Notes to Consolidated Financial Statements
June 30, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
AfterMaster,
Inc., formerly Studio One Media, Inc. (the “Company” or
“AfterMaster”) was originally organized in Delaware on
May 12, 1988, as Dimensional Visions Group, Ltd. The name was
changed on January 15, 1998 to Dimensional Visions Incorporated. On
February 8, 2006, it changed its name to Elevation Media, Inc., and
on March 28, 2006 the Company’s name was changed to Studio
One Media, Inc. as part of its overall plan to implement its
revised business plan.
In
April 2006, the Company entered into an agreement to purchase
MyStudio HD Recording Studios, Inc. (formerly known as Studio One
Entertainment, Inc.), a privately-held Scottsdale, Arizona-based
company that designed and manufactured the recording studios
currently in use by the Company (the “MyStudio
Agreement”).
Accounting Basis
The Company’s financial statements are prepared using the
accrual basis of accounting in accordance with accounting
principles generally accepted in the United States. The
Company has elected a June 30 fiscal year end.
Principles of Consolidation
The consolidated financial statements include
the
accounts of AfterMaster
and its subsidiaries. All significant
inter-company accounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods. Significant estimates are made in relation to the
allowance for doubtful accounts and the fair value of certain
financial instruments.
Notes and Other Receivables
Notes
and other receivables are stated at amounts management expects to
collect. An allowance for doubtful accounts is provided for
uncollectible receivables based upon management's evaluation of
outstanding accounts receivable at each reporting period
considering historical experience and customer credit quality and
delinquency status. Delinquency status is determined by contractual
terms. Bad debts are written off against the allowance when
identified.
Allowance for
doubtful accounts were $0 for the years ended June 30, 2017 and
2016.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly
liquid investments with an original maturity of three months or
less. As of June 30, 2017 and 2016, the Company’s cash
balances were within the FDIC insurance coverage
limits.
Fair Values, Inputs and Valuation Techniques for Financial Assets
and Liabilities Disclosures
The
fair value measurements and disclosure guidance defines fair value
and establishes a framework for measuring fair value. Fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In accordance with
this guidance, the Company has categorized its recurring basis
financial assets and liabilities into a three-level fair value
hierarchy based on the priority of the inputs to the valuation
technique.
The
fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). The inputs
used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety
falls has been determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or
liability.
The
levels of the fair value hierarchy are described
below:
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●
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Level 1
inputs utilize quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Company has the ability to
access.
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|
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●
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Level 2
inputs utilize other than quoted prices included in Level 1 that
are observable for the asset, either directly or indirectly, for
substantially the full term of the asset. Level 2 inputs include
quoted prices for similar assets in active markets, quoted prices
for identical or similar assets in markets that are not active and
inputs other than quoted prices that are observable in the
marketplace for the asset. The observable inputs are used in
valuation models to calculate the fair value for the
asset.
|
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●
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Level 3
inputs are unobservable but are significant to the fair value
measurement for the asset, and include situations where there is
little, if any, market activity for the asset. These inputs reflect
management’s own assumptions about the assumptions a market
participant would use in pricing the asset.
|
A
review of fair value hierarchy classifications is conducted on a
quarterly basis. Changes in the observability of valuation inputs
may result in a reclassification of levels for certain securities
within the fair value hierarchy.
Disclosures for Non-Financial Assets Measured at Fair Value on a
Non-Recurring Basis
The
Company’s financial instruments mainly consist of cash,
receivables, current assets, accounts payable and accrued expenses
and debt. The carrying amounts of its cash, receivables, current
asserts, accounts payable, accrued expenses and current debt
approximates fair value due to the short-term nature of these
instruments.
Concentration of Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of
cash. Our cash balances are maintained in accounts held
by major banks and financial institutions located in the United
States. The Company occasionally maintains amounts on
deposit with a financial institution that are in excess of the
federally insured limits. The risk is managed by maintaining all
deposits in high quality financial institutions.
For the year ended June 30, 2017
there was no customer that
accounted for a material portion of total revenues
, and 2016 there was one customer that accounted
for $1,800,000 of total revenues
,
due to a one-time licensing deal.
Property and Equipment
Property and equipment is recorded at cost less accumulated
depreciation. Depreciation and amortization is calculated using the
straight-line method over the expected useful life of the asset,
after the asset is placed in service. The Company generally uses
the following depreciable lives for its major classifications of
property and equipment:
|
Description
|
Useful Lives
|
|
Office Equipment and Computers
|
5 years
|
|
Computer Software
|
5 years
|
|
Furniture and Office Equipment
|
5 years
|
|
Vehicles
|
5 years
|
|
Leasehold Improvements
|
Shorter of Useful Life or Lease Term
|
|
Studios
|
5 years
|
Expenditures associated with upgrades and enhancements that
improve, add functionality, or otherwise extend the life of
property and equipment are capitalized, while expenditures that do
not, such as repairs and maintenance, are expensed as
incurred.
Intangible Assets
Intangible assets consist of intellectual property, website costs,
video backgrounds, and patterns and molds. The Company’s
intellectual property includes purchased patents and trademarks as
well as other proprietary technologies. Website costs
are costs incurred to develop the Company’s website. Video
backgrounds are the costs incurred to develop video backgrounds for
use in the Company’s recording studios. Patterns and molds
are for the design and construction of the studios. The Company
amortizes intangible assets over the following useful
lives:
|
Description
|
Weighted-Average Amortization Period
|
|
Intellectual Property
|
5 years
|
|
Website Costs
|
5 years
|
|
Video Backgrounds
|
5 years
|
|
Patterns and Molds
|
5 years
|
Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are
reviewed for possible impairment annually or whenever events or
changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. The Company uses both an estimate of
undiscounted future net cash flows of the assets over the remaining
useful lives and a replacement cost method when determining their
fair values. If the carrying values of the assets exceed the fair
value of the assets, the Company recognizes an impairment loss
equal to the difference between the carrying values of the assets
and their fair values. Impairment of long-lived assets is assessed
at the lowest levels for which there are identifiable cash flows
that are independent from other groups of assets. The evaluation of
long-lived assets requires the Company to use estimates of future
cash flows. However, actual cash flows may differ from the
estimated future cash flows used in these impairment
tests.
Revenue Recognition
The Company applies the provisions of FASB ASC
605,
Revenue Recognition in
Financial Statements
, which
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. ASC 605 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. In
general, the Company recognizes revenue related to goods and
services provided when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered,
(iii) the fee is fixed or determinable, and (iv) collectability is
reasonably assured.
The Company's revenues are generated from AfterMaster products and
services, licensing fees, AfterMaster Pro, sessions revenue, and
remastering. Revenues related to licensing fees
generated per a term sheet with bBooth are recorded when payment is
received as there is no current executed agreement in place and the
term of use is indefinite, pursuant to which bBooth agreed to
acquire exclusive rights to license certain technologies,
intellectual property, and patents from AfterMaster. The key terms
of the letter agreement consist of the
following:
●
bBooth agreed to
pay the Company $1,250,000 over 18 months, for a conditional
perpetual license of intellectual property (including related
patents and other assets), of which, to date, $200,000 has been
received;
●
bBooth agreed to
grant 600,000 shares of our common stock to Studio One, which
shares were received on November 10, 2015 valued at $1,800,000
and;
●
upon full receipt
of the $1,250,000 cash consideration, Bbooth will have the option
to purchase six complete MyStudio booths, one fully operational
mobile studio and truck, and an interest in its MyStudio TV show,
for nominal additional consideration.
Revenues related to AfterMaster Pro sells through consumer retail
distribution channels and through our website. For sales
through consumer retail distribution channels, revenue recognition
occurs when title and risk of loss have transferred to the customer
which usually occurs upon shipment to the customers. We established
allowances for expected product returns and these allowances are
recorded as a direct reduction to revenue. Return allowances are
based on our historical experience. Revenues related to sessions
and remastering are recognized when the event occured.
