Notes to Consolidated Financial Statements
June 30, 2015 and 2014
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”).
On April 17, 2007, the Company announced that it had finalized the reverse merger of MyStudio HD Recording Studios, Inc. through an all-stock transaction. The purchase was pursuant to an agreement entered into by the companies dated March 29, 2006. The reverse merger included the exchange of 7,000,000 restricted Common Shares of AfterMaster, Inc. for 100% of the issued and outstanding shares of MyStudio HD Recording Studios, Inc. The substance of the transaction resulted in a reverse merger wherein MyStudio HD Recording Studios, Inc. became the accounting acquirer of AfterMaster. Therefore, historical financial data reflects the operations and accumulated deficit of MyStudio HD Recording Studios, Inc. The transaction essentially is a recapitalization of MyStudio HD Recording Studios, Inc. The reverse merger includes all right, title and interest to MyStudio HD Recording Studio, Inc.’s proprietary interactive recording studios, business plan and intellectual property, including pending patents, foreign patent rights and federal trademark applications. MyStudio, Inc. continues to operate as a wholly owned subsidiary of AfterMaster. Accordingly, the financial statements present on a consolidated basis the operations of AfterMaster and MyStudio HD Recording Studios, Inc., as well it’s other wholly-owned subsidiary, AfterMaster HD Audio, Inc.
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.
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.
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, 2015 and 2014, 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:
|
•
|
|
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
|
|
|
|
•
|
|
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.
|
|
•
|
|
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. The debt consists of lease payable and notes payables, the lease payables, which is due 24 months after June 30, 2015, therefore its carrying amount also approximates fair value.
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, 2015 there were no customers that accounted for a material portion of total revenues, and 2014 there was no customer that accounted for a material portion of total revenues.
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.
Property and Equipment Yet to be Placed in Service
The Company capitalizes direct costs associated with the production of a new studio as it is being built. Depreciation of these assets does not begin until the studio is complete and placed into service.
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
|
Valuation of 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.
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, and licensing fees. 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:
·
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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;
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·
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bBooth agreed to grant 600,000 shares of our common stock to Studio One, which shares where received subsequent to year end on September 3, 2015 and;
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·
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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.
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The letter agreement with Studio One is intended to be superseded by a definitive license agreements, which the Company expect to execute within 60 days of the date of this annual report. The balance of the $1,250,000 cash consideration will be payable as follows: $200,000 will be payable on execution of the definitive license agreements; $100,000 will be payable on the date that is 90 days following the execution of such agreements; $250,000 will be payable on the date that is 180 days following the execution of such agreements; $250,000 will be payable on the date that is nine months following the execution of such agreements; and $250,000 will be payable on or before the date that is 18 months following the execution of such agreements.
Cost of Revenues
The Company’s cost of revenues includes studio lease expense, employee costs, and other nominal amounts. Depreciation is not included within cost of sales.
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 $67,742 and $31,450 during the years ended June 30, 2015 and 2014, respectively.
The Company expenses advertising costs in the period in which they are incurred. Advertising expenses were $1,389 and $85,810 for the years ended June 30, 2015 and 2014, respectively, and have been included within general and administrative expenses.
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.
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, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to August 14 2014 are derivative liabilities.
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.
Basic earnings (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, 2015 and 2014 of $64,141 and $68,064, respectively.
Diluted earnings per Common Share is computed by dividing income (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, 2015 and 2014, 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 28,028,612 and 15,895,075 at June 30, 2015 and 2014, respectively.
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.
In July, 2006, the FASB issued ASC 740,
Accounting for Uncertainty in Income Taxes
, which 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 2015 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.
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.
