The complaint alleges that the Company breached Mr. Rice’s employment agreement and made misrepresentations
when the Company terminated Mr. Rice. The complaint does not specify the amount of alleged damages. The Company denies any breach
or misrepresentation, and the Company denies that it owes Mr. Rice anything. The Company has filed a cross-complaint against Mr.
Rice for damages and other relief. Discovery is underway.
On
July 29, 2013, Khoi Senderowicz filed a lawsuit against the Company and two other individuals, Andrew Linton and Kasian Franks
(Senderowicz v. Franks, etc., et al., Case No. RG13689457, Alameda County Superior Court). The suit alleges breach of leases for
real property and damages to real property and seeks $353,894 in alleged damages. The Company has filed an answer to the complaint
and denied all claims and damages.
In April of 2014, the Company became
aware that a lawsuit was filed against the Company in the Superior Court of Santa Clara County, California by Amanda Besemer,
who was an Advisory Board member of Mimvi from 2010-2012. Ms. Besemer seeks damages equivalent to $400,000 of stock or the cash
equivalent of such related to the termination of her Advisory Board role. The Company has filed an answer to the complaint and
denied the allegations. The Company has been informed that the case in Santa Clara has been dismissed and that Ms. Besemer has
refiled in Los Angeles Superior Court. The Company is currently exploring the foundation for Ms. Besemer’s contract in the
first instance and also to determine what services, if any, Ms. Bessemer actually provided. The Company has been advised that
there is very little documentary evidence of the services.
On November 7, 2014, a former employee notified the Company of a disagreement over compensation
and other matters. A complaint has not been filed and the former employee has expressed interest in settling the matter informally.
The Company continues discussions with the former employee.
The
Company has become aware of a claim by U-Chef, a creditor of OneScreen, in the amount of $93,237 (Ratatouille dba U-Chef v.
OneScreen). The Company’s position is that this claim has no merit and intends to vigorously defend against it.
On
January 27, 2015, the Company became aware of a recent cross-complaint filed by the former CEO of OneScreen. (Patel v. OneScreen,
Adaptive Media, Inc and Qayed Shareef). The Company’s position is that this case has no merit and intends to vigorously
defend against it.
ADAPTIVE
MEDIAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
8 – Commitments and Contingencies (continued)
The
Company has become aware of a complaint filed on or about January 13, 2015, by AdOn Network LLC (“Ad On”). AdOn asserts
that in March, 2014, OneScreen, Inc. executed a Settlement Agreement with it for $495,000 payable at $33,000 per month. AdOn asserts
that OneScreen breached this agreement by failing to make the payments required. AdOn claims that Adaptive Medias is responsible
for this obligation claiming that Adaptive Medias is the “successor-in interest” to OneScreen. AdOn served the subject
First Amended Complaint on Adaptive Medias on February 27, 2015. AdOn claims that Adaptive Medias’ purchase of OneScreen’s
assets through the Stock Purchase Agreement requires a finding that Adaptive Medias is the “successor-in-interest”
to OneScreen.
The
Company believes that there are good and meritorious defenses to this claim given that Adaptive Medias paid $16.5 million dollars
in stock for the purchase of Media Graph, Inc., an asset of OneScreen. A demurrer was filed attacking Plaintiffs First Amended
Complaint which will not be heard until September 24, 2015 given the courts backlog. The Company is awaiting the production of
the underlying materials regarding this claim.
The
Company does not believe the ultimate outcome of these proceedings will have a material adverse impact on the Company’s
condensed consolidated financial statements.
Note
9 – Concentrations
The
following table reflects the concentration of revenue during the three months ended March 31, 2015 and 2014:
| | |
For the Three Months Ended | |
| | |
March
31, | |
| | |
2015 | | |
2014 | |
Customer
1 | | |
| 19 | % | |
| - | |
Customer
2 | | |
| 13 | % | |
| - | |
Customer
3 | | |
| - | | |
| 22 | % |
Customer
4 | | |
| - | | |
| 21 | % |
Customer
5 | | |
| - | | |
| 12 | % |
Included
in accounts receivable was $309,073 from these two customers as of March 31, 2015. Included in accounts receivable was $340,020
from these three customers as of March 31, 2014.