Cost of Revenues
The
Company’s cost of revenues includes studio lease expense,
employee costs, and other nominal amounts. Costs
associated with products are recognized at the time of the sale.
Costs incurred to provide services are recognized as cost of sales
as incurred. Depreciation is not included within cost of
revenues.
Research and Development
The Company follows the policy of expensing its research and
development costs in the period in which they are incurred in
accordance with ASC 730,
Accounting for Research and
Development Costs
. The Company
incurred research and development expenses of $221,437 and $386,949
during the years ended June 30, 2017 and 2016.
Advertising Expenses
The Company expenses advertising costs in the period in which they
are incurred. Advertising expenses were $45,183 and $366,740 for
the years ended June 30, 2017 and 2016.
Share-Based Compensation
The Company follows the provisions of ASC
718,
Share-Based
Payment,
which requires
all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their fair values. The Company uses the Black-Scholes
pricing model for determining the fair value of share-based
compensation.
The Company also follows the provisions of FASB ASC 505-50,
“Equity-Based Payments to
Non-Employees,”
which
addresses the accounting and reporting for both
the issuer (that is, the purchaser or grantor) and recipient (that
is, the goods or service provider or grantee) for a subset of
share-based payment transactions. ASC 505-50 requires equity
instruments issued to non-employees for goods or services are
accounted for at fair value and are marked to market until service
is complete or a performance commitment date is reached, whichever
is earlier.
Convertible Securities and Derivatives
The Company estimates the fair values of the debt and warrants, and
allocates the proceeds pro rata based on these
values. The allocation of proceeds to the warrants
results in the debt instrument being recorded at a discount from
the face amount of the debt and the value allocated to the warrant
is recorded to additional paid-in capital.
When the convertible debt or equity instruments contain embedded
derivative instruments that are to be bifurcated and accounted for
as liabilities, the total proceeds from the convertible host
instruments are first allocated to the bifurcated derivative
instruments. The remaining proceeds, if any, are then
allocated to the convertible instruments themselves, resulting in
those instruments being recorded at a discount from their face
value.
Derivative Liabilities
The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the
host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these
instruments at their estimated fair value and recognizes changes in
their estimated fair value in results of operations during the
period of change. The Company has a sequencing policy
regarding share settlement wherein instruments with the earliest
issuance date would be settled first. The sequencing policy also
considers contingently issuable additional shares, such as those
issuable upon a stock split, to have an issuance date to coincide
with the event giving rise to the additional shares.
Using this sequencing policy, the Company used this sequencing
policy, all instruments convertible into common stock, including
warrants and the conversion feature of notes payable, issued
subsequent to July 5, 2016 until the note was converted on the same
day were derivative liabilities. The Company again used this
sequencing policy, all instruments convertible into common stock,
including warrants and the conversion feature of notes payable,
issued subsequent to August 19, 2016 until the note was converted
on August 22, 2016 were derivative liabilities.
The
Company entered into multiple amendments to a note payable to
extend the maturity date (the Amendments). The Company agreed to
additional $30,000 extension fees which were converted at a
percentage discount (variable) exercise price which causes the
number to be converted into a number of common shares that
“approach infinity”, as the underlying stock price
could approach zero. This creates a situation where the Company no
longer has shares enough available to “cover” all
potential equity issuance obligations during the period of issuance
until conversion.
On
February 3, 2017, the company entered into a note payable with an
unrelated party at a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. Additionally, the note contains a
ratchet provision. The Company determined under ASC 815, that the
embedded conversion feature (if offering of common stock is at no
consideration or at a price that is lower than the effective
conversion price on the date shares are offered for sale, then a
ratchet down of effective exercise price to price per share offered
for common stock would be used to determine additional shares to be
issued). The Company has determined that this ratchet provision
indicates that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability. Accordingly, all convertible instruments
issued after February 3, 2017 are considered derivatives according
to the Company’s sequencing policy.
The Company values these convertible notes payable using the
multinomial lattice method that values the derivative liability
within the notes based on a probability weighted discounted cash
flow model. The resulting liability is valued at each reporting
date and the change in the liability is reflected as change in
derivative liability in the statement of operations.
Loss Per Share
Basic loss per Common Share is computed by dividing losses
attributable to Common shareholders by the weighted-average number
of shares of Common Stock outstanding during the period. The losses
attributable to Common shareholders was increased for accrued and
deemed dividends on Preferred Stock during the years ended June 30,
2017 and 2016 of $169,850 and $105,603, respectively.
Diluted earnings per Common Share is computed by dividing loss
attributable to Common shareholders by the weighted-average number
of Shares of Common Stock outstanding during the period increased
to include the number of additional Shares of Common Stock that
would have been outstanding if the potentially dilutive securities
had been issued. Potentially dilutive securities include
outstanding convertible Preferred Stock, stock options, warrants,
and convertible debt. The dilutive effect of potentially dilutive
securities is reflected in diluted earnings per share by
application of the treasury stock method. Under the treasury stock
method, an increase in the fair market value of the Company’s
Common Stock can result in a greater dilutive effect from
potentially dilutive securities.
For the years ended June 30, 2017 and 2016, all of the
Company’s potentially dilutive securities (warrants, options,
convertible preferred stock, and convertible debt) were excluded
from the computation of diluted earnings per share as they were
anti-dilutive. The total number of potentially dilutive
Common Shares that were excluded were 22,614,408 and 26,492,360 at
June 30, 2017 and 2016, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets
and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The charge
for taxation is based on the results for the year as adjusted for
items, which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted by
the balance sheet date.
ASC 740,
Accounting for Uncertainty in
Income Taxes
, clarifies the
accounting for uncertainty in tax positions taken or expected to be
taken in a return. ASC 740 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along
with accounting for the related interest and
penalties. Under this pronouncement, the Company
recognizes the financial statement benefit of a tax position only
after determining that a position would more likely than not be
sustained based upon its technical merit if challenged by the
relevant taxing authority and taken by management to the court of
the last resort. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the
consolidated financial statements is the largest benefit that has a
greater than 50% likelihood of being realized upon settlement with
the relevant tax authority.
The Company’s policy is to recognize both interest and
penalties related to unrecognized tax benefits in income tax
expense. Interest and penalties on unrecognized tax benefits
expected to result in payment of cash within one year are
classified as accrued liabilities, while those expected beyond one
year are classified as other liabilities. The Company has not
recorded any interest and penalties since its
inception.
The Company files income tax returns in the U.S. federal tax
jurisdiction and various state tax jurisdictions. The tax years for
2012 to 2017 remain open for federal and/or state tax
jurisdictions. The Company is currently not under examination by
any other tax jurisdictions for any tax years.
Investments
Our available for securities are considered Level 1. Realized gains
and losses on these securities are included in “Other income
(expense) – net” in the consolidated statements of
income using the specific identification method.
Unrealized gains and losses, on available-for-sale securities
are recorded in accumulated other comprehensive income (accumulated
OCI). Unrealized losses that are considered other than temporary
are recorded in other income (expense) – net, with the
corresponding reduction to the carrying basis of the
investment.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements
issued since the last audit of our consolidated financial
statements. The Company’s management believes that these
recent pronouncements will not have a material effect on the
Company’s consolidated financial statements.
NOTE 2 – GOING CONCERN
The Company's 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 an accumulated deficit of $72,303,551,
negative working capital of $8,871,112, and currently has revenues
which are insufficient to cover its operating costs, which raises
substantial doubt about its ability to continue as a going concern.
The Company has not yet established an ongoing source of revenues
sufficient to cover its operating costs and allow it to continue as
a going concern.