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 $58,165,447, negative working capital of $13,027,775, 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 MyStudio 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) placing in service additional studios (d) more widely commercializing the AfterMaster and ProMaster products, and (e) 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, 2015 and 2014:
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|
2015
|
|
|
2014
|
|
Furniture and Office Equipment
|
|
$
|
28,812
|
|
|
$
|
25,912
|
|
Office Equipment and Computers
|
|
|
233,564
|
|
|
|
233,564
|
|
Studios
|
|
|
185,824
|
|
|
|
123,324
|
|
Vehicles
|
|
|
60,524
|
|
|
|
60,524
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|
Leasehold Improvements
|
|
|
21,072
|
|
|
|
23,472
|
|
Computer Software
|
|
|
56,232
|
|
|
|
56,166
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|
Accumulated Depreciation
|
|
|
(416,074
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)
|
|
|
(357,982
|
)
|
Net Property and Equipment
|
|
$
|
169,954
|
|
|
$
|
164,980
|
|
The Company also had $0 and $31,250 in equipment that was yet to be placed in service as of June 30, 2015 and 2014, respectively. Depreciation expense for the years ended June 30, 2015 and 2014 was $58,092 and $104,127, respectively.
NOTE 4 – INTANGIBLE ASSETS
The Company’s intangible assets are comprised of the following on June 30, 2015 and June 30, 2014:
|
|
2015
|
|
|
2014
|
|
Patterns and Molds
|
|
$
|
18,916
|
|
|
$
|
18,916
|
|
Website Costs
|
|
|
120,595
|
|
|
|
100,410
|
|
Video Backgrounds
|
|
|
16,172
|
|
|
|
16,172
|
|
Accumulated Amortization
|
|
|
(132,830
|
)
|
|
|
(123,508
|
)
|
Intangible Assets, Net
|
|
$
|
22,853
|
|
|
$
|
11,990
|
|
Amortization expense for the years ended June 30, 2015 and 2014 was $9,322 and $10,193, respectively. The Company’s future estimated amortization for the above intangible assets are as follows:
Year
|
|
Amortization
|
|
2016
|
|
$
|
5,860
|
|
2017
|
|
|
5,844
|
|
2018
|
|
|
5,844
|
|
2019
|
|
|
4,488
|
|
2020
|
|
|
817
|
|
Total
|
|
$
|
22,853
|
|
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of accounts payable and accrued expenses as of June 30, 2015 and 2014 follows:
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|
2015
|
|
|
2014
|
|
Accounts Payable
|
|
$
|
344,451
|
|
|
$
|
951,563
|
|
Accrued Interest
|
|
|
93,762
|
|
|
|
74,483
|
|
Deferred Revenue
|
|
|
2,500
|
|
|
|
3,500
|
|
Consulting Services-Related Party
|
|
|
82,267
|
|
|
|
278,568
|
|
Total
|
|
$
|
522,980
|
|
|
$
|
1,308,113
|
|
Other accrued expenses consist primarily of accrued payroll liabilities, consulting fees payable and other fees payable.
NOTE 6 – 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, 2015 and 2014, respectively:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
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 and $1,761 as of June 30, 2015 and 2014, respectively.
|
|
$
|
3,925,000
|
|
|
$
|
3,924,439
|
|
$9,000 face value,of which all of the note has been paid back.
|
|
|
-
|
|
|
|
7,800
|
|
Total convertible notes payable – related parties
|
|
|
3,925,000
|
|
|
|
3,932,239
|
|
Less current portion
|
|
|
3,925,000
|
|
|
|
3,932,239
|
|
Convertible notes payable – related parties, long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
The notes were amended on June 30, 2014 to extend the maturity date to September 30, 2014, amended again on September 30, 2014 to December 31, 2014, amended again on December 31, 2014 to June 30, 2015, amended again on June 30, 2015 to August 31, 2015 and amended again August 28, 2015 to September 30, 2015. 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, 2015, and 2014, respectively:
|
June 30,
|
|
|
June 30,
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
$100,000 face value, of which $100,000 has been converted.
|
|
$
|
-
|
|
|
$
|
100,000
|
|
$15,000 face value, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
15,000
|
|
|
|
15,000
|
|
$75,000 face value, of which $75,000 has been converted.