Note
10 – Subsequent Events
The
Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance
to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before
the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance
sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition
or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date.
On
April 30, 2015, the Company entered into a Common Stock and Warrant Purchase Agreement (the “Purchase Agreement”)
with James Batmasian, pursuant to which Mr. Batmasian agreed to purchase shares of the Company’s Common Stock over the course
of three separate closings for aggregate gross proceeds equal to $4,500,000 (the “Offering”). On May 1, 2015, the
Company, completed the first closing under the Offering for gross proceeds equal to $2,000,000 in exchange for the issuance of
(i) 1,183,432 shares (the “Shares”) of Common Stock at a per share price of $1.69, (ii) a five-year warrant to purchase
up to 1,331,361 shares of Common Stock exercisable at a price of $1.69 per share, and (iii) a five-year warrant to purchase up
to 500,000 shares of Common Stock exercisable at a price of $3.00 per share (items (ii) and (iii) referred to collectively as
the “Warrants”). The Shares and the Warrants were issued to an accredited investor in accordance with Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended, in that the Company did not engage in any general advertisement
or general solicitation in connection with the offering of the Shares and Warrants, and the Company was available to answer any
questions from Mr. Batmasian. The funding of the remaining $2,500,000 shall be subject to the Company’s satisfaction of
certain closing conditions as set forth in the Purchase Agreement. The foregoing summary of the transactions contemplated by the
Offering does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement,
which is filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 5, 2015 (SEC Accession No. 0001144204-15-027460),
and is incorporated herein by reference.
On
May 6, 2015, the Company entered into a Confidential Settlement Agreement and Mutual Release (the “Settlement Agreement”)
with Gregg Templeton, pursuant to which the Company and Mr. Templeton agreed to mutually release one another from any and all
obligations under previous consulting arrangements between the parties. Pursuant to the terms of the Settlement Agreement, in
exchange for consulting services previously rendered to the Company, the Company’s shall pay to Mr. Templeton (i) a cash
fee in the amount of $405,000; (ii) 318,343 shares of the Company’s common stock; and (iii) a five-year warrant to purchase
1,500,000 shares of the Company’s common stock at a price of $3.00 per share. The foregoing summary of the terms of the
Settlement Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the
Settlement Agreement, which is filed as Exhibit 10.1 hereto, and is incorporated herein by reference. In impact this Settlement
Agreement in the amount of approximately $3.7 million has been reflected in the accompanying condensed consolidated financial
statements as of March 31, 2015.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis provides information to explain our results of operations and financial condition. You should
also read our unaudited interim condensed consolidated financial statements and their notes included in this Form 10-Q, and our
audited consolidated financial statements and their notes, Risk Factors and other information included in our Annual Report on
Form 10-K for the year ended December 31, 2014. This report contains forward-looking statements. Forward-looking statements within
this Form 10-Q are identified by words such as “believes,” “anticipates,” “expects,” “intends,”
“may,” “will” “plans” and other similar expressions, however, these words are not the exclusive
means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations
of future events or circumstances are forward-looking statements. These forward-looking statements are subject to significant
risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed in, or implied
by, these forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation
to publicly update or revise any forward-looking statements to reflect events, circumstances or developments occurring subsequent
to the filing of this Form 10-Q with the U.S. Securities and Exchange Commission and you should not place undue reliance on these
forward-looking statements. You should carefully review and consider the various disclosures the Company makes in this report
and our other reports filed with the U.S. Securities and Exchange Commission that attempt to advise interested parties of the
risks, uncertainties and other factors that may affect our business.
Overview
The
Company, through its core content monetization platform and technology, provides app developers, publishers and video content
developers one of the only end-to-end monetization platforms driven by programmatic algorithms. The Company provides these unique
capabilities to monetize content efficiently across multiple marketing channels and devices, including mobile, video and online
display advertising.
