NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
History and Organization
VNUE, Inc. (formerly Tierra Grande Resources, Inc.) (“VNUE”, “TGRI”, or the “Company”) was incorporated under the laws of the State of Nevada on April 4, 2006.
On May 29, 2015, VNUE, Inc. entered into a merger agreement with VNUE Washington, Inc. Pursuant to the terms of the Merger Agreement, all of the outstanding shares of any class or series of VNUE Washington were exchanged for an aggregate of 50,762,987 shares of TGRI common stock. As a result of the Merger, VNUE Washington became a wholly-owned subsidiary of the Company, and the transaction was accounted for as a reverse merger with VNUE Washington deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer.
The Company is developing a technology driven solution for Artists, Venues and Festivals to automate the capturing, publishing and monetization of their content.
The Company conducted a reverse stock split of the Company’s common stock at a ratio 1 for 10 of each share issued and outstanding on the effective date of April 15, 2017. All historically reported share and per shares amounts within have been adjusted to reflect the reverse stock split as if it occurred as of the earliest period presented.
Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the consolidated financial statements, the Company had a stockholders’ deficit of $4,054,329 at December 31, 2018, and incurred a net loss of $2,356,278, and used net cash in operating activities of $575,837 for the reporting period then ended. Certain of the Company’s notes payable are also past due and in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Subsequent to December 31, 2018, the Company received additional borrowings of $138,000 (see Note 10). Management estimates that the current funds on hand will be sufficient to continue operations through June 30, 2019. The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and in its ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.
NOTE 2 - SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES AND PRACTICES
Principles of Consolidation
The Company consolidates all wholly owned and majority-owned subsidiaries in which the Company’s power to control exists. The Company consolidates the following subsidiaries and/or entities:
Name of consolidated subsidiary or
Entity
|
|
State or other jurisdiction of
incorporation or organization
|
|
Date of incorporation or formation
(date of acquisition/disposition, if
applicable)
|
|
Attributable interest
|
|
|
|
|
|
|
|
|
|
VNUE Inc. (formerly TGRI)
|
|
The State of Nevada
|
|
April 4, 2006
(May 29, 2015)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Inc. (VNUE Washington)
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE LLC
|
|
The State of Washington
|
|
August 1, 2013
(December 3, 2014)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Technology Inc.
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
VNUE Media Inc.
|
|
The State of Washington
|
|
October 16, 2014
|
|
|
89
|
%
|
VNUE Technology, Inc. and VNUE Media, Inc. were inactive corporations with no operations at December 31, 2018 and 2017, respectively. Inter-company balances and transactions have been eliminated.
Revenue Recognition
Prior to January 1, 2018, the Company recognizes revenue on the sale of digital video disks (DVD) that contain the recording of live concerts and made available to concert viewers immediately after the show and on-line. Revenue is recognized on the sale of a product when the risk of loss transfers to our customers, and collection of the receivable is reasonably assured, which generally occurs when the product is purchased.
Effective January 1, 2018, the Company adopted the guidance of Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts
. The implementation of ASC 606 did not have a material impact on the Company’s consolidated financial statements. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
The Company recognizes revenue on the sale of digital video disks (DVD) that contain the recording of live concerts and made available to concert viewers immediately after the show and on-line. Revenue is recognized on the sale of a product when the risk of loss transfers to our customers, and collection of the receivable is reasonably assured, which generally occurs when the product is purchased.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include the assumptions used to perform impairment tests of long term assets, accruals for potential liabilities, valuation of derivative liabilities, and equity instruments issued for financing or services, and the valuation of deferred tax assets.
Fair Value of Financial Instruments
The Company follows the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below.
Level 1
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
Level 2
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable reporting date as of the end of the period.
|
|
|
Level 3
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments.
The fair value of the derivative liabilities of $1,744,601 and $866,873 at December 31, 2018 and 2017, respectively, were valued using Level 2 inputs.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any losses related to these credit risks. The Company extends credit based on an evaluation of the customer's financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and intends to maintain allowances for anticipated losses, as required.
Loss per Common Share
Basic net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive potential shares of Common Stock that were outstanding during the period. Dilutive potential shares of Common Stock consist of incremental shares of Common Stock issuable upon exercise of stock options. No dilutive potential shares of Common Stock were included in the computation of diluted net loss per share at December 31, 2018 and 2017, because their impact was anti-dilutive. As of December 31, 2018, and 2017, the Company had total outstanding warrants 8,004,708 and 5,004,708, respectively, and shares related to convertible notes payables of 305,609,737 and 110,015,835, respectively, which were excluded from the computation of net loss per share because they are anti-dilutive.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Intangible Assets
The Company accounts for intangible assets in accordance with the authoritative guidance issued by ASC Topic 350 -
Goodwill and Other
. The Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated undiscounted future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
In December 2018, the Company reviewed its intangible assets for impairment and based on our findings, recorded an impairment charge of $204,165 for the unamortized balance of the $350,000 acquisition cost of Set.fm. The remaining intangible assets balance was $233,429 at December 31, 2018 (see Note 3).
Income Taxes
The Company follows the asset and liability method which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company’s tax years 2014 to 2018 remain subject to examination by major tax jurisdictions.