|
|
|
-
|
|
|
|
75,000
|
|
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
50,000
|
|
|
|
50,000
|
|
$10,000 face value, issued in September 2012, interest rate of 10%, matures in March 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
10,000
|
|
|
|
10,000
|
|
$50,000 face value of which $9,600 was converted leaving a $40,400 face value, issued in November 2012, interest rate of 10%, matures in November 2013 and an additional penalties were added to the principal of $120,348 bringing the face value to $160,748, which were forgiven subsequent to 2015 as part of a settlement agreement, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
40,400
|
|
|
|
160,748
|
|
$30,000 face value, issued in February 2013, interest rate of 0%, matures in November 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
30,000
|
|
|
|
30,000
|
|
$20,000 face value, issued in April 2013, interest rate of -0-%, matures in October 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
20,000
|
|
|
|
20,000
|
|
$100,000 face value, of which $100,000 has been converted.
|
|
|
-
|
|
|
|
100,000
|
|
$50,000 face value, of which $50,000 has been converted.
|
|
|
-
|
|
|
|
50,000
|
|
$50,000 face value, of which $50,000 has been converted.
|
|
|
-
|
|
|
|
50,000
|
|
$50,000 face value, of which $50,000 has been converted.
|
|
|
-
|
|
|
|
46,132
|
|
$30,000 face value, issued in March 2014, interest rate of 0%, matures in September 2014, net of unamortized discount of $0 and $7,011 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
30,000
|
|
|
|
22,989
|
|
$20,000 face value, of which $20,000 has been converted.
|
|
|
-
|
|
|
|
20,000
|
|
$25,000 face value, of which $25,000 has been converted.
|
|
|
-
|
|
|
|
9,563
|
|
$15,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $14,098 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
15,000
|
|
|
|
902
|
|
$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $18,798 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
20,000
|
|
|
|
1,202
|
|
$30,000 face value, of which $30,000 has been converted.
|
|
|
-
|
|
|
|
1,967
|
|
$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $18,798 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
20,000
|
|
|
|
1,202
|
|
$25,000 face value, issued in June 2014, interest rate of 6%, matures September 2014, net unamortized discount of $0 and $25,000 as of June 30, 2015 and June 30, 2014, respectively.
|
|
|
25,000
|
|
|
|
-
|
|
$15,000 face value, of which $15,000 has been converted.
|
|
|
-
|
|
|
|
-
|
|
$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.
|
|
|
10,000
|
|
|
|
-
|
|
$10,000 face value, of which $10,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$7,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.
|
|
|
7,000
|
|
|
|
-
|
|
$5,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.
|
|
|
5,000
|
|
|
|
-
|
|
$10,000 face value, of which $10,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$25,000 face value, of which $25,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$10,000 face value, of which $10,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$30,000 face value, of which $30,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 as of June 30, 2015.
|
|
|
100,000
|
|
|
|
-
|
|
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 as of June 30, 2015.
|
|
|
100,000
|
|
|
|
-
|
|
$40,000 face value, of which $40,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$40,000 face value, of which $40,000 was converted.
|
|
|
-
|
|
|
|
-
|
|
$40,000 face value, issued in October 2014, interest rate of 6%, matures January 2015, net unamortized discount of $40,000 as of June 30, 2015.
|
|
|
40,000
|
|
|
|
-
|
|
$25,000 face value, of which $25,000 has been converted.
|
|
|
-
|
|
|
|
-
|
|
$25,000 face value, of which $25,000 has been converted.
|
|
|
-
|
|
|
|
-
|
|
$35,000 face value, issued in November 2014, interest rate of 6%, matures January 2015, net unamortized discount of $0 as of June 30, 2015.
|
|
|
35,000
|
|
|
|
-
|
|
Total convertible notes payable – non-related parties
|
|
|
572,400
|
|
|
|
764,705
|
|
Less current portion
|
|
|
572,400
|
|
|
|
764,705
|
|
Convertible notes payable – non-related parties, long-term
|
|
$
|
-
|
|
|
$
|
-
|
|
On August 15, 2014, the Company amended the convertible notes dated September 29, 2011 for $100,000 and January 6, 2012 for $75,000 to extend the maturity date to November 15, 2014 and issued 50,000 shares of the Company’s common stock valued at $15,750, as well as 50,000 warrants valued at $12,767. 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. The Company recorded a loss on extinguishment of debt of $28,517. On October 20, 2014, the note holder elected to convert the entire note of $175,000.