Pursuant
to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name
to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company’s emphasis on providing a supply-side
platform for mobile, video and online display advertising. In connection with the name change, effective on November 19, 2013,
the Company’s ticker symbol was changed to ADTM.
The
Company is a programmatic audience and content monetization company for website owners, app developers and video publishers who
want to more effectively optimize content through advertising. The Company provides a foundation for publishers and developers
looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across
multiple devices. The Company meets the needs of its publishers with an emphasis on maintaining user experience, while delivering
timely and relevant ads through its multi-channel ad delivery and content platform. Our corporate headquarters are located at
16795 Von Karman Avenue, Suite 240, Irvine, California 92606. Our website address is www.adaptivem.com. The information contained
on, or that may be obtained from, our website is not, and shall not be deemed to be, a part of this report.
Business
Overview
We
are a leader in programmatic, real time bidding (“RTB”) advertising across mobile, video and display, as well as a
provider of a business-to-business digital video content management platform SaaS.
On
the supply side, the Company provides each publishing client with unique capabilities to distribute and monetize its content across
multiple channels or operating systems, where it can serve a piece of content on a laptop, a tablet and a phone without any additional
cost or license. The optimization modules in our technology can be deployed across multiple channels on the platform to provide
capabilities such as ad serving, RTB, ad revenue waterfall management and video content management, and enabling necessities like
the video player itself. We help mobile app developers, publishers
and video content developers monetize their ad inventory through our proprietary ad-delivery and optimization platform. The Company
provides these unique capabilities to monetize content efficiently across multiple marketing channels, including mobile, video
and online display advertising. Our relationships span across health, sports, entertainment, auto, fashion, news, tech and luxury
verticals.
On
the demand side, the Company’s programmatic technology stack is advertiser-friendly; the platform provides advertisers with
a brand-safe and transparent marketplace for buying media across mobile, video and display. This is essential for big brand advertisers
and brand-direct ecommerce companies that require a high level of safety, context and relevance for their advertisements.
On
June 16, 2014, the Company launched its marketplace to enable publishers a seemingly simple marriage of quality content, users
and monetization opportunities side-by-side with advertising partners who drive demand. This is accomplished through a complex
set of discovery technology solutions, driven by patents, and efficient algorithmic data that cohesively interact in any digital
marketing environment where advertising, audience and content must come together.
Competition
There
are many fractional players in this space. There are those who provide video players like Ooyala, BrightCove and Kaltura. Others
provide advertising network services like BrightRoll, Grab and TubeMogul. A final group provides ad serving and demand services
including RocketFuel, LiveRail or FreeWheel. These providers and their fragmented solutions only complicate the choices that a
publisher, app developer or video content provider must make to participate in today’s market for audiences and advertising
revenue. We believe that AOL is the only other company that can claim to provide an end-to-end solution. It has a video player
and ad serving capabilities through Adap.tv, CMS and CDN capabilities through 5min Media and a wealth of inventory and demand
through legacy AOL properties and exchange integration.
Despite
AOL’s size, we believe that we our business model has advantages that will allow us to compete in this space. The first
advantage pertains to AOL’s legacy inventory source. While AOL benefits from many domains under its control, it is also
hampered by the responsibility to fill advertising through these domains first. Our advantage is that we are inventory agnostic.
If advertisers want and can benefit from our direct publisher inventory, we are happy to provide it. If advertisers want to take
advantage of efficiencies through RTB exchange inventory, we can provide that as well. The Company is less restricted and, as
a result, we believe that we can provide better optimization choices than AOL.
The
second advantage is in pricing. AOL’s legacy properties have high floor inventory costs. While AOL addresses this issue
by explaining that its inventory is “premium”, this claim is generally made by most, if not all, inventory sources.
Our inventory flexibility and existing monetization contracts allow us to deliver advertising, which we believe has the same quality
as AOL’s advertising, but at a lower cost per impression. We believe that this allows us an edge in negotiating onto advertising
campaigns where we don’t have an existing track record.