The future of the Company as an operating business will depend on
its ability to (1) obtain sufficient capital contributions and/or
financing as may be required to sustain its operations and (2) to
achieve adequate revenues from its ProMaster and AfterMaster
businesses. Management's plan to address these issues includes, (a)
continued exercise of tight cost controls to conserve cash, (b)
obtaining additional financing, (c) more widely commercializing the
AfterMaster and ProMaster products, and (d) identifying and
executing on additional revenue generating
opportunities.
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 attain profitable operations. The
accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a
going concern. If the Company is unable to obtain adequate capital,
it could be forced to cease operations.
NOTE 3 – PROPERTY AND EQUIPMENT
The Company’s property and equipment are comprised of the
following as of June 30, 2017 and 2016:
|
|
|
|
|
Furniture
and Office Equipment
|
$
51,390
|
$
47,497
|
|
Office
Equipment and Computers
|
413,467
|
314,706
|
|
Studios
|
255,665
|
255,665
|
|
Vehicles
|
60,524
|
60,524
|
|
Leasehold
Improvements
|
66,658
|
47,940
|
|
Computer
Software
|
56,232
|
56,232
|
|
Accumulated
Depreciation
|
(637,894
)
|
(488,007
)
|
|
Net
Property and Equipment
|
$
266,040
|
$
294,557
|
Depreciation expense for the years ended June 30, 2017 and 2016 was
$149,887 and $71,932, respectively. The Company impaired assets
totaling $27,926 and $0 for the years ended June 30, 2017 and 2016,
respectively.
NOTE 4 – INTANGIBLE ASSETS
The Company’s intangible assets are comprised of the
following on June 30, 2017 and June 30, 2016:
|
|
|
|
|
Patterns
and Molds
|
$
18,915
|
$
18,916
|
|
Website
Costs
|
240,415
|
208,615
|
|
Video
Backgrounds
|
16,172
|
16,172
|
|
Accumulated
Amortization
|
(173,259
)
|
(144,517
)
|
|
Intangible
Assets, Net
|
$
102,243
|
$
99,186
|
Amortization
expense for the years ended June 30, 2017 and 2016 was $28,742 and
$11,687, respectively. The Company’s future
estimated amortization for the above intangible assets are as
follows:
|
Year
|
|
|
2018
|
$
29,808
|
|
2019
|
28,452
|
|
2020
|
24,847
|
|
2021
|
18,088
|
|
2022
|
1,048
|
|
Total
|
$
102,243
|
NOTE
5 – SECURITIES AVAILABLE-FOR-SALE
On November 10, 2014, the Company received 600,000 shares of b
Booth stock as part of an Asset License agreement with b Booth. The
following table presents the amortized cost, gross unrealized
gains, gross unrealized losses, and fair market value of
available-for-sale equity securities, nearly all of which are
attributable to the Company's investment in b Booth stock, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
63,600
|
$
60,000
|
$
-
|
$
-
|
$
-
|
$
123,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
1,800,000
|
$
33,600
|
$
-
|
$
-
|
$
(1,770,000
)
|
$
63,600
|
NOTE 6 – INVENTORIES
Inventories are stated at the first in first out and consisted of
the following:
|
|
|
|
|
|
|
|
|
Components
|
$
159,017
|
$
-
|
|
Finished
Goods
|
-
|
-
|
|
Allowance
/ Reserve
|
(54,126
)
|
-
|
|
Totals
|
$
104,891
|
$
-
|
NOTE 7– NOTES PAYABLE
Convertible Notes Payable
In accounting for its convertible notes payable, proceeds from the
sale of a convertible debt instrument with Common Stock purchase
warrants are allocated to the two elements based on the relative
fair values of the debt instrument without the warrants and of the
warrants themselves at time of issuance. The portions of the
proceeds allocated to the warrants are accounted for as paid-in
capital with an offset to debt discount. The remainder of
the proceeds are allocated to the debt instrument portion of the
transaction as prescribed by ASC 470-25-20. The
Company then calculates the effective conversion price of the note
based on the relative fair value allocated to the debt instrument
to determine the fair value of any beneficial conversion feature
(“BCF”) associated with the convertible note in
accordance with ASC 470-20-30. The BCF is recorded to
additional paid-in capital with an offset to debt
discount. Both the debt discount related to the issuance
of warrants and related to a BCF is amortized over the life of the
note.
Convertible Notes Payable – Related Parties
Convertible notes payable due to related parties consisted of the
following as of June 30, 2017 and 2016, respectively:
|
Convertible Notes Payable – Related
Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $3,925,000 issued from February 2010 to
April 2013, interest rates range from 10% to 15%, net of
unamortized discount of $0 as of June 30, 2017 and June 30,
2016.
|
$
3,925,000
|
$
3,925,000
|
|
$30,000
face value of which $30,000 has been paid.
|
-
|
-
|
|
$30,000
face value, issued in August 2016, interest rate of 0%, matures
January 2017, a gain on extinguishment of debt was recorded
totaling $3,818 net unamortized discount of $0 as of June 30,
2017.
|
26,182
|
-
|
|
Total convertible
notes payable – related parties
|
3,951,182
|
3,925,000
|
|
Less current
portion
|
3,951,182
|
3,925,000
|
|
Convertible notes
payable – related parties, long-term
|
-
|
$
-
|
The notes were amended on February 15, 2016 to March 16, 2016. The
Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On August 8, 2016, the Company issued a convertible note to a
related individual for $30,000 that matures on October 8,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued options to
purchase 21,000 shares of 144 restricted common stock at an
exercise price $0.50 for a two-year period. The note was amended on
November 15, 2016 to extend the maturity date to January 31, 2017
and again on May 10, 2017 to extend the maturity date to October 1,
2017. The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a extinguishment of the debt and not modification of the debt
resulting in a gain on extinguishment of debt of
$3,818.
On August 11, 2016, the Company issued a convertible note to a
related individual for $30,000 that matures on October 11,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued options to
purchase 21,000 shares of 144 restricted common stock at an
exercise price $0.50 for a two-year period. The Company paid
$30,000 of principal. The note was amended on November 21, 2016 to
extend the maturity date to January 31, 2017. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
Convertible Notes Payable - Non-Related Parties
Convertible notes payable due to non-related parties consisted of
the following as of June 30, 2017, and 2016,
respectively:
|
Convertible Notes Payable
- Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
$15,000
face value of which $15,000 was converted.
|
$
-
|
$
15,000
|
|
$50,000
face value of which $50,000 was converted.
|
-
|
50,000
|
|
$20,000
face value of which $20,000 was converted.
|
-
|
20,000
|
|
$7,000
face value, issued in July 2014, interest rate of 6%, matures
October 14, 2017, net unamortized discount of $0 as of June 30,
2017 and June 30, 2016, respectively.
|
7,000
|
7,000
|
|
$100,000
face value of which $100,000 has been paid.
|
-
|
100,000
|
|
$600,000
face value, issued in November 2015, interest rate of 0%, an OID of
$130,000, matures November 2017, net unamortized discount of $0 of
June 30, 2017 and June 30, 2016, respectively, of which $200,000
has been paid.
|
430,000
|
600,000
|
|
$100,000
face value, issued in February 2016, interest rate of 10%, matures
March 2018, net unamortized discount of $0 as of June 30, 2017,
respectively.
|
100,000
|
97,007
|
|
$15,000
face value of which $15,000 was converted.
|
0
|
14,538
|
|
$25,000
face value, issued in February 2016, interest rate of 10%, matures
October 15, 2017, net unamortized discount of $0 as of June 30,
2017 respectively.
|
25,000
|
21,646
|
|
$10,000
face value of which $10,000 was converted.