On September 30, 2013, the Company issued a convertible note to an unrelated individual for $100,000 that matures on February 28, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the BCF recorded was $100,000. On August 14, 2014, the note holder elected to convert the entire note of $100,000.
On October 17, 2013, the Company issued a convertible note to an unrelated individual for $50,000 with an original maturity date of November 17, 2013, the note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the original BCF recorded was $50,000. The note was amended on November 17, 2013 to extend the maturity date to May 17, 2014 and issued 25,000 common stock and 25,000 warrants as incentive to extending the maturity date. Under ASC 470-60-55-12, the debt was deemed to be extinguished and the company recognized a loss on extinguishment of debt $25,787. On August 14, 2014, the note holder elected to convert the entire note of $50,000.
On February 3, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on April 10, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $50,000 and $3,041 in accrued interest.
On February 21, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on August 21, 2014. The note bears an interest rate of 6% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On August 14, 2014, the note holder elected to convert the entire note of $50,000.
On March 31, 2014, the Company issued a convertible note to an unrelated individual for $20,000 that matures on June 28, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $20,000 and $603 in accrued interest.
On April 21, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on October 21, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $25,000.
On June 18, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $30,000.
On July 9, 2014, the Company issued a convertible note to an unrelated individual for $15,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On March 31, 2015, the note holder elected to convert the entire note of $15,000 and $653 in accrued interest.
In conjunction with the note, the Company issued to the holder 7,500 shares of restricted Common Stock. The value of the BCF recorded was $13,333 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,667, for a total debt discount of $15,000.
On July 10, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.
In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,889 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,111, for a total debt discount of $10,000.
On July 14, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On March 31, 2015, the note holder elected to convert the entire note of $10,000 and $427 in accrued interest.
In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,929 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,071, for a total debt discount of $10,000.
On July 14, 2014, the Company issued a convertible note to an unrelated individual for $7,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.
In conjunction with the note, the Company issued to the holder 3,500 shares of restricted Common Stock. The value of the BCF recorded was $6,222 and the debt discount related to the attached relative fair value of the restricted Common Stock was $778, for a total debt discount of $7,000.
On July 18, 2014, the Company issued a convertible note to an unrelated individual for $5,000 that matures on October 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.
In conjunction with the note, the Company issued to the holder 2,500 shares of restricted Common Stock. The value of the BCF recorded was $4,444 and the debt discount related to the attached relative fair value of the restricted Common Stock was $556, for a total debt discount of $5,000.
On August 18, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on November 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On February 16, 2015, the note holder elected to convert the entire note of $10,000 and $299 in accrued interest.
In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The Company booked a debt discount related to the derivative liability of $10,000.
On August 22, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on September 22, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.15 per share. On September 30, 2014, the note holder elected to convert the entire note of $25,000 and $160 in accrued interest.
In conjunction with the note, the Company issued to the holder 12,500 shares of restricted Common Stock. The Company booked a debt discount related to the derivative liability of $25,000.
On September 5, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $10,000. On March 5, 2015, the note holder elected to convert the entire note of $10,000 and $281 in accrued interest.
On September 10, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $30,000.
On September 11, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 11, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $100,000.
On September 19, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 19, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $100,000.
On September 30, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on December 29, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. Company booked a debt discount related to the derivative liability of $40,000.
On October 3, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on December 2, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $40,000.
On October 6, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on January 6, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $40,000.
On October 20, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on April 20, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $25,000. On October 24, 2014, the note holder elected to convert the entire note of $25,000.
On October 16, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on January 16, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $25,000.
On November 24, 2014, the Company issued a convertible note to an unrelated individual for $35,000 that matures on May 24, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.35 per share. The Company booked a debt discount related to the derivative liability of $35,000.