Pursuant to the Internal Revenue Code Section 382 ("Section 382"), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an "ownership change." In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement presentation and disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 - INTANGIBLE ASSETS AND PURCHASE LIABILITY
Intangible assets as of December 31, 2018 and December 31, 2017, consist of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
302,737
|
|
|
$
|
350,000
|
|
Accumulated amortization
|
|
|
(69,308
|
)
|
|
|
(29,167
|
)
|
Intangible assets, net
|
|
$
|
233,429
|
|
|
$
|
320,833
|
|
Asset Acquisition - Set.fm
On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc. (the “Seller”), whereby the Company acquired the digital live music distribution platform “Set.fm” from PledgeMusic. Additionally, the Company will offer PledgeMusic North America’s full suite of music business tools allowing artists to sell music, merchandise and live experiences directly to fans, enhancing the Company’s clients’ revenue opportunities on a shared revenue basis. Set.fm is a do-it-yourself (DIY) platform that makes it easy for artists to record and sell their live shows directly to fans’ mobile devices, uploading simultaneously with their performance. The platform, which also features an innovative and easy-to-use studio app, already boasts thousands of artists and tens of thousands of fans using it. VNUE plans to update and improve the existing platform for indie artists and their fans, and to implement pro features for artists that VNUE and its affiliate DiscLive produce. The Company determined that the acquisition of Set.fm constituted the acquisition of an asset for accounting purposes.
The purchase price for the acquisition was comprised of $50,000 paid in cash, and a purchase liability of $300,000, for an aggregate purchase price of $350,000. The purchase liability is payable on the net revenues derived from VNUE’s live recording and content business and must be paid in full to the Seller no later than the three (3) year anniversary of the date of the agreement, or October 16, 2020. If the Company fails to pay the Seller the purchase liability on time, the Seller may request at any time within one hundred eighty days (180) days following the (3) year anniversary of the asset purchase agreement, that the Company immediately forfeit, convey, assign and transfer to the Seller all or any of the Purchased Assets so requested by the Seller for no additional consideration. For the year ended December 31, 2017, there was no net revenue derived from the acquired assets and accordingly, no payments were made on the earnout.
The Company assigned $350,000 of the purchase price to intellectual property which will be amortized over a three (3) year period. Total amortization expense during the twelve months ended December 31, 2018 and 2017, was $116,668 and $29,167, respectively, which is included in general and administrative expense in the Consolidated Statements of Operations. In December 2018, the Company reviewed this intangible asset for impairment and based on our findings, recorded an impairment charge of $204,165, leaving no intangible asset balance remaining at December 31, 2018.
Asset Acquisition - Soundstr
On April 23, 2018, the Company entered into an agreement with MusicPlay Analytics, LLC (d/b/a Soundstr) (“Soundstr”) whereby the Company acquired the assets of Soundstr, a technology that aims to help businesses pay fairer music license fees based on actual music usage. The Company purchased the assets of Soundstr by agreeing to issue 2,275,000 shares of the Company’s common stock, valued at $68,250, based on the closing market price of the Company’s stock on the date of the agreement, and the Company agreed to assume and pay $234,487 of identified Soundstr obligations within 60 days of April 23, 2018. The outstanding balance of the assumed Soundstr obligations was $193,909 as of December 31, 2018.
The Company assigned the aggregate purchase price of $302,737 to intellectual property which will be amortized over a three (3) year period. Total amortization expense during the year ended December 31, 2018, was $69,308, which is included in general and administrative expense in the Consolidated Statements of Operations.
Total estimated future amortization expense with respect to intangible assets is as follows:
Years Ending December 31,
|
|
Amount
|
|
2019
|
|
$
|
100,912
|
|
2020
|
|
|
100,912
|
|
2021
|
|
|
31,605
|
|
Total
|
|
$
|
233,429
|
|
NOTE 4 - RELATED PARTY TRANSACTIONS
DiscLive Network
On July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive” or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live” recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license. In exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of the products and services. DiscLive is controlled by our Chief Executive Officer. Revenues of $82,881 and $37,825 and direct cost of revenues of $111,086 and $35,151 during the twelve months ended December 31, 2018 and 2017, respectively, were recorded using the assets licensed under this agreement.
Advances from Stockholders / Employees
From time to time, employees of the Company advance funds to the Company for working capital purposes. The advances are unsecured, non-interest bearing and due on demand. As of December 31, 2018 and December 31, 2017, the advances from the employees were $14,720 and $14,720, respectively.
Note payable to President and Significant Stockholder
On December 31, 2014 the Company entered into a note payable agreement with its President, and significant stockholder of the Company. The note is unsecured, non-interest bearing and due on December 31, 2024. As of December 31, 2017, the note payable balance to the officer was $74,131. On April 9, 2018, the Company and its President entered into a conversion and cancellation of debt agreement in which the Company issued 3,746,660 common shares for payment in full and the note was retired (see Note 8).
Transactions with Louis Mann
On August 26, 2015, the Company entered into an Advisory Agreement with Louis Mann (“MANN”), a former officer and director with the Company who resigned as an officer and director on August 26, 2015. The Advisory Agreement provided for MANN’s continued and ongoing advisory services to the Company until December 31, 2015 and MANN was to be paid $25,000 for providing such advisory services, which was due and payable on or before December 31, 2015.