|
0
|
8,618
|
|
$100,000
face value, issued in March 2016, interest rate of 10%, matures
January 2018, net unamortized discount of $0 as of June 30, 2017
and June 30, 2016, respectively.
|
100,000
|
86,235
|
|
$10,000
face value, issued in March 2016, interest rate of 10%, matures
March 2018, net unamortized discount $0 of June 30,
2017.
|
10,000
|
9,674
|
|
$50,000
face value, issued in July 2016, interest rate of 0%, matures
January 2018, net unamortized discount of $0 of June 30,
2017.
|
50,000
|
-
|
|
$50,000
face value, issued in August 2016, interest rate of 0%, matures
August 2017, a gain on extinguishment of debt was recorded totaling
$5,418 as of June 30, 2017.
|
44,582
|
-
|
|
$1,000,000
face value, issued in September 2016, interest rate of 10%, matures
September 2018, net unamortized discount of $0 as of June 30,
2017.
|
1,000,000
|
-
|
|
$149,000
face value, issued in February 2017, interest rate of 10%, matures
November 2017, net amortized discount of $59,741 as of June 30,
2017.
|
89,260
|
-
|
|
$224,000
face value, issued in February 2017, interest rate of 10%, matures
November 2017, net amortized discount of $119,795 as of June 30,
2017.
|
104,205
|
-
|
|
$258,000
face value, issued in February 2017, interest rate of 12%, matures
August 2017, net amortized discount of $48,464 as of June 30,
2017.
|
209,536
|
-
|
|
$55,000
face value, issued in June 2017, interest rate of 7%, matures
January 2018, net amortized discount of $50,631 as of June 30,
2017.
|
4,369
|
-
|
|
$100,000
face value, issued in June 2017, interest rate of 10%, matures June
2018, net amortized discount of $52,317 as of June 30,
2017.
|
47,683
|
-
|
|
$265,000
face value, issued in May 2017, interest rate of 10%, matures
February 2018, net amortized discount of $218,790 as of June 30,
2017.
|
46,210
|
-
|
|
|
|
|
|
Total
convertible notes payable – non-related parties
|
2,267,845
|
1,029,718
|
|
Less
current portion
|
2,267,845
|
1,029,718
|
|
Convertible
notes payable – non-related parties, long-term
|
$
-
|
$
-
|
On October 27, 2015,
the Company issued a convertible note to an unrelated individual
for $100,000 that matures on February 27, 2016. The note bears
interest rate of 6% per annum and is convertible into shares of the
Company’s Common stock at $0.50 per share.
The note was amended on
May 23, 2016 to extend the maturity date to July 23, 2016 and
amended again on November 15, 2016 to extend the maturity date to
January 31, 2017. The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the debt.
The note was converted on May 12, 2017 at a rate of $0.30 per share
for a total of 333,333 shares of common stock plus two sets of
333,333 of warrants with a life of 5 years and conversion rates of
$0.40 and $0.60 per share.
On July 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on September 26,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued warrants to
purchase 35,000 shares of 144 restricted common stock at an
exercise price $0.30 for a two-year period. The note was amended on
November 21, 2016 to extend the maturity date to January 31, 2017.
The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in a
extinguishment of the debt and not modification of the debt
resulting in a gain on extinguishment of debt of
$5,418.
The
note was amended on September 28, 2017 to extend the maturity date
to January 15, 2018, , as additional consideration the Company
issued 15,000 shares of common stock valued at
$2,398.80
On August 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on August 26,
2017. The note bears interest rate of 10% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share. The note was amended on September 28, 2017 to
extend the maturity date to January 01, 2018. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On September 1, 2016, an unrelated individual converted a
convertible note entered into on August 21, 2012, with a principal
balance of $50,000 and $20,165 in accrued interest at a rate of
$0.25 per share of the Company’s Common stock for 280,658
shares.
On September 27, 2016, the Company issued a convertible note to an
unrelated individual for $1,000,000 that matures on December 22,
2016. The note was amended subsequently in February 2, 2017 to
extend the maturity date to June 30, 2017The fund will be used for
the manufacturing of the companies AfterMaster Pro TV box. The note
bears interest rate of 10% per annum and is convertible into shares
of the Company’s Common stock at $0.40, per share, as part of
the note the company issued 100,000 shares of 144 restricted common
stock for a value of $33,349.
On February 2, 2017, the Company amended the convertible note dated
September 27, 2016 for $1,000,000 to extend the maturity date to
June 30, 2017 and issued 200,000 warrants valued at $31,780. The
Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
The note was amended on September 28, 2017 to extend the maturity
date to September 21, 2018, as additional consideration the Company
issued 75,000 shares of common stock valued at $11,993 and 400,000
warrants valued at $34,922. The Company evaluated amendment under
ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On November 20, 2015, the Company issued a convertible note to an
unrelated company for $600,000 that matures on May 20,
2016. The company paid $200,000 in principle balance leaving a
remain balance of $430,000 including the extension fees and is
not convertible unless the borrower defaults under the amendment
agreement dated January 1, 2017. The note bears 0% interest
and had an original issue discount (OID) of $100,000. This note is
not convertible unless there is a default event, so no BCF was
valued. The Company extended the maturity date for the sixth time
by issuing additional $30,000 convertible notes on January 1, 2017
to February 15, 2017 and per the terms of the note there are no
derivatives until it becomes convertible on the original note,
however the $30,000 addition for the extension is to be considered
derivatives. The Lender released a clarification of amendments to
convertible promissory notes that explained the $30,000 extension
fees are the only portion that is to be considered as convertible
and converts within 2 days of issuance. The intent of the amendment
agreements were to insure the original note dated November 20, 2015
in the amount of $600,000. Due to the conversion into 145,929
shares of common stock on January 1, 2017 (extension date) and
January 3, 2017 (conversion date) sequencing is required on other
instruments. Because the terms do not dictate a maximum numbers of
convertible shares, the ability to settle these obligations with
shares would be unavailable causing these obligations to
potentially be settled in cash. This condition creates a derivative
liability Under ASC 815-40.The Company has a sequencing policy
regarding share settlement wherein instruments with the earliest
issuance date would be settled first. The sequencing policy also
considers contingently issuable additional shares, such as those
issuable upon a stock split, to have an issuance date to coincide
with the event giving rise to the additional shares. During the
extension and conversion day period no additional convertible
instruments were issued, therefore on the extension was considered
in the derivative calculation. The Company extended the maturity
date for the seventh time by increasing the principal balance by
$30,000 on February 27, 2017 to May 6, 2017. The Company
evaluated amendment under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the eighth
time by increasing the principal balance by $30,000 on May 9, 2017
to June 20, 2017. The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the ninth
time by increasing the principal balance by $30,000 on June 20,
2017 to August 4, 2017. The Company evaluated amendment under
ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
On February 3, 2017, the Company issued a convertible note to an
unrelated company for $258,000 that matures on August 3, 2017. The
note bears 12% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
price of the Company’s Common Stock during the thirty (30)
trading days immediately prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
T
he Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
In conjunction with the note, the Company issued to the holder
550,000 refundable shares of restricted Common Stock to be held in
a treasury account and will be returned to the company if the note
is paid on or before the due date. The value of the debt discount
recorded was $163,749 and the debt discount related to the attached
relative fair value of the restricted Common Stock was $94,251, for
a total debt discount of $229,046 and was limited to the value of
the note.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On May 12, 2017, the Company issued a convertible note to an
unrelated company for $265,000 that matures on February 17, 2018.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at the lesser of $.31
and 60% of the lowest closing bids 25 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero.
The Company determined under ASC
815, the Company has determined that this
percentage
discount (variable) exercise price
indicates that these shares, if issued, are not
indexed to the Company’s own stock and, therefore, is an
embedded derivative financial liability, which requires bifurcation
and to be separately accounted for. At each reporting period, the
Company will mark this derivative financial instrument to its
estimated fair value.