Notes Payable – Related Parties
Notes payable due to related parties consisted of the following as of June 30, 2015 and 2014:
|
June 30,
|
|
|
June 30,
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Various term notes with total face value of $610,000 issued from April 11 to January 2014, interest rates range from 0% to 15%, net of unamortized discount of $0 as of June 30, 2015 and June 30, 2014, respectively, of which $35,000 has been paid.
|
|
$
|
575,000
|
|
|
$
|
610,000
|
|
Face value of $50,000, issued in December 2014, matures in January 2015, note bears interest at 0%.
|
|
|
50,000
|
|
|
|
-
|
|
Total notes payable – related parties
|
|
|
625,000
|
|
|
|
610,000
|
|
Less current portion
|
|
|
625,000
|
|
|
|
610,000
|
|
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, 2015 and 2014:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2014
|
|
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 7 – 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:
|
|
Shares
|
|
|
Shares
|
|
|
Liquidation
|
|
|
|
Allocated
|
|
|
Outstanding
|
|
|
Preference
|
|
Series A Convertible Preferred
|
|
|
100,000
|
|
|
|
15,500
|
|
|
|
-
|
|
Series A-1 Convertible Preferred
|
|
|
3,000,000
|
|
|
|
616,000
|
|
|
|
684,251
|
|
Series B Convertible Preferred
|
|
|
200,000
|
|
|
|
3,500
|
|
|
|
79,099
|
|
Series C Convertible Preferred
|
|
|
1,000,000
|
|
|
|
13,404
|
|
|
|
-
|
|
Series D Convertible Preferred
|
|
|
375,000
|
|
|
|
130,000
|
|
|
|
130,000
|
|
Series E Convertible Preferred
|
|
|
1,000,000
|
|
|
|
275,000
|
|
|
|
275,000
|
|
Series P Convertible Preferred
|
|
|
600,000
|
|
|
|
86,640
|
|
|
|
-
|
|
Series S Convertible Preferred
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
Total Preferred Stock
|
|
|
6,325,000
|
|
|
|
1,140,044
|
|
|
$
|
1,168,350
|
|
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. Preferred Shares may be redeemed by the Company at any time after the second anniversary date of their issue by Studio One at the price of $5.00 per share. 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 years ended June 30, 2015 and 2014 the Company issued -0- shares of Series A-1 Preferred Stock for $-0- in cash, net of $-0- of issuance costs, respectively.
The Company had three conversions of 80,000 shares of Series A-1 Preferred Stock for 160,000 shares of Common Stock, and issued 43,772 shares of Common Stock of payment of $18,988 in accrued dividends.
During the fiscal years ended June 30, 2015 and 2014, the outstanding Preferred Stock accumulated $64,410 and $68,064 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears as of June 30, 2015 were approximately $648,236.
NOTE 8 – COMMON STOCK
The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 95,280,257 and 70,296,203 were issued outstanding as of June 30, 2015 and 2014, respectively. The Company subsequently amended its articles of incorporation on August 28, 2015 to increase the number of authorized shares to 250,000,000, see footnote 15. The activity surrounding the issuances of the Common Stock is as follows:
Fiscal Year Ended June 30, 2015
The Company issued 12,767,259 common shares for net cash proceeds of $4,551,632. The Company paid as offering costs $286,720 in cash offering costs, of which, $35,000 remained payable as of June 30, 2015. Offering costs have been recorded as reductions to additional paid-in capital from common stock proceeds and an increase in professional fees. Attached to the Common Shares, the Company issued 12,017,259 warrants to purchase shares of the Company’s Common Stock.
The Company recognized $1,329,758 for the amortization of warrants issued in prior periods.
The Company also issued 43,500 shares of Common Stock as incentive to notes valued at $10,261 to extend terms on two convertible notes payable and recorded $527,000 in beneficial conversion features related to new issuances of debt.
The Company also issued 5,889,105 shares of Common Stock for the conversion of notes and accrued interest valued at $743,085.
