Notes to the Consolidated Financial Statements
1. Nature of Operations
Radioio, Inc. previously filed reports with the Securities and Exchange Commission (the “SEC”) under the name ioWorldMedia, Incorporated (“ioWorldMedia”). ioWorldMedia was incorporated as a Florida corporation in January 1995 under the name “PowerCerv Corporation” (“PowerCerv”). In January 2006, PowerCerv changed its corporate name to ioWorldMedia. On October 29, 2013, ioWorldMedia entered into an Agreement and Plan of Merger with Radioio, Inc., a Nevada corporation and wholly-owned subsidiary of ioWorldMedia, which provided for the merger of ioWorldMedia with and into Radioio, Inc., with Radioio, Inc. continuing as the surviving corporation (the “Merger”). The transaction constituted an exchange of shares necessary for legal purposes; however, lacks substance for accounting purposes since ownership interests have not changed. Accordingly, the transaction has been accounted for based on existing carrying amounts. All share and per share amounts have been restated to retroactively reflect this transaction. The Merger became effective on December 11, 2013. The Merger was effectively a change in the company’s domicile state and the existing common stockholders of ioWorldMedia received 1 share of Radioio, Inc. common stock for every 100 shares of ioWorldMedia common stock held and the existing preferred stockholders received .4950495 of a share of Radioio, Inc. common stock for each share of ioWorldMedia preferred stock held. Radioio, Inc. accounted for this transaction as an increase to additional paid-in capital and common stock and a reduction of convertible preferred stock in the amount of $5,772,304. Radioio, Inc., as successor in interest to ioWorldMedia, is referred to in these Notes to the Consolidated Financial Statements as “Radioio” or the “Company.”
The Company operates an Internet media platform that provides streamed music to targeted audiences. The Company broadcasts 140 streaming channels, and offers internet radio services and popular genres of music ranging from high-brow classical to acid rock and live talk radio, through its subsidiaries. The Company also provides a full-service background music and messaging ecosystem for large franchise businesses and other vertical markets, such as retail, hospitality and health and wellness. Direct to consumer Internet content distribution includes subscription-based talk radio and Internet radio services with extensive genres of customized music, including classical, new age and country
2. Basis of Presentation
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has incurred significant recurring operating losses, negative cash flows from operations, has a working capital deficiency, and an accumulated deficit of approximately $68,716,000 as of December 31, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon management’s ability to generate profitable operations in the future and obtain the necessary financing to meet obligations and pay liabilities arising from business operations when they come due. If the Company does not generate profitable operations or obtain the necessary financing, the Company may not have enough operating funds to continue to operate as a going concern. Securing additional sources of financing to enable the Company to continue the development and commercialization of proprietary technologies will be difficult and there is no assurance of the Company’s ability to secure such financing. A failure to generate profitable operations or obtain additional financing could prevent the Company from making expenditures that are needed to pay current obligations, allow the hiring of additional resources and continue development of its products, services and technologies. The Company continues to actively seek additional capital through private placements of equity and debt.
At current cash levels, management believes it has sufficient funds to continue current operations through September 30, 2014 without additional equity and/or debt financing. However, if additional financing is not obtained, the Company will not be able to execute its business plan and will need to curtail certain of its operations. The Company may be able to mitigate these factors through the generation of revenue from increased sales and slowing its payments to vendors.
3. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Radioio and its wholly-owned subsidiaries, Radioio.com, LLC, Search Play, LLC, io4business, LLC, and Radioio Live, LLC. All significant intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as their related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying values of the convertible debentures payable and other debt approximate their fair values. To determine the fair value of the convertible debentures, the Company estimated the fair value first by calculating the value of the shares issuable on conversion and subtracting out the face value of the note to determine the value of the beneficial conversion feature at the date of issuance. Next, the Company subtracted the beneficial conversion feature value from the face value of the note, up to the face value of the note, and accreted the value of the beneficial conversion feature from the date of issuance through the date of conversion into common stock using the effective interest rate method, where possible. In instances when the convertible debenture was discounted to zero, the simple interest method was used.