On June 13, 2017, the Company issued a convertible note to an
unrelated company for $55,000 that matures on January 13, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 30 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero.
The Company determined under ASC
815, the Company has determined that this
percentage
discount (variable) exercise price
indicates that these shares, if issued, are not
indexed to the Company’s own stock and, therefore, is an
embedded derivative financial liability, which requires bifurcation
and to be separately accounted for. At each reporting period, the
Company will mark this derivative financial instrument to its
estimated fair value.
In conjunction with the note, the Company issued to the holder
55,000 warrants to purchase Common The value of the debt discount
recorded was $41,150 and the debt discount related to the attached
relative fair value of warrants was $8,850, for a total debt
discount of $50,000, and a derivative expense of
$9,432.
On June 30, 2017, the Company issued a convertible note to an
unrelated company for $100,000 that matures on June 30, 2018. The
note bears 7% interest per annum and is convertible into
shares of the Company’s common stock at $.17 per
share.
Notes Payable – Related Parties
Notes payable due to related parties consisted of the following as
of June 30, 2017 and 2016:
|
Notes Payable – Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $627,500 issued from April 11 to June 17,
interest rates range from 0% to 15%, net of unamortized discount of
$0 as of June 30, 2017 and June 30, 2016, respectively, of which
$35,000 has been paid.
|
$
610,000
|
$
575,000
|
|
Total notes payable
– related parties
|
610,000
|
575,000
|
|
Less current
portion
|
610,000
|
575,000
|
|
Notes payable -
related parties, long term
|
$
-
|
$
-
|
Notes Payable
–
Non-Related
Parties
Notes payable due to non-related parties consisted of the following
as of June 30, 2017 and 2016:
|
Notes
Payable
–
Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $40,488 due upon demand, interest rates
range from 0% to 14%.
|
$
40,488
|
$
40,488
|
|
Total note payable
– non-related parties
|
40,488
|
40,488
|
|
Less current
portion
|
40,488
|
40,488
|
|
Notes payable
– non-related parties, long-term
|
$
-
|
$
-
|
NOTE 8 – CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of $0.001 par value
per share Preferred Stock, of which the following were issued
outstanding:
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred
|
100,000
|
15,500
|
-
|
|
Series
A-1 Convertible Preferred
|
3,000,000
|
2,585,000
|
3,581,964
|
|
Series
B Convertible Preferred
|
200,000
|
3,500
|
35,000
|
|
Series
C Convertible Preferred
|
1,000,000
|
13,404
|
-
|
|
Series
D Convertible Preferred
|
375,000
|
130,000
|
-
|
|
Series
E Convertible Preferred
|
1,000,000
|
275,000
|
-
|
|
Series
P Convertible Preferred
|
600,000
|
86,640
|
-
|
|
Series
S Convertible Preferred
|
50,000
|
-
|
-
|
|
Total
Preferred Stock
|
6,325,000
|
3,109,044
|
$
3,616,964
|
The Company's Series A Convertible Preferred Stock ("Series A
Preferred") is convertible into Common Stock at the rate of 0.025
share of Common stock for each share of the Series A Preferred.
Dividends of $0.50 per share annually from date of issue, are
payable from retained earnings, but have not been declared or
paid.
The Company’s Series A-1 Senior Convertible Redeemable
Preferred Stock (“Series A-1 Preferred”) is convertible
at the rate of 2 shares of Common Stock per share of Series A-1
Preferred. The dividend rate of the Series A-1 Senior Convertible
Redeemable Preferred Stock is 6% per share per annum in cash, or
commencing on June 30, 2009 in shares of the Company’s Common
Stock (at the option of the Company).
Due to the fact that the Series A-1 Preferred has certain features
of debt and is redeemable, the Company analyzed the Series A-1
Preferred in accordance with ASC 480 and ASC 815 to determine if
classification within permanent equity was
appropriate. Based on the fact that the redeemable
nature of the stock and all cash payments are at the option of the
Company, it is assumed that payments will be made in shares of the
Company’s Common Stock and therefore, the instruments are
afforded permanent equity treatment.
The Company's Series B Convertible 8% Preferred Stock ("Series B
Preferred") is convertible at the rate of 0.067 share of Common
Stock for each share of Series B Preferred. Dividends from date of
issue are payable on June 30 from retained earnings at the rate of
8% per annum but have not been declared or paid.
The Company's Series C Convertible Preferred Stock ("Series C
Preferred") is convertible at a rate of 0.007 share of Common Stock
per share of Series C Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
The Company's Series D Convertible Preferred Stock ("Series D
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series D Preferred. Holders are entitled to
a proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
The Company's Series E Convertible Preferred Stock ("Series E
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series E Preferred. Holders are entitled to a
proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
The Company's Series P Convertible Preferred Stock ("Series P
Preferred") is convertible at a rate of 0.007 share of Common Stock
for each share of Series P Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
In the event of a liquidation, dissolution or winding up of the
affairs of the Company, holders of Series A Preferred Stock, Series
P Convertible Preferred Stock, Series C Convertible Preferred Stock
have no liquidation preference over holders of the Company’s
Common Stock. Holders of Second Series B Preferred Stock
have a liquidation preference over holders of the Company’s
Common Stock and the Company’s Series A Preferred
Stock. Holders of Series D Preferred Stock are entitled
to receive, before any distribution is made with respect to the
Company’s Common Stock, a preferential payment at a rate per
each whole share of Series D Preferred Stock equal to
$1.00. Holders of Series E Preferred Stock are entitled
to receive, after the preferential payment in full to holders of
outstanding shares of Series D Preferred Stock but before any
distribution is made with respect to the Company’s Common
Stock, a preferential payment at a rate per each whole share of
Series E Preferred Stock equal to $1.00. Holders of
Series A-1 Preferred Stock are superior in rank to the
Company’s Common Stock and to all other series of Preferred
Stock heretofore designated with respect to dividends and
liquidation.
The activity surrounding the issuances of the Preferred Stock is as
follows:
During the fiscal year ended June 30, 2017 the Company issued
550,000 shares of Series A-1 Preferred Stock for $550,000 in
cash
and paid $196,853 in
cash offering costs
.
The Company had one
conversion of 150,000 shares of Series A-1 Preferred Stock for
300,000 shares of Common Stock, and issued 15,682 shares of Common
Stock of payment of $7,481 in accrued
dividends.
During the fiscal year ended June 30, 2016 the Company issued
1,669,000 shares of Series A-1 Preferred Stock for $1,382,390 in
cash, net of $286,610 of issuance costs,
respectively.
The Company had two
conversions of 100,000 shares of Series A-1 Preferred Stock for
200,000 shares of Common Stock, and issued 59,326 shares of Common
Stock of payment of $26,769 in accrued
dividends.
During the fiscal years ended June 30, 2017 and 2016, the
outstanding Preferred Stock accumulated $169,567 and $105,603 in
dividends on outstanding Preferred Stock. The cumulative dividends
in arrears as of June 30, 2017 were approximately
$886,185.
NOTE 9 – COMMON STOCK
Fiscal Year Ended June 30, 2017
The Company has authorized 250,000,000 shares of $0.001 par value
per share Common Stock, of which 118,486,728 and 102,133,344 were
issued outstanding as of June 30, 2017 and 2016, respectively. The
Company amended its articles of incorporation on August 28, 2015 to
increase the number of authorized shares to 250,000,000. The
activity surrounding the issuances of the Common Stock is as
follows:
The Company issued 3,471,666 shares of Common Stock for cash valued
at $991,500.
The Company issued 2,150,364 shares of Common Stock for the
conversion of notes and accrued interest valued at
$438,781.