On September 15, 2017, the Company entered into a new Advisory Agreement with MANN. The Advisory Agreement provides for MANN’s continued and ongoing advisory services to the Company for a period of nine (6) months and with automatic nine (6) months renewals, unless terminated in accordance with the agreement. MANN is to receive $5,000 per month and 20,000 shares of common stock per month.
As of December 31, 2017, $32,500 of cash compensation was owed to MANN under the Advisory Agreements and included in accounts payable and accrued expenses. On April 5, 2018, the Company and MANN entered into a conversion and cancellation of debt agreement relating to the $32,500 cash compensation balance outstanding at December 31, 2017. The Company issued 650,000 shares of common stock, at $0.02 per share, as payment in full for the $32,500 balance outstanding at December 31, 2017 (see Note 8).
During the year ended December 31, 2018 and 2017, the Company incurred costs of $60,000 and $0, respectively, relating to these agreements. As of December 31, 2018, $40,000 of compensation is owed to MANN and included in accounts payable and accrued expenses.
NOTE 5 - NOTE PAYABLE (IN DEFAULT)
On December 17, 2015, the Company issued a Promissory Note in the principal amount of $9,000. The note is due within 10 business days of the Company receiving a notice of effectiveness of its Form S-1 filed on February 22, 2016. Failure to make payment during that 10 business day period shall constitute an Event of Default, as a result of which the note will become immediately due and payable and the balance will bear interest at 7%. The Company’s Form S-1 was declared effective on March 8, 2016 and payment was due before March 22, 2016. The Company did not repay the note before March 22, 2016; therefore, the note is in default with an interest rate of 7%. The balance of the note payable outstanding was $9,000 as of December 31, 2018 and December 31, 2017, respectively.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable consist of the following:
|
|
|
|
As of
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Various Convertible Notes
|
|
(a)
|
|
$
|
45,000
|
|
|
$
|
55,000
|
|
Ylimit, LLC Convertible Notes
|
|
(b)
|
|
|
707,500
|
|
|
|
517,000
|
|
Crossover Capital Fund II, LLC Convertible Notes
|
|
(c)
|
|
|
62,714
|
|
|
|
61,000
|
|
Golock Capital, LLC Convertible Notes
|
|
(d)
|
|
|
302,067
|
|
|
|
191,750
|
|
DBW Investments
|
|
(e)
|
|
|
56,000
|
|
|
|
21,000
|
|
Black Ice Advisors
|
|
(f)
|
|
|
57,750
|
|
|
|
-
|
|
Power Up Lending Group
|
|
(g)
|
|
|
133,000
|
|
|
|
-
|
|
2 Doors
|
|
(h)
|
|
|
15,000
|
|
|
|
-
|
|
Kingsley Family Trust
|
|
(i)
|
|
|
50,000
|
|
|
|
-
|
|
LG Capital Funding, LLC
|
|
(j)
|
|
|
52,500
|
|
|
|
-
|
|
Total Convertible Notes
|
|
|
|
|
1,484,531
|
|
|
|
845,750
|
|
Discount
|
|
|
|
|
(249,241
|
)
|
|
|
(198,025
|
)
|
Convertible notes, net
|
|
|
|
$
|
1,232,290
|
|
|
$
|
647,725
|
|
_____________
(a)
|
In August 2014 the Company issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a “pre-money” valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a “pre-money” valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $55,000 as of December 31, 2017. On April 8, 2018, a note holder elected to convert a $10,000 convertible note plus outstanding accrued interest of $3,652 into 200,000 shares of the Company’s common at $0.02 per share (see Note 8). The balance of the notes outstanding was $45,000 as of December 31, 2018, of which $30,000 was due to related parties.
|
|
|
(b)
|
On May 9, 2016 the Company issued a convertible note to YLimit, LLC in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. The note is secured by the Company’s rights, titles and interests in all the Company’s tangible and intangible assets, including intellectual property and proprietary software whether existing now or created in the future. On August 25, 2017, the Note was amended to authorize total borrowings on this Note to $517,000, and as such an additional $217,000 was advanced to the Company with the terms remaining the same except that the conversion feature was modified to state that all borrowings under the note will be converted at 85% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. The balance of the notes outstanding was $517,000 as of December 31, 2017 and the balance of the debt discount was $137,358.
On April 12, 2018 and again on August 15, 2018, the Company and Ylimit, LLC entered into an amendment to the original secured convertible promissory note. The amendments increased the borrowing limits by $190,500 to a total of $707,500, and extended the maturity date to May 9, 2019. In addition, the amendment on April 12, 2018 modified the conversion feature to state that all borrowings under the note will be converted at 75% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. This feature gave rise to a derivative liability of $135,900 during the period ended December 31, 2018 that is discussed below. During the twelve months ended December 31, 2018, the Company borrowed an additional $190,500. The balance of notes outstanding was $707,500 as of December 31, 2018 and the balance of the debt discount was $70,078.