Accounts Receivable
Accounts receivable consists of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible accounts and discounts. Trade credit is generally extended on a short-term basis; thus, trade receivables do not bear interest. Trade receivables are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables. No allowance for doubtful accounts was recorded for the years ended December 31, 2013 and 2012.
Inventory
Inventory consists of finished goods, comprised of radio players, and is stated at the lower of cost or market determined by the average cost method. Inventory items designated as obsolete or slow moving are reduced to net realizable value.
Unbilled Receivables
Unbilled receivables represent estimates of advertising revenue not yet billed.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized. When the assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts with the resulting gain or loss reflected in the consolidated statements of operations.
The Company provides for depreciation and amortization over the following estimated useful lives:
|
|
|
Years
|
|
|
Computer equipment
|
|
3-5
|
|
|
Office equipment
|
|
3
|
|
|
Furniture and fixtures
|
|
7
|
|
Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the respective carrying amounts. There were no impairment charges recorded for the years ended December 31, 2013 and 2012.
Prepaid Consulting
The Company recognizes contracts paid in advance of the service period as prepaid consulting. The Company amortizes the prepaid contracts as service is provided by the consultants.
Goodwill
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations. Goodwill is not amortized; instead it is tested for impairment on an annual basis as of December 31, or whenever impairment indicators arise. The Company also assesses on a quarterly basis whether any events have occurred or circumstances have changed that would indicate if an impairment could exist. The Company utilizes one reporting unit in evaluating goodwill for impairment and assesses the estimated fair value of the reporting unit using a combination of discounted estimated future cash flow models and a market approach. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, further analysis will take place to determine whether or not the Company should recognize an impairment charge. To measure the amount of any impairment charge, the Company determines the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company will allocate the fair value of the affected reporting unit to all of the assets and liabilities of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill.
The Company acquired Up Your Ratings, Inc., a company with technology to create customized music channels for consumers, in 2011. During the year ended December 31, 2013, the Company changed its focus and allocated resources away from the consumer music streaming business. As a result of the continued operating losses and working capital deficiencies, the Company recorded an impairment charge during the quarter ended September 30, 2013 in the amount of $1,204,000.
Revenue Recognition
The Company’s revenue is principally derived from advertising services, subscription fees, and radio player equipment sales.
The Company recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. For all revenue transactions, the Company considers a signed agreement, a binding insertion order or other similar documentation to be persuasive evidence of an arrangement.
Advertising Revenue.
The Company generates advertising revenue primarily from display, audio and video advertising. The Company generates the majority of its advertising revenue through broadcasting advertisements and the delivery of advertising impressions sold on a cost per thousand, or CPM, basis. In determining whether an arrangement exists, the Company ensures that a binding arrangement, such as an insertion order or a fully executed customer-specific agreement, is in place. The Company recognizes this revenue over the term of the contracted advertising period.
Subscription Revenue.
The Company generates subscription services revenue from premium listener subscription plans, both for businesses and individuals. The Company offers a number of subscription plans on a monthly and annual basis. Revenue from subscribers is recognized on a monthly pro-rata basis over the life of the subscription.
Radio Player Revenue.
Revenue from radio player sales is recognized when title and risk of loss has transferred to the customer. Title transfers upon shipment of product.
Deferred Revenue.
Deferred revenue consists of amounts billed or cash received from customer in advance of the delivery or completion of the services or in instances when revenue recognition criteria have not been met.
Revenue recognized from customers associated with one franchise approximated 50% and 39% of revenues for the years ended December 31, 2013 and 2012, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs amounted to approximately $12,000 for the year ended December 31, 2013 as compared to approximately $9,700 for the year ended December 31, 2012.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred taxes are recognized for the expected future tax consequences of temporary differences between the book carrying amounts and tax basis of the Company’s assets and liabilities. Historically, deferred tax assets have been attributable to Federal loss carry-forwards.
The Company accounts for income taxes under Accounting Standard Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). ASC 740 requires that the Company recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carry-forwards to the extent they are realizable. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, deferred tax assets are reduced by a valuation allowance, when in the Company’s opinion, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company has not filed its federal and state corporate tax returns since 2003.