The Company also issued 650,000 shares of Common Stock as incentive
to notes valued at $127,600. The Beneficial Conversion was valued
at $30,519.
The Company also issued 300,000 shares of Common Stock for
conversion of Preferred Stock, and issued 15,682 shares of Common
Stock of payment of $7,841 in accrued dividends.
The Company issued 2,953,057 shares of Common Stock as payment for
services and rent valued at $917,152.
The Company issued 3,020,750 shares of Common Stock for the
conversion warrants valued at $906,225.
The Company issued 22,000 shares of Common Stock for the extension
of two convertible notes valued at $5,910.
As share-based compensation to employees and non-employees, the
Company issued 1,237,210 shares of common stock valued at $403,945,
based on the market price of the stock on the date of issuance. As
interest expense on outstanding notes payable, the Company issued
2,532,655, shares of common stock valued at $783,786 based on the
market price on the date of issuance.
Fiscal Year Ended June 30, 2016
The Company issued 2,667,919 shares of Common Stock for the
conversion of notes and accrued interest valued at
$446,757.
The Company also issued 200,000 shares of Common Stock for the
conversion of 100,000
shares of Series A-1 Preferred
Stock
and issued
59,326 shares of Common Stock of payment of $26,769 in accrued
dividends
.
The Company also issued 886,098 shares of Common Stock for the
conversion warrants valued at $175,914.
The Company also issued 26,000 shares of Common Stock as incentive
to notes valued at $10,284 and recorded $22,375 in beneficial
conversion features related to new issuances of debt.
The Company issued 496,137 shares of Common Stock as payment for
services and rent valued at $225,413.
As share-based compensation to employees and non-employees, the
Company issued 812,804 shares of common stock valued at $364,851,
based on the market price of the stock on the date of issuance. As
interest expense on outstanding notes payable, the Company issued
1,704,803 shares of common stock valued at $762,076 based on the
market price on the date of issuance.
NOTE 10 – STOCK PURCHASE OPTIONS AND WARRANTS
The Board of Directors on June 10, 2009 approved the 2009 Long-Term
Stock Incentive Plan. The purpose of the 2009 Long-term
Stock Incentive Plan is to advance the interests of the Company by
encouraging and enabling acquisition of a financial interest in the
Company by employees and other key individuals. The 2009
Long-Term Stock Incentive Plan is intended to aid the Company in
attracting and retaining key employees, to stimulate the efforts of
such individuals and to strengthen their desire to remain with the
Company. A maximum of 1,500,000 shares of the Company's
Common Stock is reserved for issuance under stock options to be
issued under the 2009 Long-Term Stock Incentive
Plan. The Plan permits the grant of incentive stock
options, nonstatutory stock options and restricted stock
awards. The 2009 Long-Term Stock Incentive Plan is
administered by the Board of Directors or, at its direction, a
Compensation Committee comprised of officers of the
Company.
Stock Purchase Options
During the fiscal year ended June 30, 2017, the Company issued
500,000 stock purchase options.
During the fiscal year ended June 30, 2016, the Company did not
issue any stock purchase options.
The following table summarizes the changes in options outstanding
of the Company during the fiscal year ended June 30,
2017.
|
Date
Issued
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Balance
June 30, 2016
|
25,000
|
$
0.15
|
$
0.24
|
2.00
|
$
3,750
|
|
Granted
|
500,000
|
0.18
|
0.16
|
5.00
|
90,000
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding
as of June 30, 2017
|
525,000
|
$
0.18
|
$
0.16
|
4.81
|
$
93,750
|
|
|
|
|
|
|
|
The following table summarizes the changes in options outstanding
of the Company during the fiscal year ended June 30,
2016
|
Date
Issued
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Balance
June 30, 2015
|
80,000
|
$
0.66
|
$
0.59
|
1.20
|
$
52,900
|
|
Granted
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
(55,000
)
|
0.89
|
-
|
-
|
(49,150
)
|
|
Outstanding
as of June 30, 2016
|
25,000
|
$
0.15
|
$
0.24
|
2.00
|
$
3,750
|
Stock Purchase Warrants
During the fiscal year ended June 30,
2017,
the Company issued
warrants to purchase a total
of
10,424,998
. The Company issued
455,000 warrants in conjunction with four promissory notes executed
in February 2017 to June 2017. The warrants were valued using the
Black-Scholes pricing model under the assumptions noted below. The
Company apportioned value to the warrants based on the relative
fair market value of the Common Stock and
warrants.
During the fiscal year ended June 30, 2016,
the Company
issued warrants to purchase a total
of
5,172,000
.
The Company issued 100,000 warrants in conjunction to an employment
agreement entered into in July 2015 and 1,244,000 warrants in
conjunction with a consulting agreement entered into December 2015
to June 2016. The Company issued 75,000 warrants in conjunction
with a promissory note executed in October 2015. The Company issued
50,000 warrants as part of a commission’s agreement, 175,000
warrants as part of four advisory agreements. The Company also
issued 3,338,000 warrants as part of a private placement and
190,000 warrants as part a finder’s fee agreement. The
warrants were valued using the Black-Scholes pricing model under
the assumptions noted below. The Company apportioned value to the
warrants based on the relative fair market value of the Common
Stock and warrants.
The following table presents the assumptions used to estimate the
fair values of the stock warrants and options granted:
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
Expected volatility
|
|
92-126%
|
|
106-114%
|
|
Expected dividends
|
|
0%
|
|
0%
|
|
Expected term
|
|
0-5 Years
|
|
2-5 Years
|
|
Risk-free interest rate
|
|
0.74-1.89%
|
|
0.71-1.01%
|
The following table summarizes the changes in warrants outstanding
issued to employees and non-employees of the Company during the
fiscal year ended June 30, 2017.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Outstanding
as of June 30, 2016
|
35,034,550
|
$
0.36
|
$
0.45
|
4.31
|
$
12,767,108
|
|
Granted
|
10,424,998
|
0.46
|
0.18
|
2.07
|
4,404,232
|
|
Exercised
|
(3,020,750
)
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
(2,511,701
)
|
0.36
|
-
|
-
|
(2,026,505
)
|
|
Outstanding
as of June 30, 2017
|
39,927,097
|
$
0.38
|
$
0.45
|
3.38
|
$
15,144,835
|
The following table summarizes the changes in warrants outstanding
issued to employees and non-employees of the Company during the
fiscal year ended June 30, 2016.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Outstanding
as of June 30, 2015
|
31,981,778
|
$
0.43
|
$
0.50
|
4.98
|
$
13,585,289
|
|
Granted
|
5,172,000
|
0.45
|
0.33
|
3.52
|
2,316,000
|
|
Exercised
|
(813,360
)
|
-
|
-
|
-
|
(630,364
)
|
|
Cancelled/Expired
|
(1,175,868
)
|
0.53
|
-
|
-
|
(2,513,817
)
|
|
Outstanding
as of June 30, 2016
|
35,034,550
|
$
0.36
|
$
0.45
|
4.31
|
$
12,767,108
|
NOTE 11 – INCOME TAXES
The components of the income tax (benefit) provision are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
Federal
|
$
-
|
$
-
|
|
State
|
-
|
-
|
|
Total
Current
|
-
|
-
|
|
|
|
|
|
Deferred
|
|
|
|
Federal
|
-
|
-
|
|
State
|
-
|
-
|
|
Total
Deferred
|
-
|
-
|
|
|
|
|
|
Income
tax provision
|
$
-
|
$
-
|
A reconciliation of the expected income tax benefit (provision)
computed using the federal statutory income tax rate of 34% to the
Company’s effective income tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit based on federal statutory rate
|
$
4,914,000
)
|
$
(488,000
)
|
|
State
income tax benefit, net of federal income tax
|
(475,000
)
|
(487,000
)
|
|
Change
in deferred tax valuation allowance
|
5,389,000
|
975,000
|
|
Other,
net
|
-
|
-
|
|
Income
tax provision
|
$
-
|
$
-
|
The tax effects of temporary differences that give rise to
significant portions of the Company’s deferred tax assets and
deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
Debt
extinguishment
|
$
-
|
$
-
|
|
Impairment
of fixed assets
|
-
|
-
|
|
Domestic
net operating loss carryforwards
|
11,671,000
|
10,475,000
|
|
Total
gross deferred tax assets
|
11,671,000
|
10,475,000
|
|
|
|
|
|
Less
valuation allowance on deferred tax assets
|
(11,671,000
)
|
(10,475,000
)
|
|
Net
deferred tax assets
|
-
|
-
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Deferred
costs
|
-
|
-
|
|
|
|
|
|
Total
deferred tax liabilities
|
-
|
-
|
|
Net
deferred taxes
|
$
-
|
$
-
|
Deferred income taxes result from temporary differences between
income tax and financial reporting computed at the effective income
tax rate. The Company has established a valuation allowance against
its net deferred tax assets due to the uncertainty surrounding the
realization of such assets. Management periodically evaluates the
recoverability of the deferred tax assets. At such time it is
determined that it is more likely than not that deferred tax assets
are realizable, the valuation allowance will be
reduced.