|
(c)
|
On August 21, 2017, the Company issued a convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $61,000 with an interest rate of 8% per annum and a maturity date of August 21, 2018. The note included an original issue discount of $6,000. The note is convertible into shares of common stock of the Company at 50% of the lowest closing bid price in the 20 trading days prior to the day that the Buyer requests conversion. The balance of the note outstanding was $61,000 as of December 31, 2017. During the twelve months ended December 31, 2018, the Buyer elected to convert $36,786 of outstanding principal and $5,614 of outstanding accrued interest into 12,100,000 shares of the Company’s common at $0.0035 per share.
|
|
|
|
On March 2, 2018, the Company issued a second convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $38,500 with an interest rate of 10% per annum and a maturity date of December 2, 2018. The note included an original issue discount of $3,500. The note is convertible into shares of common stock of the Company at the lower of (i) $0.019 per share or, (ii) 50% of the lowest closing bid price in the 20 trading days prior to the day that the Buyer requests conversion. This feature gave rise to a derivative liability of $116,098 that is discussed below. In the event of default, as defined in the note agreement, interest shall accrue at a default interest rate of 19% per annum or at the highest rate of interest permitted by law, whichever is less. If the Company loses the bid price for its stock in the market (including the OTC marketplace or other exchange) or the Company’s common stock is delisted from an exchange or if trading has been suspended for more than 10 consecutive days, the outstanding principal amounts would increase 20% or 50%, respectively. The aggregate balance of the notes outstanding, and the related debt discounts was $62,714 and $0 as of December 31, 2018, respectively.
|
(d)
|
From September 1, 2017 to December 31, 2017, the Company issued convertible notes to Golock Capital, LLC (“Lender”) in the aggregate principal amount of $191,750 with an interest rate at 10% per annum and maturity dates between June 1, 2018 and August 31, 2018. The notes are convertible into shares of the Company’s common stock at prices between $0.015 and $0.02 per share. As additional consideration for the Lender to enter into these agreements with the Company, the Company issued warrants to the Lender to acquire in the aggregate 4,804,708 shares of the Company’s common stock at a weighted average exercise price of $0.014 per share. In addition, the Lender shall have the first right of refusal as to any future funding of Borrower in that Lender shall have the right to provide all or a portion of the funding upon the same terms as those offered in writing by any third party or contained in any private placement of borrower. The Lender, upon conversion, shall have piggy back registration rights for all of its common stock shares in any registration or post-effective amendment to any registration initiated by Borrower with the Securities and Exchange Commission. The balance of the notes outstanding and the related debt discount was $191,750 and $19,652, respectively, as of December 31, 2017.
|
|
|
|
On February 2, 2018, the Company issued a convertible note to Golock Capital, LLC (“Lender”) in the principal amount of $40,000 with an interest rate at 10% per annum and a maturity date of November 2, 2018. The note included an original issue discount of $5,000. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 2,500,000 shares of the Company’s common stock at an exercise price of $0.015 per share that expire three years from the date of grant. The relative fair value of the warrants, the original issue discount and the beneficial conversion feature totaling $40,000 was recorded as a debt discount and will be amortized to interest expense over the term of the note. In addition, the Lender shall have the first right of refusal as to any future funding of Borrower in that Lender shall have the right to provide all or a portion of the funding upon the same terms as those offered in writing by any third party or contained in any private placement of borrower. The Lender, upon conversion, shall have piggy back registration rights for all of its common stock shares in any registration or post-effective amendment to any registration initiated by Borrower with the Securities and Exchange Commission.
|
|
|
|
On November 5, 2018, the Company amended the notes above by changing the conversion feature for the aggregate notes to be convertible into shares of common stock of the Company at the lower of (i) $0.015 per share or, (ii) 58% of the lowest closing bid price in the 20 trading days prior to the day that the Lender requests conversion. This feature gave rise to a derivative liability of $553,000 that is discussed below. The amendment also increased the principal face amount of notes to include accrued interest, and an additional $43,250 was added to principal, which was recorded to financing costs. The aggregate balance of the notes outstanding, and the related debt discount was $302,067 and $0, respectively, as of December 31, 2018.
|
(e)
|
On December 20, 2017, the Company issued a convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $21,000 with an interest rate of 10% per annum and a maturity date of September 20, 2018. The note included an original issue discount of $1,000. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued a warrant to the Lender for 200,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The balance of the note outstanding and the debt discount was $21,000 and $0, respectively, as of December 31, 2017.
|
|
|
|
On January 18, 2018, the Company issued a second convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $35,000, which included an original issue discount of $5,000, with an interest rate at 10% per annum and a maturity date of October 18, 2018. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 500,000 shares of the Company’s common stock at an exercise price of $0.015 per share that expire three years from the date of grant. The relative fair value of the warrants, the original issue discount and the beneficial conversion feature totaling $10,367 was recorded as a debt discount and will be amortized to interest expense over the term of the note. The aggregate balance of the notes outstanding, and the related debt discount was $56,000 and $0, respectively, as of December 31, 2018.