Business
Development
Our
business development efforts are focused on three main areas. The first is signing content providers to syndication and monetization
deals. The second is signing publishers onto our platform. The third area of focus is driving advertising demand or fulfillment
through our platform. This translates to revenue generation in the following forms: 1) Encoding fees for uploading content; 2)
Revenue share from platform publishers consuming the content; 3) Content streaming bandwidth fees from publishers consuming content;
4) Ad server fees from publishers consuming ads within the platform; 5) Content storage fees for housing content within the platform;
and 6) Percentage of revenue from advertisers attaching content to their video ads. In 2013, we added approximately 50 publishers.
The direct impact of which was operationally minimal as the platform lends itself extremely simplified workflows. Our overall
content contracted in 2013 as we began to remove underperforming partners and categories. We expect all content categories to
grow in 2015 as we move toward stabilization of our platform and expansion of our technical capabilities while onboarding premium
content providers through focused business development efforts. During the three months ended March 31, 2015, our efforts to streamline
our operations and processes led to the successful acquisition and retention of quality publishers and content relationships.
New relationships included premium publishers and content producers, all of whom are leaders in their respective categories.
Today
our advertiser campaign demand initiatives are consistently fulfilling and scaling at sustainable rates for our growing publisher
base. We have over 350,000 rights cleared pieces of video content across all interest categories. We have recently signed a contract
with Beanstock Media which increases our publisher base with some high profile publishers including Ask.com,
ChristianMingle, Dictionary.com, MeetMe, Slacker, TheDailyBeast, and ZipRealty.
The
push made in 2014, to penetrate the comScore top 1000 publisher accounts depicted the growth and scale of our platform syndication
capabilities. Engaging these publishers will increase our platform utilization and SaaS income. It will increase the consumption
and utilization of our content partners resulting in higher income. It will also allow for greater reach for our demand partners
and advertising agencies leading to higher advertising revenues.
In
addition to traditional digital publishers, we are continuing to make a push to penetrate select top TV properties and engage
them in bridging the gap between legacy TV consumption and video advertising in digital. This is an ongoing effort that will be
enabled by our proprietary technology that is currently being developed with the support of our advisers.
Critical
Accounting Policies
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described
in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2014. There were no significant changes to our significant accounting policies during the three months ended March 31, 2015.
Three
Months Ended March 31, 2015 compared with Three Months Ended March 31, 2014
Revenue
For
the three months ended March 31, 2015, we recognized revenue of $1,167,719 compared to $731,604 in the comparable period of 2014,
an increase of $436,115 or 60%. The increase was primarily due to an expanded product platform and general expansion of our media
business. Additionally, this increase in revenue is attributable to both increased spending by existing customers and an increase
in the number of active customers adopting our solution. We expect our revenue to continue to fluctuate based on seasonal factors
that affect the advertising industry as a whole. The Company is actively working to mitigate these fluctuations by proactive planning
of business development efforts to onboard more publishers, advertiser and content providers.
Cost
of Revenue
For
the three months ended March 31, 2015, our cost of revenue increased to $970,359 compared to $444,360 in the comparable period
of 2014, an increase of $525,999 or 118%. The increase was primarily due to the emergence of mobile display as the majority of
our media business, which has comparatively high volumes with low margins. In 2015 we expect to increase margins by engaging with
both existing and new publisher relationships in mobile video arena through our platform which yields higher revenues at lower
costs.
Operating
Expenses
As
a result of the expansion of our business, our operating expenses increased to $7,134,385 for the three months ended March 31,
2015, compared to $1,427,564 in the comparable period of 2014, an increase of $5,706,821 or 400%. This increase is due to a settlement
expense of $3,768,485 as discussed in footnote 10 of the Notes to Condensed Consolidated Financial Statements.
For
the three months ended March 31, 2015, stock compensation expense increased to $3,941,118 from $319,304 in the comparable period
of 2014, an increase of $3,621,814 or 1,134%. This increase was due to ongoing investor relation efforts and a settlement expense,
to be paid in common stock and warrants valued at $3,363,485, as discussed in footnote 10 of the Notes to Condensed Consolidated
Financial Statements.