The Company also issued 160,000 shares of Common Stock for the conversion of 80,000
shares of Series A-1 Preferred Stock
and issued 54,119 shares of Common Stock of payment of $43,772 in accrued dividends
.
The Company issued 385,221 shares of Common Stock as payment for services and rent valued at $166,358.
As share-based compensation to employees and non-employees, the Company issued 2,934,804 shares of common stock valued at $1,030,940, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 2,700,046 shares of common stock valued at $1,742,051 based on the market price on the date of issuance.
Fiscal Year Ended June 30, 2014
The Company issued 9,825,000 shares of Common Stock for net cash proceeds of $966,565. The Company paid $15,935 in cash offering costs and issued 126,750 in stock offering costs. Offering costs have been recorded as reductions to additional paid-in capital from common stock proceeds. Attached to the Common Shares, the Company issued 1,366,016 warrants to purchase shares of the Company’s Common Stock.
The Company recognized $289,791 in employee stock option expense and for the amortization of warrants issued in prior periods.
The Company also issued 1,271,534 shares of Common Stock for conversion of notes payable for $127,153, issued 229,250 shares as incentive to convertible debt for $46,283, and issued 380,000 shares of Common Stock to extend the maturity dates on debt for $105,225. The Company also issued 43,758 shares of Common Stock conversion of warrants for $0 and recorded $620,226 in beneficial conversion features related to new issuances of debt.
As share-based compensation to employees and non-employees, the Company issued 4,134,894 shares of common stock valued at $1,085,182, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 3,040,775 shares of common stock valued at $772,309 based on the market price on the date of issuance.
NOTE 9 – 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.
During the fiscal year ended June 30, 2015, the Company did not issue any stock purchase options.
During the fiscal year ended June 30, 2014, the Company issued 25,000 stock purchase options for a value of $6,045. The Company did recognize $10,713 in employee stock option expense during the fiscal year ended June 30, 2014 for options vested during the period that were issued in prior periods.
The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2015.
Date Issued
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Expiration Date (yrs)
|
|
|
Value if Exercised
|
|
Balance June 30, 2014
|
|
|
381,429
|
|
|
$
|
0.55
|
|
|
$
|
0.12
|
|
|
|
0.62
|
|
|
$
|
209,643
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
(301,429
|
)
|
|
|
(0.52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,743
|
)
|
Outstanding as of June 30, 2015
|
|
|
80,000
|
|
|
$
|
0.66
|
|
|
$
|
0.59
|
|
|
|
1.20
|
|
|
$
|
52,900
|
|
The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2015.
Date Issued
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Expiration Date (yrs)
|
|
|
Value if Exercised
|
|
Balance June 30, 2013
|
|
|
613,429
|
|
|
$
|
0.85
|
|
|
$
|
1.20
|
|
|
|
1.95
|
|
|
$
|
522,843
|
|
Granted
|
|
|
25,000
|
|
|
|
0.15
|
|
|
|
0.24
|
|
|
|
5.00
|
|
|
|
3,750
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
(257,000
|
)
|
|
|
(1.23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(316,950
|
)
|
Outstanding as of June 30, 2014
|
|
|
381,429
|
|
|
$
|
0.55
|
|
|
$
|
0.12
|
|
|
|
0.62
|
|
|
$
|
209,643
|
|
During the fiscal year ended June 30, 2015, the Company issued warrants to purchase a total of 26,434,199. The Company issued 50,000 warrants in conjunction to extended two convertible note payables and issued 5,876,133 warrants in conjunction to a consulting agreement entered into in July 2014 and 150,000 warrants issued in conjunction with a financial advisory agreement entered into on January 2015. The Company also issued 1,000,000 warrants related to the bBooth agreements which were expensed during the current year. The company also issued 8,657,701 warrants as part of a private placement to extend the terms during the period, which were converted for cash proceed of $75,000 in exchange for 750,000 shares of common stock. 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, 2014, the Company issued warrants to purchase a total of 1,366,016 and expired 498,500 shares of the Company’s Common Stock. The Company issued 29,400 warrants in conjunction to a default clause in a convertible note payable and issued 311,616 warrants in conjunction to a consulting agreement entered into in July 2013. The Company also issued 500,000 warrants in conjunction to a consulting agreement entered into in October 2013.The Company issued 25,000 warrants in conjunction to an extension in a convertible note payable in conjunction with 50,000 shares of common stock. The Company issued 100,000 warrants in conjunction with a consulting agreement entered into January 2014. The Company issued 300,000 warrants in conjunction with an employment agreement entered into January 2014. The Company also issued 100,000 warrants as compensation for references purchased. 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:
|
|
2015
|
|
2014
|
Expected volatility
|
|
71-142%
|
|
113-132%
|
Expected dividends
|
|
0%
|
|
0%
|
Expected term
|
|
.25-10 Years
|
|
2-10 Years
|
Risk-free interest rate
|
|
0.00-2.35%
|
|
0.35-1.75%
|
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, 2015.