The Company has not received any notices for any payments resulting from this matter.
Loss Per Common Share
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net loss per share excludes the conversion of any convertible debt obligations into common or preferred stock as of December 31, 2013 and 2012, respectively, since the effect of any such conversion would be anti-dilutive, as well as any conversion of preferred stock. As of both December 31, 2013 and 2012, the Company had no potentially dilutive instruments outstanding.
Equity-Based Compensation
The Company accounts for equity-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). All equity-based payments to employees are issuances of stock that are recognized in the statement of operations based on their fair values at the date of issuance. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award (performance period). Equity-based compensation relating to the common stock issued to employees during the year ended December 31, 2013, totaled $480,000. There was no equity-based compensation during the year ended December 31, 2012.
The Company accounts for equity-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” All equity-based payments to non-employees are issuances of common stock that are recognized in the statement of operations over the performance period at its then-current fair value as of each financial reporting date. Equity-based consulting relating to the common stock issued to non-employees during the year ended December 31, 2013, totaled $30,942. There was no equity-based consulting during the year ended December 31, 2012.
Recently Issued Accounting Standards
The Company does not believe there are any recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s financial positions or results of operations.
4. Property and Equipment
Property and equipment consisted of the following at:
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
481,150
|
|
|
$
|
481,150
|
|
|
Office equipment
|
|
|
1,137
|
|
|
|
1,137
|
|
|
|
|
|
482,287
|
|
|
|
482,287
|
|
|
Less: accumulated depreciation
|
|
|
(420,162
|
)
|
|
|
(396,037
|
)
|
|
|
|
$
|
62,125
|
|
|
$
|
86,250
|
|
Depreciation expense amounted to $24,125 and $40,431 for the years ended December 31, 2013 and 2012, respectively.
5. Deferred Revenue
Deferred revenue is comprised of amounts invoiced or cash received in advance of delivery of services. Subscriptions are recognized as pro-rata over the subscription period, which is generally twelve months.
Deferred revenue consisted of the following for the:
|
|
|
Year Ended
December 31, 2013
|
|
|
Year Ended
December 31, 2012
|
|
|
Beginning balance
|
|
|
|
|
$
|
386,374
|
|
|
|
|
|
$
|
666,495
|
|
|
Invoiced during the period
|
|
|
|
|
|
415,439
|
|
|
|
|
|
|
92,782
|
|
|
Deferred revenue recognized from prior period
|
|
$
|
(314,458
|
)
|
|
|
|
|
|
$
|
(315,933
|
)
|
|
|
|
|
|
Deferred revenue recognized from current period
|
|
|
(193,179
|
)
|
|
|
|
|
|
|
(56,970
|
)
|
|
|
|
|
|
Total revenue recognized from current period
|
|
|
|
|
|
|
(507,637
|
)
|
|
|
|
|
|
|
(372,903
|
)
|
|
Ending balance
|
|
|
|
|
|
$
|
294,176
|
|
|
|
|
|
|
$
|
386,374
|
|
6. Other Liability
At various dates during the years ended December 31, 2010 and 2009, the Company received advances aggregating $400,000 from an outside entity. During the year ended December 31, 2011, the Company and the entity agreed to settle this liability through the issuance of 60,000 shares of the Company’s common stock, which would have required the Company to value the liability at the fair value of the common stock with any gains or losses recorded in the statements of operations. These shares have not yet been issued. The Company has elected to record the liability at the greater of the fair value of the common stock or $400,000. At both December 31, 2013 and 2012, the Company has recorded a liability in the amount of $400,000.
7. Convertible Debentures
On August 29, 2013, the Company issued a 10% convertible debenture in the principal amount of $100,000 to a third party, which was due in August 2014. The convertible debenture, including any accrued and unpaid interest, was to automatically convert into shares of common stock at an effective conversion price of $0.50 per share upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the number of authorized shares to a level that allowed for the conversion.