For
the three months ended March 31, 2015, legal and professional fees increased to $353,419 from $122,816 in the comparable period
of 2014, an increase of $230,603 or 188%. The increase was primarily due to ongoing litigation related to matters from previously
completed acquisitions. In 2015 we expect the litigation efforts to continue but decrease as we address them accordingly.
For
the three months ended March 31, 2015, our selling expenses increased to $275,187 from $188,625 in the comparable period of 2014,
an increase of $86,562 or 46%. The increase was primarily due to an expansion of our sales and marketing personnel and related
costs. In 2015 we expect to streamline our sales force with more industry seasoned sales leaders and staff to help with our growth
initiatives.
For
the three months ended March 31, 2015, the research and development costs that we incurred increased to $156,972 from $139,888
in the comparable period of 2014, an increase of $17,084 or 12%. We believe that continued investment in technology is critical
to attaining our strategic objectives, and, as a result, we expect research and development expenses to increase in absolute dollars
in future periods.
For
the three months ended March 31, 2015, general and administrative expenses increased to $1,752,127 from $537,319 in the comparable
period of 2014, an increase of $1,214,808 or 226%. The increase was primarily due to the overall increase in our operations, specifically
investor relations expenses and personnel expenses. This increase also includes $405,000 in accrued cash settlement expenses.
In 2015 we expect to reduce our general and administrative cost footprint to a minimum requirement.
For
the three months ended March 31, 2015, depreciation and amortization increased to $655,562 from $119,612 in the comparable period
of 2014, an increase of $535,950 or 448%. The increase was primarily due to the overall increase in furniture and fixtures and
intangibles assets acquired that are being amortized over their estimated useful lives. We expect depreciation and amortization
to increase in absolute dollars in future periods.
Net
Loss
For
the three months ended March 31, 2015, we incurred a net loss of $6,958,660, or $.50 per basic and diluted share compared to a
net loss of $1,217,240, or $0.23 per basic and diluted share for the three months ended March 31, 2014. The increase in the net
loss is described above.
Liquidity
and Capital Resources
As
of March 31, 2015, we had total current assets of $1,565,879 consisting of $209,450 in cash, $1,313,032 in accounts receivable,
net of allowance of $314,931, and $43,397 in prepaid expenses. We had total current liabilities of $7,982,779 consisting of accounts
payable and accrued expenses.
We
have limited funds to pay our currently due debts and liabilities. Should one or more of our creditors seek or demand payment,
we are not likely to have the resources to pay or satisfy any such claims. Thus, we face risk of defaulting on our obligations
to our creditors with consequential legal and other costs which would adversely impact our ability to continue our existence as
a corporate enterprise.
Our
insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy
laws or state insolvency statutes. We also may face the risk that a receiver may be appointed. We face that risk and other risks
resulting from our current financial condition.
For
these and other reasons, we anticipate that unless we can obtain sufficient capital from outside sources and do so in the very
near future, we may be unable to continue to operate as a corporation, continue to meet our filing obligations under the Securities
Exchange Act of 1934, or otherwise satisfy our obligations to our vendors, stock transfer agent, our accountants, our legal counsel,
our EDGAR filing agent, and many others.
For
these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from
the funds that we have received to date, there can be no assurance that we will receive any additional financing or funding from
any source or if any financing should be obtained, that existing shareholders will not incur substantial, immediate, and permanent
dilution of their existing investment.
The
following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities
for the three months ended March 31, 2015 and 2014:
| |
For
the three months ended | |
| |
March
31, 2015 | | |
March
31, 2014 | |
Net cash used in operating activities | |
$ | (1,945,685 | ) | |
$ | (456,855 | ) |
Net cash used by investing activities | |
| (100,649 | ) | |
| (800 | ) |
Net cash provided by financing
activities | |
| - | | |
| 610,000 | |
Net increase (decrease) in Cash | |
| (2,046,334 | ) | |
| 152,345 | |
Cash, beginning | |
| 2,255,784 | | |
| 22,188 | |
Cash, ending | |
$ | 209,450 | | |
$ | 174,533 | |
Going
Concern Uncertainties
As
of March 31, 2015, we do not have an adequate source of operating revenue to cover our operating costs, and have only limited
working capital with which to pursue our business plan. The amount of capital required to sustain operations until we achieve
positive cash flow from operations is subject to future events and uncertainties. It will be necessary for us to secure additional
working capital through sales of our common stock and/or debt financing, and there can be no assurance that such funding will
be available in the future. These conditions raise substantial doubt about our ability to continue as a going concern.