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Expiration Date (yrs)
|
|
|
Value if Exercised
|
|
Outstanding as of June 30, 2014
|
|
|
8,332,579
|
|
|
$
|
0.76
|
|
|
$
|
0.70
|
|
|
|
2.96
|
|
|
$
|
6,370,432
|
|
Granted
|
|
|
26,464,199
|
|
|
|
0.24
|
|
|
|
0.25
|
|
|
|
5.56
|
|
|
|
9,821,607
|
|
Exercised
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(160,000
|
)
|
Cancelled/Expired
|
|
|
(2,065,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,446,750
|
)
|
Outstanding as of June 30, 2015
|
|
|
31,981,778
|
|
|
$
|
0.76
|
|
|
$
|
0.70
|
|
|
|
2.96
|
|
|
$
|
13,585,289
|
|
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, 2014.
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
Expiration Date (yrs)
|
|
|
Value if Exercised
|
|
Outstanding as of June 30, 2013
|
|
|
7,530,063
|
|
|
$
|
0.67
|
|
|
$
|
2.45
|
|
|
|
4.17
|
|
|
$
|
4,770,713
|
|
Granted
|
|
|
1,366,016
|
|
|
|
1.30
|
|
|
|
0.23
|
|
|
|
5.00
|
|
|
|
1,774,467
|
|
Exercised
|
|
|
(65,000
|
)
|
|
|
(0.25
|
)
|
|
|
0.14
|
|
|
|
-
|
|
|
|
(16,250
|
)
|
Cancelled/Expired
|
|
|
(498,500
|
)
|
|
|
(0.70
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(158,498
|
)
|
Outstanding as of June 30, 2014
|
|
|
8,332,579
|
|
|
$
|
0.76
|
|
|
$
|
0.70
|
|
|
|
2.96
|
|
|
$
|
6,370,432
|
|
NOTE 10 – INCOME TAXES
The components of the income tax (benefit) provision are as follows:
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
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:
|
As of
|
|
|
June 30,
|
|
June 30,
|
|
|
2015
|
|
2014
|
|
Income tax benefit based on federal statutory rate
|
|
$
|
(3,187,000
|
)
|
|
$
|
(1,123,000
|
)
|
State income tax benefit, net of federal income tax
|
|
|
(516,000
|
)
|
|
|
(444,000
|
)
|
Change in deferred tax valuation allowance
|
|
|
3,703,000
|
|
|
|
1,567,000
|
|
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:
|
|
As of
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Debt extinguishment
|
|
$
|
-
|
|
|
$
|
918,000
|
|
Impairment of fixed assets
|
|
|
-
|
|
|
|
604,000
|
|
Domestic net operating loss carryforwards
|
|
|
11,345,000
|
|
|
|
9,828,000
|
|
Total gross deferred tax assets
|
|
|
11,345,000
|
|
|
|
11,350,000
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance on deferred tax assets
|
|
|
(11,345,000
|
)
|
|
|
(11,350,000
|
)
|
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, 2015 and 2014, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $24.7 million and $26.4 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 2015.