|
(f)
|
On September 6, 2018, the Company issued a convertible note to Black Ice Advisors, LLC (the “Buyer”) in the principal amount of $57,750 with an interest rate of 12% per annum (22% on default) and a maturity date of September 4, 2019. The note is convertible into shares of common stock of the Company at a 38% discount of the lowest trading price for the Company’s common stock during the prior twenty (20) trading day period. This feature gave rise to a derivative liability of $81,092 that is discussed below. The Buyer is limited to convert no more than 4.99%, at any one time, of the issued and outstanding common stock of the Company. The convertible note is subject to prepayment penalties. The Company instructed its transfer agent to reserve 31,818,000 shares of its common stock. The balance of the note outstanding, and the related debt discount was $57,750 and $53,932, respectively, as of December 31, 2018.
|
|
|
(g)
|
On July 9, 2018, August 30, 2019, and October 18, 2018, the Company issued three convertible notes to Power Up Lending Group Ltd. (the “Buyer”) in the principal amounts of $63,000, $35,000, and $35,000 respectively. The notes carry an interest rate is 12% per annum (22% on default) and a maturity date of July 9, 2019, August 30, 2019, and October 18, 2019. The notes are convertible into shares of common stock of the Company at a 38% discount of the average of the two (2) lowest closing bid prices for the Company’s common stock during the prior fifteen (15) trading day period. This feature gave rise to an aggregate derivative liability of $281,813 that is discussed below. The Buyer is limited to convert no more than 4.99%, at any one time, of the issued and outstanding common stock of the Company. The convertible notes are subject to prepayment penalties. The Company instructed its transfer agent to reserve 89,741,461 shares of its common stock. The aggregate balance of the notes outstanding, and the related debt discount was $133,000 and $39,295, respectively, as of December 31, 2018.
|
|
|
(h)
|
On April 12, 2018, the Company issued a convertible note to 2 Doors Management, LLC (“Lender”) in the principal amount of $15,000 with an interest rate of 10% per annum, and a maturity date of January 12, 2019. The convertible note was issued in conjunction with a prior year legal settlement with a vendor for which $15,000 was previously included in the Company’s accounts payable and accrued expenses balance on the Company’s consolidated balance sheet. No cash was received for the convertible note. The convertible note can be prepaid without penalty. In the event of default, the interest rate increases to the highest rate legally allowed. The note is convertible into shares of the Company’s common stock at $0.08 per share. In the event the Company successfully closes on a private offering of $1,000,000 or more, the Lender at closing of the offering may choose to either convert the convertible note into shares of the Company’s common stock at $0.08 per share or request repayment of up to 100 percent of the remaining principal and interest of the convertible note. The balance of the note outstanding was $15,000 as of December 31, 2018.
|
|
|
(i)
|
On October 18, 2018, the Company issued a convertible note to Kingsley Family Trust (the “Lender”) in the principal amounts of $50,000. The note carries an interest rate of 10% per annum and a maturity date of March 19, 2020. If the Company is successful in raising equity financing of $2,000,000 or more, the Lender may choose either to convert this note into shares of common stock of the Company or request repayment of up to 25% of the principal and interest of the Note and covert the remaining balance into common stock. If Lender chooses to converted the principal and interest of this note into common stock of the Company, then Lender shall receive the number of shares equal to the dollar amount of principal and interest owed by Company to Lender as of the date of conversion divided by seventy-five percent (75%) of the per share stock offered in the private placement memorandum. If the raising of equity financing of $2,000,000 or more is unsuccessful, then the conversion price shall be seventy-five percent (75%) of the closing bid price for the Company’s common stock as of the closest trading date prior to the date of the Company’s receipt of Lender’s written notice to convert, however in no event shall the conversion price be less than $0.035 per share. This feature gave rise to an aggregate derivative liability of $15,619 that is discussed below. The aggregate balance of the note outstanding, and the related debt discount was $50,000 and $13,387, respectively, as of December 31, 2018.
|
|
|
(j)
|
On October 23, 2018, the Company issued a convertible note to LG Capital Funding, LLC (the “Buyer”) in the principal amount of $52,500 with an interest rate of 8% per annum (24% on default) and a maturity date of October 23, 2019. The note is convertible into shares of common stock of the Company at 58% of the lowest trading price for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company. This feature gave rise to a derivative liability of $145,867 that is discussed below. The convertible note is subject to prepayment penalties. The Company instructed its transfer agent to reserve 40,640,000 shares of its common stock. The aggregate balance of the notes outstanding, and the related debt discount was $52,500 and $42,575, respectively, as of December 31, 2018.
|
For YLimit, LLC (b), Crossover Capital Fund II, LLC (c), GoLock Capital LLC (d), Black Ice Advisors (f), Power Up Lending Group (g), Kingsly Family Trust (i), and LG Capital Capital Funding, LLC (j) above, the Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments.
The balance of the unamortized discount at December 31, 2017, was $198,025. During the twelve months ended December 31, 2018, the Company issued $474,750 of convertible notes whose conversion features created a derivative liability upon issuance with a fair value of $776,388, of which $429,768 was recorded as a valuation discount, and the remaining $346,620 was recorded as a financing cost. The Company also recorded an additional $550,000 derivative liability on the amendment of notes payable to GoLock Capital, LLC which was recorded as financing cost. In addition, the Company recorded debt discount of $40,367 related to warrants issued in conjunction with the issuance of convertible notes totaling $75,000 during the period and debt discount of $13,500 relating to issuance costs. During the twelve months ended December 31, 2018, amortization of debt discount was $432,419. The unamortized balance of the debt discount was $249,241 as of December 31, 2018.