Our
auditor has issued a going concern qualification as part of their opinion in their audit report contained in Form 10-K filed with
the SEC for the year ended December 31, 2014.
Capital
Expenditures
For
the three months ended March 31, 2015, we have not incurred any material capital expenditures.
Commitments
and Contractual Obligations
As
a “smaller reporting company”, the Company is not required to provide this information.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that would be considered material to investors.
Changes in Senior Leadership
Effective
as of January 26, 2015, the Chief Executive Officer was terminated by the Board of Directors from his position as Chief Executive
Officer and Director. The Board of Directors has established a committee of five individuals to actively search for a qualified
successor Chief Executive Officer.
Effective
as of January 25, 2015, the Company appointed an Acting Chief Operating Officer of the Company pursuant to a consulting agreement.
Effective
as of March 9, 2015, the Principal Accounting Officer of the Company resigned.
Effective
as of March 11, 2015, Omar Akram, a Director, was appointed President and Chief Financial Officer.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
As
a “smaller reporting company”, the Company is not required to provide information required by this Item.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Principal Executive Offer, carried out an evaluation of the effectiveness of our “disclosure
controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation,
our Chief Executive Officer and our Principal Accounting Officer concluded that, as of the Evaluation Date, our disclosure controls
and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive
Officer and our Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Remediation
To
remediate the material weaknesses, as identified above, in internal control over financial reporting, management has taken or
will take the following actions as the financial resources become available:
|
● |
We have retained additional accounting personnel,
and continue to enhance our internal finance and accounting organizational structure. |
|
|
|
|
● |
We have hired a third party consultant who has the
required background and experience in accounting principles generally accepted in the United States of America and with SEC
rules and regulations. |
|
|
|
|
● |
We are in the process of further enhancing the supervisory
procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting
functions. |
|
|
|
|
● |
We are in the process of strengthening our internal
policies and enhancing our processes for ensuring consistent treatment and recording of accounting estimates and ensuring
the validation of our conclusions regarding significant accounting policies and their application to our business transactions
are carried out by personnel with an appropriate level of accounting knowledge, experience and training. |
|
|
|
|
● |
We will build our procedures to effectively control
our financial closing activities. |
|
|
|
|
● |
We will improve and automate the preparation of
our audit schedules to include a systematic audit of all the figures presented in the financial statements. |
We
believe that the foregoing actions will improve our internal control over financial reporting, as well as our disclosure controls
and procedures. We intend to perform such procedures and commit such resources as they become available and necessary to continue
to allow us to overcome or mitigate the material weaknesses such that we can make timely and accurate quarterly and annual financial
filings until such time as the material weaknesses are fully addressed and remediated.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal controls over financial reporting that occurred during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
The
Company legal proceedings are summarized in Note 8 of the condensed consolidated financial statements.
The
Company does not believe the ultimate outcome of these proceedings will have a material adverse impact on the Company’s
consolidated financial statements.
There
are presently no other material pending legal proceedings to which the Company, any executive officer, any owner of record or
beneficially of more than five percent of any class of voting securities is a party or as to which any of the Company’s
property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
Item
1A. Risk Factors.
We
incorporate by reference from our Annual Report on Form 10-K the risk factors included at Item 1A.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
During
the three months ended March 31, 2015, the Company issued 179,960 shares of common stock to various consultants and employees
for services rendered with a fair value of $577,633 or $3.21 per share on average.
No
underwriters were involved in any of the issuances provided in this Item 2. The shares were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the “Act”) because the individuals either represented that they were “accredited
investors” as such term is defined in the rules and regulations promulgated under the Securities Act or were employees of
the Company and were in possession of the information that registration of the securities would provide them. The sale of the
securities did not involve any form of general solicitation or general advertising.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
None.