In connection with the issuance of the convertible debenture, the Company recorded the intrinsic value of the related beneficial conversion feature of $100,000, which was limited to the proceeds received from this transaction. The closing price of the Company’s common stock at the date of the transaction was $1.60. During the year ended December 31, 2013, the Company recorded the accretion of the discount associated with the convertible debenture in the amount of $26,929. There was an additional $2,849 of interest expense incurred relating to the convertible debenture. In connection with the effectiveness of the Merger, the convertible debenture, including accrued interest, was converted into 205,699 shares of common stock.
On November 12, 2013, the Company issued a 10% convertible debenture to an unaffiliated accredited institutional investor in the principal amount of $200,000, which was due in November 2014. The convertible debenture, including any accrued and unpaid interest, was to automatically convert into shares of common stock at an effective conversion price of $0.65 per share upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the number of authorized shares to a level that allowed for the conversion. During the year ended December 31, 2013, the Company recorded $1,590 of interest expense. In connection with the effectiveness of the Merger, the convertible debenture, including accrued interest, was converted into 310,137 shares of common stock.
8. Related Parties
Prior to January 1, 2012, the Company was obligated to Big Red Investments Partnership, Ltd. (“Big Red”) (an affiliate of Thomas J. Bean who is a member of the Company’s board of directors and former Chairman, President, Chief Executive Officer, and Chief Financial Officer of the Company) for working capital advances of $439,637. In July 2012, the Company and Big Red agreed to convert these advances into 223,166 shares of common stock.
During the year ended December 31, 2012, and through the period ended September 30, 2013, ioWorldMedia was obligated to Big Red for working capital advances of $332,163 and $80,310 to Bubba Radio Network, Inc. and $15,000 to Twin Management Group Inc. for services rendered. On August 28, 2013, the Company and the related parties agreed to allow conversion of the aggregate balances to convertible debentures. The convertible debentures had an interest rate of 10% and were due in August 2014 and September 2014. The convertible debentures, including any accrued and unpaid interest, were to automatically convert into shares of common stock at a conversion price of $1.22 per share upon an amendment to the Company’s articles of incorporation that increased the number of authorized shares to a level that allowed for conversion.
In connection with the issuance of the convertible debentures described in the above paragraph, the Company recorded the intrinsic value of the beneficial conversion feature of $133,147. The closing price of the Company’s common stock at the date of the transaction was $1.60. During the year ended December 31, 2013, the Company recorded accretion of the debt discount associated with the convertible debentures of $35,829. There was an additional $12,297 of interest expense incurred relating to the convertible debentures. In connection with the effectiveness of the Merger, the convertible debentures, including accrued interest, were converted into 360,470 shares of common stock.
In September 2013, the Company issued 10% convertible debentures in the aggregate principal amount of $250,000 to present and past officers of the Company, which were to become due in September 2014. The convertible debentures, including any accrued and unpaid interest, were to automatically convert into shares of common stock at an effective conversion price ranging from $0.50 to $1.22 per share upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the number of authorized shares to a level that allowed for conversion. In connection with the issuance of the convertible debentures, the Company recorded the intrinsic value of the related beneficial conversion feature of $146,721. During the year ended December 31, 2013, the Company recorded accretion of the debt discount associated with the convertible debentures of $39,640. There was an additional $6,849 of interest expense incurred relating to the convertible debentures. In connection with the effectiveness of the Merger, the convertible debentures, including accrued interest, were converted into 210,533 shares of common stock.
During the year ended December 31, 2013, the Company was obligated to a related party for working capital advances of $2,500. In April 2013, the Company and the related party agreed to convert these advances into 4,032 shares of common stock.