For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Convertible notes payable, net
|
|
$
|
1,202,290
|
|
|
$
|
617,725
|
|
Convertible notes payable, related party, net
|
|
|
30,000
|
|
|
|
30,000
|
|
Total
|
|
$
|
1,232,290
|
|
|
$
|
647,725
|
|
NOTE 7 - DERIVATIVE LIABLITY
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion prices of the Notes described in Note 6 were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or they were variable. Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
As of December 31, 2018 and 2017, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
|
December 31,
2018
|
|
|
Issued During
2018
|
|
|
December 31,
2017
|
|
|
Issued During
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
$
|
0.005 - 0.035
|
|
|
$
|
0.003 - 0.035
|
|
|
$
|
0.002 - 0.108
|
|
|
$
|
0.005 - 0.026
|
|
Stock Price
|
|
$
|
0.006
|
|
|
$
|
0.006 - 0.037
|
|
|
$
|
0.008
|
|
|
$
|
0.006 - 0.035
|
|
Risk-free interest rate
|
|
|
2.63
|
%
|
|
1.79 - 2.71
|
%
|
|
0.84 - 1.24
|
%
|
|
0.94 - 1.23
|
%
|
Expected volatility
|
|
|
400
|
%
|
|
261% - 400
|
%
|
|
|
358
|
%
|
|
273% - 344
|
%
|
Expected life (in years)
|
|
|
1.000
|
|
|
1.000 - 1.304
|
|
|
|
1.000
|
|
|
0.792 - 1.292
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair Value:
|
|
$
|
1,744,601
|
|
|
$
|
1,329,388
|
|
|
$
|
866,873
|
|
|
$
|
594,666
|
|
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.
During the twelve months ended December 31, 2018, the Company recognized $294,767 as other income, which represented the change in the value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $776,388 upon issuance of convertible notes, recognized derivative liabilities of $550,000 upon the amendment of certain convertible notes, and recognized a gain on extinguishment of derivative liabilities of $156,892 upon the conversion of convertible notes during the period.
During the twelve months ended December 31, 2017, the Company recognized $48,902 as other expense, which represented the change in the fair value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $594,666 upon issuance of convertible notes during the period and a gain of $292,838 during the twelve months ended December 31, 2017, which represented the extinguishment of derivative liabilities related to both the extinguishment of convertible notes with cash and the conversion of a note to common stock.
NOTE 8 - STOCKHOLDERS’ DEFICIT
Shares issued to settle outstanding obligations
Executive Officers
During the twelve months ended December 31, 2018, the Company entered into conversion and cancellation of debt agreements with two executive officers. The Company agreed to convert a note payable for $74,131 and aggregate accrued payroll of $419,805 into 3,746,660 shares of the Company’ stock, valued at $74,933 using the closing market price of the Company’s stock on the date of the conversion and cancellation of debt agreements. The difference between the total executive obligations converted of $493,936, and the market value of the shares issued of $74,933, was recorded as contributed capital of $419,003 in the consolidated statements of stockholders’ deficit for the twelve months ended December 31, 2018.
Vendors
During the twelve months ended December 31, 2018, the Company entered into conversion and cancellation of debt agreements with several of its vendors. The Company agreed to convert $202,094 of outstanding vendor obligations into 5,616,086 shares of the Company’ stock, valued at $160,983 using the closing market price of the Company’s stock on the date of the conversion and cancellation of debt agreements. The difference between the total vendor obligations converted of $202,094, and the market value of the shares issued of $160,983, was recorded as a gain on settlement of obligations of $41,111 in other income in the consolidated statements of operations for the twelve months ended December 31, 2018.
Conversion of Debt
During the twelve months ended December 31, 2018, the Company entered into conversion and cancellation of debt agreements relating to two outstanding convertible notes. The Company agreed to convert the outstanding aggregate principal and interest balances of $56,052 into 12,300,000 shares of common stock with a fair value of $215,100, and recorded a loss on cancellation of debt of $159,048.
Shares issued for services
During the twelve months ended December 31, 2018, the Company issued an aggregate of 3,550,000 shares valued at $72,950, for services received relating to consulting agreements. During the year ended December 31, 2017, the Company issued an aggregate of 4,575,000 shares of its common stock to certain employees and contractors for services valued at $111,702, based upon the closing market price on the date the shares were authorized to be issued.
Shares issued for acquisition
On July 27, 2018, the Company issued 2,275,000 shares valued at $68,250, or $0.03 per share, related to an acquisition (see Note 3).
Shares to be issued
As of December 31, 2017, the Company had not yet issued 6,537,352 shares of common stock with a value of $932,734 due for past services provided. During the twelve months ended December 31, 2018, the Company issued 3,813,000 shares of common stock with a value of $707,895 related to the prior year unissued shares. In addition, the Company agreed to issue a total of 1,240,000 shares valued at $19,000, or $0.015 per share, for services rendered. As of December 31, 2018, the Company had not yet issued 3,964,352 shares of common stock with a value of $243,839 for past services provided and an acquisition.
Common stock returned by officer
On March 15, 2017, a Company officer voluntarily returned 5,000,000 shares of Common Stock held by him to the Company for no consideration. The shares were subsequently cancelled.