The Company files U.S. federal and Arizona income tax returns. Our
major tax jurisdictions are U.S. federal and the State of Arizona
and are subject to tax examinations for the open years from 2009
through 2012. As of the date of this filing, the Company has not
filed its tax return for the fiscal year ended 2012. While none are
anticipated, fines and/or penalties may be associated with the
delinquent filing.
As of June 30, 2017, and 2016, the Company had net operating loss
carry-forwards for federal and state income tax purposes of
approximately $32 million and $28 million,
respectively. Such carryforwards may be used to reduce
taxable income, if any, in future year subject to limitations of
Section 382 of the Internal Revenue Code for federal income and
Arizona tax purposes. The Company believes an ownership
change may have occurred, as defined by Sections 382 and 383 of the
Internal Revenue Code, which could result in the forfeiture of a
significant portion of its net operating loss carry-forwards. The
Company is not using any tax attributes in the current year, but
will analyze whether a change occurred and the related impact on
its gross deferred tax assets, if needed. As the Company's analysis
is not complete, the impact to its gross deferred tax assets is
uncertain. If not utilized, the federal and state net
operating loss carry-forwards will begin expiring in
2017.
NOTE 12 – FINANCIAL INSTRUMENTS
The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the
host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these
instruments at their estimated fair value and recognizes changes in
their estimated fair value in results of operations during the
period of change. The Company has estimated the fair value of these
embedded derivatives for convertible debentures and associated
warrants using a multinomial lattice model as of June 30, 2017, and
2016. The fair values of the derivative instruments are measured
each quarter, which resulted in a (loss) gain of $(138,693) and
$4,376,280, and derivative expense of $376,427 and $0 during the
fiscal years ended June 30, 2017 and 2016, respectively. As of June
30, 2017 and 2016, the fair market value of the derivatives
aggregated $2,145,065 and $0, respectively, using the following
assumptions: estimated 0.12-5.02 year term, estimated volatility of
86.22-125.67%, and a discount rate of 0.44-1.89%.
NOTE 13 – FAIR VALUE MEASUREMENTS
For asset and liabilities measured at fair value, the Company uses
the following hierarchy of inputs:
|
●
|
Level
one — Quoted market prices in active markets for identical
assets or liabilities;
|
|
|
|
|
●
|
Level
two — Inputs other than level one inputs that are either
directly or indirectly observable; and
|
|
|
|
|
●
|
Level
three — Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and
reflect those assumptions that a market participant would
use.
|
Liabilities measured at fair value on a recurring basis at June 30,
2017, are summarized as follows:
|
|
|
|
|
|
|
Fair
value of derivatives
|
$
-
|
$
-
|
$
2,145,065
|
$
2,145,065
|
|
Securities
available-for-sale
|
$
123,600
|
$
-
|
$
-
|
$
123,600
|
Liabilities measured at fair value on a recurring basis at June 30,
2016, are summarized as follows:
|
|
|
|
|
|
|
Fair
value of derivatives
|
$
-
|
$
-
|
$
-
|
$
-
|
|
Securities
available-for-sale
|
$
63,600
|
$
-
|
$
-
|
$
63,600
|
(1) Fair value is calculated using
the
multinomial lattice method.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may become involved in certain legal proceedings and
claims which arise in the normal course of business. The Company is
not a party to any litigation. To the best of the knowledge of our
management, there are no material litigation matters pending or
threatened against us.
On August 4, 2016, the Company received a Demand for
Arbitration/Arbitration Notice filed with the National Arbitration
and Mediation (“NAM”) ON August 1, 2016, by PCG
Advisory Group (“PCG”) against the Company. The Company
settled with PCG on November 11, 2016.
Lease Agreements
We lease offices in Hollywood, California (located at 6671 Sunset
Blvd., Suite 1520, 1518 and 1550, Hollywood, California, 90028) for
corporate, research, engineering and mastering services. The lease
expires on December 31, 2017. The total lease expense for the
facility is approximately $17,220 per month, and the total
remaining obligations under these leases at June 30, 2017, were
approximately 108,350.
We lease a warehouse space located at 8260 E Gelding Drive, Suite
102, Scottsdale, Arizona, 85260. The lease expires on February 28,
2019. The total lease expense for the facility is approximately
$1,888 per month, and the total remaining obligations under this
leases at June 30, 2017, were approximately $37,135.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$7,224 per month, and the total remaining obligations under this
leases at June 30, 2017, were approximately $348,558.
We lease corporate offices located at 7825 E Gelding Drive, Suite
103, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$3,000 per month, and the total remaining obligations under this
leases at June 30, 2017, were approximately $121,305.
Below is a table summarizing the annual operating lease obligations
over the next 5 years:
|
Year
|
|
|
2018
|
255,122
|
|
2019
|
141,464
|
|
2020
|
131,475
|
|
2021
|
87,287
|
|
2022
|
-
|
|
Total
|
$
615,347
|
Other
The Company has not declared dividends on Series A or B Convertible
Preferred Stock or its Series A-1 Convertible Preferred Stock. The
cumulative dividends in arrears through June 30, 2017 were
approximately $886,185.
As of the date of this filing, the Company has not filed its tax
return for the fiscal year ended 2015, 2016, and 2017.
NOTE 13 - SUBSEQUENT EVENTS
In accordance with ASC 855, Company’s management reviewed all
material events through the date of this filing and determined that
there were the following material subsequent events to
report:
From July through September, the Company issued
1,625,000 shares of Common Stock for
$170,000 in cash as part of a private
placement.
The Company also issued
75,000 warrants as part of a private placement valued at $6,019.
The warrants are considered derivative liabilities under ASC 815-40
under the Company’s sequencing policy and were valued using
the
multinomial lattice
model
. The company also
issued
120,000 shares of Common
Stock for $170,000 in services.
On July 31, 2017, the Company issued a convertible note to an
unrelated company for $78,000, which included $75,000 in proceeds
and $3,000 in legal fees, that matures on April 10, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On August 2, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures on August 24, 2017. The
note bears 0% interest per annum, in lieu of interest the Company
issued 12,000 shares of common stock on August 4, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. Due to sequencing on February 2, 2017, the
Company determined under ASC 815, the Company has determined that
the note is to be treated as an embedded derivative financial
liability, which requires bifurcation and to be separately
accounted for. At each reporting period, the Company will mark this
derivative financial instrument to its estimated fair
value
. The note was amended
on September 15, 2017, to extend the maturity date to October 15,
2017. The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
The company pay $16,000
in principal and on September 15, 2017, the note converted the
remaining principal of $34,000 for $340,000 shares of common
stock.