9. Conversion of Convertible Preferred Stock
Prior to the Merger of ioWorldMedia with and into Radioio, ioWorldMedia was authorized to issue 5,000,000 shares of convertible preferred stock with a par value of $.001. The significant terms of the convertible preferred stock were as follows:
|
(a)
|
All or a portion of the convertible preferred stock, was to be convertible at the option of the Company, into shares of ioWorldMedia’s common stock at an effective conversion rate of $0.0606 per share (the “Conversion Rate”).
|
|
(b)
|
The holders of the convertible preferred stock had the right to initiate a conversion thereof at any time at the Conversion Rate; provided, however, that no such conversion was allowed if such conversion would cause the number of shares of ioWorldMedia’s common stock issued and outstanding to exceed the figure that was 50,000,000 less than the authorized number of shares of common stock.
|
|
|
|
|
(c)
|
To the extent any shares of convertible preferred stock remained issued and outstanding on the one-year anniversary of the letter agreement signed by a convertible preferred stock holder, the preferred stock held by such holder was to begin accruing interest at the rate of five percent, per annum, which was to be treated as a dividend to the preferred stockholders.
|
Immediately prior to the effectiveness of the Merger of ioWorldMedia with and into Radioio on December 11, 2013, there were 3,000,000 shares of convertible preferred stock issued and outstanding. Upon the effectiveness of the Merger, the Company issued 1,485,150 shares of its common stock to the holders of the 3,000,000 issued and outstanding shares preferred stock in conversion thereof, and the shares of preferred stock were retired.
10. Income Taxes
The difference between the statutory federal income tax rate on the Company’s pre-tax loss and the Company’s effective income tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision at federal statutory rate
|
|
$
|
(1,118,733
|
)
|
|
|
34.0
|
%
|
|
$
|
(253,850
|
)
|
|
|
34.0
|
%
|
|
Effect of state taxes, net of federal benefit
|
|
|
(180,972
|
)
|
|
|
5.5
|
|
|
|
(41,064
|
)
|
|
|
5.5
|
|
|
Goodwill
|
|
|
443,480
|
|
|
|
(13.5
|
)
|
|
|
(31,706
|
)
|
|
|
4.2
|
|
|
Change in valuation allowance
|
|
|
856,225
|
|
|
|
(26.0
|
)
|
|
|
326,620
|
|
|
|
(43.7
|
)
|
|
|
|
$
|
--
|
|
|
|
--
|
%
|
|
$
|
--
|
|
|
|
--
|
%
|
Significant components of the Company’s deferred tax assets as of December 31, 2013 and 2012 are shown below. In determining whether the deferred tax assets will be realized, the Company considered numerous factors, including historical profitability, estimated future taxable income and the industry in which it operates. As of December 31, 2013 and 2012, a valuation allowance was recorded to fully offset the net deferred tax assets, as it was determined by management that the realization of the net deferred tax assets were not likely to occur in the foreseeable future. The valuation allowance increased $856,225 during the fiscal year ended December 31, 2013 and $326,620 during the fiscal year ended December 31, 2012, attributable primarily to the Company’s continuing operating losses for the fiscal year ended December 31, 2013 and the Company’s belief that its remaining net operating losses would not be realized.
The tax effects of temporary differences and net operating loss carryforwards that give rise to deferred taxes consist of the following:
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
12,534,572
|
|
|
|
11,678,347
|
|
|
Valuation allowance
|
|
|
(12,534,572
|
)
|
|
|
(11,678,347
|
)
|
|
Net deferred tax assets
|
|
$
|
--
|
|
|
$
|
--
|
|
As of December 31, 2013, the Company has federal and state operating losses of approximately $31,733,000. The federal and state operating losses begin to expire in 2015.
Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code has occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change.
The Company is delinquent in its federal and state income tax filings beginning with the 2004 tax year. The Company has not received any notices for any payments resulting from this matter.
11. Stockholders’ Equity
In July 2012, the Company issued 76,142 shares of common stock to Zanett Opportunity Fund. Ltd. (“Zanett”) for an aggregate purchase price of $150,000.
On April 18, 2013, the Company issued 60,000 shares of its common stock to Zanett for an aggregate purchase price of $60,000. McAdoo Capital, Inc. is the investment manager of Zanett. Zachary McAdoo, the Chairman, President, Chief Executive Officer and Chief Financial Officer of the Company, is the President of McAdoo Capital, Inc.
On June 20, 2013, the Company issued 51,724 shares of common stock to Zanett for an aggregate purchase price of $30,000.