Item
5. Other Information.
On
April 30, 2015, the Company entered into a Common Stock and Warrant Purchase Agreement (the “Purchase Agreement”)
with James Batmasian, pursuant to which Mr. Batmasian agreed to purchase shares of the Company's Common Stock over the course
of three separate closings for aggregate gross proceeds equal to $4,500,000 (the “Offering”). On May 1, 2015, the
Company, completed the first closing under the Offering for gross proceeds equal to $2,000,000 in exchange for the issuance of
(i) 1,183,432 shares (the “Shares”) of Common Stock at a per share price of $1.69, (ii) a five-year warrant to purchase
up to 1,331,361 shares of Common Stock exercisable at a price of $1.69 per share, and (iii) a five-year warrant to purchase up
to 500,000 shares of Common Stock exercisable at a price of $3.00 per share (items (ii) and (iii) referred to collectively as
the “Warrants”). The Shares and the Warrants were issued to an accredited investor in accordance with Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended, in that the Company did not engage in any general advertisement
or general solicitation in connection with the offering of the Shares and Warrants, and the Company was available to answer any
questions from Mr. Batmasian. The funding of the remaining $2,500,000 shall be subject to the Company's satisfaction of certain
closing conditions as set forth in the Purchase Agreement. The foregoing summary of the transactions contemplated by the Offering
does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement,
which is filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 5, 2015 (SEC Accession No. 0001144204-15-027460),
and is incorporated herein by reference.
On
May 6, 2015, the Company entered into a Confidential Settlement Agreement and Mutual Release (the “Settlement Agreement”)
with Gregg Templeton, pursuant to which the Company and Mr. Templeton agreed to mutually release one another from any and all
obligations under previous consulting arrangements between the parties. Pursuant to the terms of the Settlement Agreement, in
exchange for consulting services previously rendered to the Company, the Company's shall pay to Mr. Templeton (i) a cash fee in
the amount of $405,000; (ii) 318,343 shares of the Company's common stock; and (iii) a five-year warrant to purchase 1,500,000
shares of the Company's common stock at a price of $3.00 per share. The foregoing summary of the terms of the Settlement Agreement
does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Settlement Agreement,
which is filed as Exhibit 10.1 hereto, and is incorporated herein by reference.
Item
6. Exhibits.
Number |
|
Exhibit |
|
|
|
10.1
|
|
Confidential
Settlement Agreement and Mutual Release, dated May 6, 2015
|
|
|
|
31.1 |
|
Certification
of the Company’s Principal Executive Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934. |
|
|
|
31.2 |
|
Certification
of the Company’s Principal Financial Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934. |
|
|
|
32.1 |
|
Certification
of the Company’s Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
XBRL
Instance Document |
|
|
|
101.SCH |
|
XBRL
Taxonomy Extension Schema |
|
|
|
101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
ADAPTIVE
MEDIAS, INC. |
|
|
May
12, 2015 |
/s/
Omar Akram |
|
Omar Akram |
|
President, Chief
Financial Officer and Director |
|
(Duly Authorized
Officer and Principal Executive Officer and Principal Financial Officer) |
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
I, Omar Akram, certify that:
1. I have reviewed this Quarterly Report
on 10-Q of Adaptive Medias, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: May 12, 2015 |
/s/ Omar Akram |
|
Omar Akram |
|
President and Principal Executive Officer |
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
I, Omar Akram, certify that:
1. I have reviewed this Quarterly Report
on 10-Q of Adaptive Medias, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the small business issuer and have:
a. Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: May 12, 2015 |
/s/ Omar Akram |
|
Omar Akram |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION
1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Adaptive
Medias, Inc. (the “Company”), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q
for the period ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
to the best of the undersigned’s knowledge that:
(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 12, 2015 |
/s/ Omar Akram |
|
Omar Akram |
|
President and Chief Financial Officer |
|
(Principal Executive Officer and Principal Financial Officer) |
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