On August 2, 2017, the Company issued a convertible note to an
unrelated company for $60,500, which includes proceeds of $55,000,
$5,500 in OID, and $7,250 paid for legal and other fees, that
matures on August 2, 2018. The note bears 12% interest per
annum and is convertible into shares of the Company’s
common stock at 61% of the lowest two trading prices during the
fifteen (15) trading day period ending to the date of
conversion. The note contains a
percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On August 4, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on August 4, 2018. The
note bears 0% interest per annum, in lieu of interest the Company
issued 3,500 shares of common stock on August 7, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. Due to sequencing on February 2, 2017, the
Company determined under ASC 815, the Company has determined that
the note is to be treated as an embedded derivative financial
liability, which requires bifurcation and to be separately
accounted for. At each reporting period, the Company will mark this
derivative financial instrument to its estimated fair
value
.
On August 15, 2017, the Company issued a convertible note to an
unrelated company for $82,250, which included $75,000 in proceeds
and $7,250 in legal and other fees, that matures on April 18, 2018.
The note bears 12% interest per annum and is convertible into
shares of the Company’s common stock at 60% the lowest
trading price during the previous twenty (2) days to the date of
conversion. The note contains a
percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On August 16, 2017, the Company issued a convertible note to an
unrelated company for $53,000, which included $50,000 in proceeds
and $3,000 in legal fees, that matures on June 16, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On August 25, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 25, 2017. The note bears 0% interest per annum.
As additional consideration
the Company also issued
50,000 warrants valued at $6,625. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On August 31, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 31, 2017. The note bears 0% interest per annum.
As additional consideration
the Company also issued
50,000 warrants valued at $6,773. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On September 8, 2017, the Company issued a convertible note to an
unrelated company for $65,000, which included $58,500 in proceeds
and $6,500 in OID, that matures on March 8, 2018. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 55% of either the lowest sales
price for common stock on principal market during the twenty-five
consecutive trading days including the immediately preceding the
conversion date. The note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On September 11, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on September 11, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. Due to sequencing on February 2, 2017, the Company
determined under ASC 815, the Company has determined that the note
is to be treated as an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value
.
On September 19, 2017, the Company issued a note to an unrelated
party for $81,000 which included $74,504 in proceeds, $6,000 in
OID, and $496 in other fees, that matures on March 19, 2018. The
note bears 8% interest per month. As additional
consideration
the Company is to issue
75,000 shares of common stock within 10 days.
On November 20, 2015, the Company issued a convertible note to an
unrelated company for $600,000 that matures on May 20,
2016. The company paid $200,000 in principle balance leaving a
remain balance of $430,000 including the extension fees and is
not convertible unless the borrower defaults under the amendment
agreement dated January 1, 2017. The note bears 0% interest
and had an original issue discount (OID) of $100,000. This note is
not convertible unless there is a default event, so no BCF was
valued. The Company extended the maturity date for the sixth time
by issuing additional $30,000 convertible notes on January 1, 2017
to February 15, 2017 and per the terms of the note there are no
derivatives until it becomes convertible on the original note,
however the $30,000 addition for the extension is to be considered
derivatives. The Lender released a clarification of amendments to
convertible promissory notes that explained the $30,000 extension
fees are the only portion that is to be considered as convertible
and converts within 2 days of issuance. The intent of the amendment
agreements were to insure the original note dated November 20, 2015
in the amount of $600,000. Due to the conversion into 145,929
shares of common stock on January 1, 2017 (extension date) and
January 3, 2017 (conversion date) sequencing is required on other
instruments. Because the terms do not dictate a maximum numbers of
convertible shares, the ability to settle these obligations with
shares would be unavailable causing these obligations to
potentially be settled in cash. This condition creates a derivative
liability Under ASC 815-40. The Company has a sequencing policy
regarding share settlement wherein instruments with the earliest
issuance date would be settled first. The sequencing policy also
considers contingently issuable additional shares, such as those
issuable upon a stock split, to have an issuance date to coincide
with the event giving rise to the additional shares. During the
extension and conversion day period no additional convertible
instruments were issued, therefore on the extension was considered
in the derivative calculation. The Company extended the maturity
date for the seventh time by increasing the principal balance by
$30,000 on February 27, 2017 to May 6, 2017. The Company
evaluated amendment under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the eighth
time by increasing the principal balance by $30,000 on May 9, 2017
to June 20, 2017. The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the ninth
time by increasing the principal balance by $30,000 on June 20,
2017 to August 4, 2017. The Company evaluated amendment under
ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the tenth
time by paying additional consideration of $30,000 on August 3,
2017 to September 18, 2017. The Company evaluated amendment
under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. The Company extended the maturity date for the tenth
time by paying additional consideration of $30,000 on September 18,
2017 to November 2, 2017. The Company evaluated amendment
under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. The Company extended the possibility to convert date by
issuing 60,000 warrants valued at $7,813 on September 8, 2017 to
November 2, 2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a
percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815,
the Company has determined that this
percentage discount
(variable) exercise price
indicates
that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. The Company extended the possibility to convert date by
issuing 90,000 warrants valued at $11,720 on September 8, 2017 to
November 2, 2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
On August 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on August 26,
2017. The note bears interest rate of 10% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share. The note was amended on June 30, 2017 to extend
the maturity date to October 1, 2017. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the debt.
The note was amended again on September 28, 2017 to extend the
maturity date to January 1, 2018. The Company evaluated amendment
under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On March 7, 2016, the Company issued a convertible note to an
unrelated individual for $100,000 that matures on March 7, 2017.
The note bears interest rate of 10% per annum and is convertible
into shares of the Company’s Common stock at $0.40 per
share. The Company valued a BCF related to the note
valued at $24,269 and debt discount related to the 10,000 shares of
common stock issued with the note at a relative fair value of
$4,569.
The note was amended
again on September 28, 2017 to extend the maturity date to January
15, 2018, as additional consideration the Company issued 25,000
shares of common stock valued at $3,998. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On July 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on September 26,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued warrants to
purchase 35,000 shares of 144 restricted common stock at an
exercise price $0.30 for a two-year period. The note was amended on
September 28, 2017 to extend the maturity date to January 15, 2018,
as additional consideration the Company issued 15,000 shares of
common stock valued at $2,398.80. The Company evaluated amendment
under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On August 03, 2017 and September 15, 2017, the Company make
payments totaling $125,000 for principal on a $258,000
convertible note to an unrelated
company
.
On September 12, 2017 and September 19, 2017, the Company make
payments totaling $35,000 for principal and interest on convertible
notes in the amount of $373,000 to unrelated company.
On September 27, 2016, the Company issued a convertible note to an
unrelated individual for $1,000,000 that matures on December 22,
2016. The note was amended subsequently in February 2, 2017 to
extend the maturity date to June 30, 2017. The fund will be used
for the manufacturing of the companies AfterMaster Pro TV box. The
note bears interest rate of 10% per annum and is convertible into
shares of the Company’s Common stock at $0.40, per share, as
part of the note the company issued 100,000 shares of 144
restricted common stock for a value of $33,349.
The note was amended on
September 28, 2017 to extend the maturity date to September 21,
2018, as additional consideration the Company issued 75,000 shares
of common stock valued at $11,993 and 400,000 warrants valued at
$34,922.The warrants are considered derivative liabilities under
ASC 815-40 under the Company’s sequencing policy and were
valued using the
multinomial lattice model
.
The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On February 15, 2016, the Company issued a convertible note to an
unrelated individual for $25,000 that matures on February 15, 2017.
The note was amended subsequently in September 28, 2017 to extend
the maturity date to October 15, 2017. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.