In December 2013, the Company issued 4,032 shares of common stock, at a per share price of $0.62, to a service provider as full payment of the $2,500 accrued obligation to such service provider. The quoted market price of the Company’s common stock on the date the issuance was approved by the Company’s board of directors was less than $0.62 per share.
On December 31, 2013, Radioio sold an aggregate of 115,385 shares of its common stock to an individual investor for an aggregate purchase price of $75,000, or $0.65 per share.
12.
Merger
On October 29, 2013, ioWorldMedia entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Radioio providing for the Merger of ioWorldMedia with and into Radioio, with Radioio continuing as the surviving corporation.
The Merger became effective on December 11, 2013, at which time each holder of ioWorldMedia common stock received one share of Radioio common stock for every 100 shares of ioWorldMedia common stock held and each holder of ioWorldMedia preferred stock received .4950495 of one share of Radioio common stock for each share of ioWorldMedia preferred stock held. ioWorldMedia shareholders received one whole share of Radioio common stock in lieu of a fractional share.
13. Commitments and Contingencies
Litigation
From time to time, the Company may be involved as a defendant in legal actions that arise in the normal course of business. In the opinion of management, the Company has adequate legal defense on all legal actions, and the results of any such proceedings would not materially impact the consolidated financial statements of the Company.
Employment Agreements
On August 28, 2013, the Company executed an employment agreement with its Chief Operating Officer. The agreement contains non-compete clause and other terms and conditions and benefits. The agreement has an initial term of one year and will automatically renew on the anniversary date unless written notice of non-renewal is given by either party. The Company became immediately obligated to issue 300,000 shares of its common stock to this executive upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the authorized shares of the common stock to a level sufficient to allow for such issuance.
Upon the effectiveness of the Merger on December 11, 2013, the Company issued 300,000 shares of its common stock to the executive pursuant to this requirement. The Company recorded an expense of $480,000 in connection with this transaction during the quarter ended September 30, 2013. The Company assumed the employment agreement with the Chief Operating Officer by operation of the Merger, and remains bound by the remaining terms thereof.
On August 28, 2013, the Company also entered into an employment agreement with its Chairman, President, Chief Executive Officer and Chief Financial Officer. The agreement initially will not pay this executive any base salary, and provides that the board of directors may award bonus compensation to the executive which is based on certain performance criteria. The agreement is also subject to a non-compete clause and other terms, conditions and benefits. No bonus compensation was paid to this executive during the year ended December 31, 2013. The Company assumed the employment agreement with the Chairman, President, Chief Executive Officer and Chief Financial Officer by operation of the Merger, and remains bound by the terms thereof.
Consulting Agreements - 2013
In April 2013, the Company entered into an agreement with Digipowers, an entity controlled by the Company’s Chief Operating Officer. Under the terms of this agreement, the Company is obligated to issue shares of common stock based on a prescribed number of new subscribers. During the year ended December 31, 2013, the Company was obligated to issue shares of common stock with a value of $18,645 under this agreement.
On August 28, 2013, the Company entered into a consulting agreement with a third party for consulting services related to advertising operations, technology, finance, strategy and content development. The agreement has a term of three years commencing on September 16, 2013, and can be renewed by the written consent of both parties, or terminated at any time by the consent of both parties. The Company will pay an annual fee of $114,000 payable semi-monthly ($4,750 per payment). As additional consideration, the agreement provided that the Company would issue up to 50,000 shares of its common stock to the consultant upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the authorized shares of common stock to a level sufficient to allow for such issuance. Upon the effectiveness of the Merger, the Company issued 50,000 shares of its common stock valued at $37,482 at the date of issuance to the consultant pursuant to this provision of the agreement. The Company recognized the value of the vested portion of the issuance at its then-current fair value at each reporting date. These shares shall vest as follows: one-third of the shares vests on September 16, 2014; one-third of the shares vests on September 16, 2015; and one-third of the shares vests on September 16, 2016.