Common stock issued by officer to satisfy vendor balance
On October 31, 2017, a Company officer voluntarily transferred 2,000,000 shares of Common Stock held by him to satisfy an outstanding vendor obligation of the Company. The shares were valued at $18,000, the closing market price on date of transfer, and recorded as a general and administrative expense in the Consolidated Statements of Operations for the year ending December 31, 2017.
Shares issued in settlement of outstanding claims
As of December 31, 2016, the Company had accrued an aggregate amount of $286,786 for past services due to certain former employees. In addition, the Company was to issue 1,010,000 shares of common stock which were initially valued at $651,835 during the year ended December 31, 2016. The shares were never issued but were reflected as common stock issuable at December 31, 2016.
The former employees filed a claim against the Company on May 15, 2017, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, and other claims. VNUE, Inc. filed its counterclaims against Plaintiffs on November 20, 2017, alleging fraud. On March 27, 2018, the parties entered into a Settlement Agreement and Mutual Release effective as of April 2, 2018 whereby the Company agreed to transfer 3,813,000 shares of common stock of VNUE, Inc. to the former parties. Since the Company was able to determine the amount of the settlement before the filing of the Form 10-K, the Company adjusted the amounts to remove the previously recorded accrued compensation of $286,786 and reflect the fair value of the additional incremental 2,803,000 shares of common stock issuable of $56,060, resulting in a gain of $230,726.
The Company had accrued an aggregate amount of $191,642 for past services due to a certain former employee. In addition, the Company was to issue 1,000,000 shares of common stock which were initially valued at $27,474 during the year ended December 31, 2016. The shares were never issued but were reflected as common stock issuable at December 31, 2016. On December 19, 2017, the parties entered into a settlement agreement whereby the parties agreed to cancel the outstanding obligation of $191,642 in return for the issuance of 3,090,363 shares of common stock. As such, the Company adjusted previously recorded accrued compensation of $191,642 and recorded the fair value of the additional incremental 2,090,363 shares of common stock issued of $14,633, resulting in a gain of $177,009.
Warrants
A summary of warrants for the year ended December 31, 2018, is as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Balance outstanding, December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Warrants granted
|
|
|
5,004,708
|
|
|
|
0.014
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding, December 31, 2017
|
|
|
5,004,708
|
|
|
|
0.014
|
|
Warrants granted
|
|
|
3,000,000
|
|
|
|
0.015
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance outstanding, December 31, 2018
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
Balance exercisable, December 31, 2018
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
Information relating to outstanding warrants at December 31, 2018, summarized by exercise price, is as follows:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise Price
Per Share
|
|
Shares
|
|
|
Life
(Years)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
$
|
0.010-$0.015
|
|
|
8,004,708
|
|
|
|
1.89
|
|
|
$
|
0.014
|
|
|
|
8,004,708
|
|
|
$
|
0.014
|
|
During the twelve months ended December 31, 2018, the Company issued 3,000,000 warrants with a three (3) year expiration date and an exercise price of $0.015 per share to purchase the Company’s common stock as an inducement to enter into certain convertible note agreements. The aggregate relative fair value of the warrants granted was determined to be $24,085 which was recorded as a debt discount and is being amortized to financing costs over the term of the related convertible notes.
During the year ended December 31, 2017, the Company issued 5,004,708 warrants with a three (3) year expiration date and an exercise prices ranging from $0.01 to $0.015 per share, to purchase the Company’s common stock as an inducement to enter into certain convertible note agreement. The aggregate fair value of the warrants granted was determined to be $37,932 of which $27,739 was allocated and recorded as a debt discount and being amortized to financing costs over a term of the related convertible notes.
The fair value of each warrant on the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Risk free rate of return
|
|
|
1.81
|
%
|
|
|
1.43
|
%
|
Option lives in years
|
|
|
1.00
|
|
|
|
1.00
|
|
Annual volatility of stock price
|
|
|
342.60
|
%
|
|
|
326.04
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted-average remaining contractual life of warrants outstanding and exercisable at December 31, 2018 is 1.89 years. Both the outstanding and exercisable warrants outstanding at December 31, 2018 had no intrinsic value.
NOTE 9 - INCOME TAXES
Reconciliation between the expected federal income tax rate and the actual tax rate is as follows:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Federal statutory tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
State tax, net of federal benefit
|
|
|
6
|
%
|
|
|
6
|
%
|
Total tax rate
|
|
|
27
|
%
|
|
|
40
|
%
|
Allowance
|
|
(27
|
%)
|
|
(40
|
%)
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The following is a summary of the deferred tax assets:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,319,000
|
|
|
|
1,739,000
|
|
Accrued compensation
|
|
|
-
|
|
|
|
107,000
|
|
Deferred tax asset
|
|
|
2,319,000
|
|
|
|
1,846,000
|
|
Valuation allowance
|
|
|
(2,319,000
|
)
|
|
|
(1,846,000
|
)
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
The Company has no tax provision for any period presented due to our history of operating losses. As of December 31, 2018, the Company had net operating loss carry forwards of approximately $8,589,000 that may be available to reduce future years’ taxable income through 2032 subject to Section 382 limitations. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as management has determined that their realization is not likely to occur and accordingly, the Company has recorded a valuation allowance for the full value of the deferred tax asset relating to these tax loss carry-forwards.
The Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2017 no liability for unrecognized tax benefits was required to be recorded.
NOTE 10 - COMMITMENT AND CONTINGENCIES
Joint Venture Agreement - Music Reports, Inc.
On September 1, 2018, the Company entered into an initial joint venture (“JV”) agreement with Music Reports, Inc., (“MRI”). Music Reports (musicreports.com), , will initially partner with VNUE to provide Performing Rights Organization (PRO) data to VNUE’s Soundstr MRT (music recognition technology) platform through its extensive Songdex database, and will eventually work with VNUE to integrate automated direct licensing capability and royalty payment and distribution into the Soundstr platform. The initial term of the JV is for six (6) months and requires the Company to Pay MRI fifty percent (50%) of net revenue of a quarterly basis. As of December 31, 2018, no net revenue was generated from the JV.
Litigation
Stout Law Group
On November 27, 2018, Stout Law Group, P.A., the former counsel for the company and an affiliate of Matheau J. Stout, filed a Federal Complaint in the United States District Court for the District of Maryland (Stout Law Group, PA, v. VNUE, Inc.”, Civil Action No 1:18-CV-03614 JKB) for outstanding legal fees and other damages for work provided during the 2015 and 2016 fiscal years. The Company denies any liability therein and after negotiation with the plaintiff, the foregoing action was voluntarily dismissed on February 27, 2019 by the plaintiff and the Company has agreed to no liability. The Company has a recorded liability of approximately $72,000 as of December 31, 2018 and 2017 to Stout Law Group, S.A. for services rendered.
Hughes Media Law Group, Inc.
On December 11, 2015, Hughes Media Law Group, Inc. (“HLMG”) filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,553 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with
VNUE Washington
, for legal work performed by HMLG for
VNUE Washington
prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue
VNUE Washington
, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. On July 25, 2016, the court issued judgment awarding HLMG $133,482 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying consolidated balance sheets at December 31, 2017. On April 12, 2018, the Company and Hughes Media Law Group, Inc. (“HLMG”) entered into a conversion and cancellation of debt agreement relating to the outstanding obligation. The Company agreed to convert the total remaining outstanding obligation of $118,065 into 3,935,512 shares of common stock, or $0.03 per share (see Note 8).
Artist Agreement
On October 27, 2015, the Company entered into an Artist Agreement with I Break Horses, a Swedish duo based in Stockholm. The Artist Agreement is effective October 27, 2015 and has a term lasting as long as I Break Horses artist recordings are available via the VNUE Service. Under the terms of the Artist Agreement, the Company shall handle rights clearing and distribution for I Break Horses recordings and receive 30% of the Net Income generated thereby. For the years ended December 31, 2018 and 2017, respectively, the Company did not earn any revenue under this agreement.
License Agreement
On November 2, 2015, we entered into a License Agreement with Universal Music Corp. ("Universal"). The License Agreement is effective September 8, 2015, and had a term of Two (2) Years from the Effective Date. Under the terms of the License Agreement, Universal is granting to VNUE a non-exclusive, non-transferable, non-sub-licensable license to create and distribute content using certain Universal compositions, more specified in the Grant of Right’s section of the License Agreement. This agreement has since expired.
NOTE 11 - SUBSEQUENT EVENTS
On February 7, 2019, the Company and Kingsley Family Trust (see Note 6) entered into an amendment to the original secured convertible promissory note. The amendment increased the borrowing limit by $100,000 to a total of $150,000, obligated the Company to issue 1 million of the Company’s common stock. All other terms of the original secured convertible promissory note remained.
On February 25, 2019, the Company entered into a cancellation of debt agreement relating to an outstanding note payable obligation of $15,500. The Company agreed to convert the remaining balance of $15,500 into 4,555,918 shares of Common Stock, or $0.003 per share.
On March 13, 2019, a former Company director voluntarily returned 4,555,918 shares of Company common stock to Treasury.
On March 25, 2019, the Company issued a convertible note to Power Up Lending Group Ltd. (See Note 6) in the principal amounts of $38,000. The note carries an interest rate of 12% per annum (22% on default) and a maturity date of March 25, 2020. The notes are convertible into shares of common stock of the Company at a 42% discount of the lowest closing bid prices for the Company’s common stock during the prior fifteen (15) trading day period prior to the date of conversion notice.
Subsequent to December 31, 2018, Power Up Lending Group (see Note 6) elected to convert $103,870 of outstanding principal and interest into 57,457,206 shares of the Company’s common at $0.0018 per share.
Subsequent to December 31, 2018, Crossover Capital Fund II, LLC (see Note 6) elected to convert $52,694 of outstanding principal and interest into 41,695,453 shares of the Company’s common at $0.0013 per share.
Subsequent to December 31, 2018, Black Ice Advisors, LLC (see Note 6) elected to convert $30,000 of outstanding principal and interest into 28,000,000 shares of the Company’s common at $0.0011 per share.
Subsequent to December 31, 2018, the Company issued 26,485,714 shares of the Company’s common stock, at $0.0035 per common share, in satisfaction of $92,700 of outstanding obligations to its officers.