NOTE 11 – 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, 2015, and 2014. The fair values of the derivative instruments are measured each quarter, which resulted in a gain (loss) of $(1,545,181) and $0, and derivative expense of $524,518 and $0 during the fiscal years ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and 2014, the fair market value of the derivatives aggregated $12,814,941 and $0, respectively, using the following assumptions: estimated 10-0.10 year term, estimated volatility of 141.46 -70.62%, and a discount rate of 2.35-0.00%.
NOTE 12 – 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, 2015, are summarized as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of derivatives
|
|
$
|
-
|
|
|
$
|
12,814,941
|
|
|
$
|
-
|
|
|
$
|
12,814,941
|
|
Liabilities measured at fair value on a recurring basis at June 30, 2014, are summarized as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair value is calculated using the multinomial lattice method.
NOTE 14 – 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.
In November 2012, the Company entered into a finance agreement totaling $100,000 by its former CFO. Subsequently, the Company disagreed on the validity and terms of the agreement. The Lender filed suit in the state court in Dade County, Florida, seeking to enforce the agreement. The Company vigorously opposed the litigation and it was settled the outstanding balance as of June 30, 2015 of $210,748 in principal and $32,241 in accrued interest for $17,500 on August 6, 2015.
Lease Agreements
We lease offices in Hollywood, California for corporate, research, engineering and mastering services. The lease expires on December 31, 2017. The total lease expense for the facility is approximately $8,670 per month, and the total remaining obligations under these leases at June 30, 2015 were approximately $260,100.
Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office and warehouse space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona on a month-by month basis. The total lease expense is approximately $9,609 per month, payable in cash and Common Stock of the Company.
Rent expense for the year ended June 30, 2015 was $258,796, of which $175,399 was paid in cash and $83,397 was paid in Common Stock. Rent expense for the year ended June 30, 2014 was $282,453, of which $202,287 was paid in cash and $80,166 was paid in Common Stock.
Below is a table summarizing the annual operating lease obligations over the next 5 years:
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, 2015 were approximately $648,236.
As of the date of this filing, the Company has not filed its tax return for the fiscal year ended 2014 and 2015.
NOTE 15 - 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:
On July 1, 2015, the Company issued 100,000 warrants that have an exercise price of $.25 over a five year period as part of an employment agreement. The warrants were valued using Black-Scholes pricing model under the assumptions of: an expected volatility of 247.01%, Expected dividends of 0, expected term of 5 years, stock price of $.70, and risk-free rate of 1.70%. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants was $60,784, which was recorded as an expense and included in the derivative liability.
On July 30, 2015, the Company issued 53,115 shares of Common stock as part of debt conversion of a note dated July 18, 2014 for $5,000 of principal and $312 of accrued interest converted at $.10 per share.
On July 30, 2015, the Company issued 106,329 shares of Common stock as part of debt conversion of a note dated July 10, 2014 for $10,000 of principal and $633 of accrued interest converted at $.10 per share.
On August 28, 2015, the Company held a special meeting of the shareholders. At the meeting, the shareholders approved the following:
|
(i)
|
An amendment to the Company’s Certificate of Incorporation to increase the Company’s authorized common stock, par value $0.001, from one hundred million (100,000,000) to two hundred and fifty million (250,000,000) shares,
|
|
(ii)
|
To authorize the Company’s Board of Directors to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a ratio of three (3) shares of pre-split common stock into one (1) shares of common stock at their discretion. The Company has no plan to effect a reverse stock split at this time.
|
|
(iii)
|
An amendment to the Company’s Certificate of Incorporation to change the name of the Company from Studio One Media, Inc. to AfterMaster, Inc.
|
On August 28, 2015, the Company issued 150,000 shares of Common stock as part of an Investor Relation Agreement valued at $75,000 according to market price of $.50 per share. The Company recorded the issuances as a prepaid expense to be amortized over a six month period.
On September 3, 2015, the Company received 600,000 shares of bBooth stock as part of an Asset License term sheet with bBooth valued as an available for sale security at $3 per share for a total value of $1,800,000.