On August 31, 2013, the Company entered into a consulting agreement with a third party for consulting services related to advertising operations, technology, finance, strategy and content development. The agreement has a term of three years commencing on August 31, 2013. This agreement can be renewed by the written consent of both parties, or terminated at any time by the consent of both parties. The Company will pay an annual fee of $96,000 payable semi-monthly ($4,000 per payment). As additional consideration, the agreement provided that the Company would issue 100,000 shares of its common stock to the consultant upon the effectiveness of an amendment to the Company’s articles of incorporation that increased the authorized shares of common stock to a level sufficient to allow for such issuance. Upon the effectiveness of the Merger, the Company issued 100,000 shares of its common stock valued at $75,329 at the date of issuance to the consultant pursuant to this provision of the agreement. The Company recognized the value of the vested portion of the issuance at its then-current fair value at each reporting date. These shares shall vest as follows: one-third of the shares vests on August 31, 2014; one-third of the shares vests on August 31, 2015; and one-third of the shares vests on August 31, 2016.
Consulting Agreements - 2012
On July 23, 2012, the Company entered into a consulting agreement with a third party for consulting services related to advertising, operations, technology, finance, strategy and content development. The agreement has a term of twenty-four months unless otherwise agreed upon in writing by both parties. As consideration for these services, the Company issued 210,000 shares of its common stock valued at $315,000 at the date of issuance. Upon the effectiveness of the Merger the Company issued 210,000 shares of common stock to the consultant. The Company recognized the value of the vested portion of the issuance at its then-current fair value at each reporting date. At December 31, 2013 and 2012, prepaid consulting services relating to this agreement amounted to $78,750 and $236,250, respectively.
On July 31, 2012, the Company entered into a consulting agreement with McAdoo Capital, Inc., an entity controlled by the Company’s Chairman, President, Chief Executive Officer and Chief Financial Officer, for consulting services related to advertising, operations, technology, finance, strategy and content development. The agreement has a term of twenty-four months unless otherwise agreed upon in writing by both parties. As consideration for these services, the consulting agreement provided for the issuance by the Company of 105,000 shares of common stock valued at $157,500 at the date of issuance to McAdoo Capital, Inc. The Company recognized the value of the vested portion of the issuance at its then-current fair value at each reporting date. McAdoo Capital, Inc. assigned its right to receive these shares to Zachary McAdoo, and accordingly, the Company issued 105,000 shares of its common stock to Mr. McAdoo upon the effectiveness of the Merger. During the year ended December 31, 2013, all of the unvested shares vested upon the Company hiring the executive. At both December 31, 2013 and 2012, prepaid consulting services relating to this agreement amounted to $0 and $118,125, respectively.
The Company recorded expenses in the amount of $275,625 during the year ended December 31, 2013 and $118,125 during the year ended December 31, 2012 relating to the 2012 consulting agreements.
The Company engaged Digipowers, an entity controlled by the Company’s Chief Operating Officer, for consulting services related to technology and marketing on a monthly basis. For the year ended December 31, 2013, the Company recorded expenses in the amount of approximately $237,000. As of December 31, 2013, the Company owed this vendor approximately $16,000, which is included as a component of accounts payable and accrued expenses in the consolidated balance sheets.
Leases
The Company’s principal office is located at 475 Park Avenue South, 4
th
Floor, New York, New York, which it subleases pursuant to a letter agreement dated August 27, 2013. The letter agreement provides that the term of the sublease is on a month-to-month basis until the earlier of the termination of the sublessor’s master lease or the termination of the letter agreement by either party upon thirty (30) days notice. The letter agreement provides for monthly rent payments of $500.
Radioio also leases office space and a recording studio in Tampa, Florida from Bubba Radio Network, Inc. on a month-to-month basis. This verbal lease provides for a $2,000 monthly payment.
Rent expense under the leases approximated $53,000 and $73,000 for the years ended December 31, 2013 and 2012, respectively.
14. Subsequent Events
Issuances of Common Stock
On March 11, 2014, Zanett Opportunity Fund, Ltd. purchased 384,615 shares of Radioio common stock for an aggregate purchase price of $250,000, or $.65 per share. Radioio will use the proceeds from this sale of common stock for working capital purposes.
Also on March 11, 2014, Radioio issued and aggregate of 20,161 shares of common stock to five service providers as consideration for services rendered.
On April 16, 2014, Radioio sold an aggregate of 80,000 shares of its common stock to an individual investor for an aggregate purchase price of $52,000, or $0.65 per share. Radioio will use the proceeds from this sale of common stock for working capital purposes.
On April 17, 2014, Radioio sold an aggregate of 153,846 shares of its common stock to Zanett Opportunity Fund, Ltd. for an aggregate purchase price of $100,000, or $.65 per share. Radioio will use the proceeds from this sale of common stock for working capital purposes.
On April 22, 2014, Radioio issued an aggregate of 50,315 shares of Radioio common stock to three service providers as payment in full for certain services rendered by the service providers to Radioio during 2014. The aggregate dollar amount owed by Radioio to these service providers was $38,965. This amount included $21,840 owed to Digipowers, Inc., an entity affiliated with Julia Miller, the Chief Operating Officer, Secretary and a director of Radioio. Radioio issued 29,120 shares of its common stock to Real eMarketing, Inc., an entity affiliated with Digipowers, Inc., in full satisfaction of its obligation to Digipowers, Inc., which are included in the aggregate total of 50,315 shares issued to all three service providers referenced above. Radioio used a price per share of $.69 to determine the per share price for the shares issued to the service providers, which was the closing price of its common stock on April 21, 2014.
Asset Acquisition
On April 29, 2014, Radioio entered into an Asset Purchase Agreement with Crowdstream, Inc. (“Crowdstream”) pursuant to which Radioio acquired certain assets used in CrowdStream’s mobile application business in exchange for aggregate cash payments of $50,000 and 86,456 shares of Radioio’s common stock, which have a market value of $60,000 based on the average closing price of Radioio’s common stock on the OTC Bulletin Board on the five trading days preceding the date of the agreement. The assets acquired by Radioio include CrowdStream’s mobile applications that allow attendees at live music and other entertainment events to interact with other attendees and with performers, as well as the rights to the name “CrowdStream” and other social media assets.
In connection with this transaction, Radioio entered into a consulting agreement with Brian Bason, a principal of Crowdstream, pursuant to which Mr. Bason will provide business development and software development services to Radioio related to the CrowdStream application. The consulting agreement provides that Radioio will pay Mr. Bason $5,000 per month for such services. The consulting agreement has an initial term of 12 months, which may be renewed upon the written agreement of the parties.
Programming Agreement with The Bubba Radio Network, Inc.
On May 1, 2014, Radioio Live, LLC, a wholly-owned subsidiary of Radioio, entered into a new programming agreement with The Bubba Radio Network, Inc., the operating company of Bubba the Love Sponge Clem, who hosts the syndicated radio talk show, “The Bubba the Love Sponge Show.” During the term of the agreement, Radioio Live, LLC has the exclusive right to distribute archived and newly produced Internet-only content of the Bubba Radio Network over the Internet and the non-exclusive right to broadcast live The Bubba the Love Sponge Show, which is syndicated on terrestrial radio (collectively, the “Programming”). Subject to certain parameters set forth in the agreement, the Bubba Radio Network has the sole right to control and determine the content of the Programming, and will provide all personnel, facilities, equipment, tools and supplies necessary to produce the Programming. In addition, Radioio Live, LLC has the worldwide, royalty-free right to transmit the Programming on a live or delayed basis or though on-demand or download services, on an unlimited basis. Radioio Live, LLC also has the right to edit, create and broadcast derivative works of the Programming, such as “best of” shows. Radioio Live, LLC shall pay periodic fees based on subscription and advertising revenue received by it related to the Programming, subject to an annual minimum. The term of the agreement will terminate on December 31, 2016. The agreement provides that the Bubba Radio Network will negotiate exclusively and in good faith with Radioio Live, LLC regarding the renewal of the agreement for a sixty (60) day period beginning on the date that is two hundred ten (210) days prior to the last day of the term.