10-K 1 tsmi_10k.htm FORM 10-K tsmi_10k.htm

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year ended August 31, 2016

 

Commission File Number: 333-153502

 

TOTAL SPORTS MEDIA, INC.

(FORMERLY KNOWN AS STREAMTRACK, INC.)

(Exact name of registrant as specified in its charter)

 

Wyoming

 

26-2589503

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5662 Calle Real #231

Goleta, California

 

93117

(Address of principal executive offices)

 

(Zip Code)

 

(805) 308-9151

(Registrant’s telephone number, including area code)

 

Title of each class

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

OTC

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

On November 30, 2016 the registrant had 4,190,055,213 shares of common stock outstanding.

 

 
 
 

TOTAL SPORTS MEDIA, INC. (FORMERLY KNOWN AS STREAMTRACK, INC.).

FORM 10-K

TABLE OF CONTENTS

 

PART I

 

Item 1

Business

4

 

 

Item 1A

Risk Factors

13

 

 

Item 1B

Unresolved Staff Comments

13

 

 

Item 2

Properties

14

 

 

Item 3

Legal Proceedings

14

 

 

Item 4

Mine Safety Disclosures

14

 

PART II

 

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

15

 

 

Item 6

Selected Financial Data

16

 

 

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 8

Financial Statements and Supplementary Data

29

 

 

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

30

 

 

Item 9A

Controls and Procedures

30

 

 

Item 9B

Other Information

31

 

PART III

 

Item 10

Directors, Executive Officers and Corporate Governance

32

 

Item 11

Executive Compensation

35

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

38

 

Item 13

Certain Relationships and Related Transactions, and Director Independence

39

 

Item 14

Principal Accountant Fees and Services

40

 

PART IV

 

Item 15

Exhibits, Financial Statement Schedules

41

 

Signatures

42

 

 
2
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Annual Report on Form 10-K contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. We qualify all of our forward-looking statements by these cautionary statements. In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors.” These and other factors could cause our results to differ materially from those expressed in this Annual Report on Form 10-K.

 

Some of the industry and market data contained in this Annual Report on Form 10-K are based on independent industry publications and publicly available information. This information involves a number of assumptions and limitations. Although we believe that each source is reliable as of its respective date, we have not independently verified the accuracy or completeness of this information.

 

As used herein,“Total Sports Media,” the “Company,” “we,” “our,” and similar terms refer Total Sports Media, Inc. (formerly known as StreamTrack, Inc.)., unless the context indicates otherwise.

 

 
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PART I.

 

ITEM 1. BUSINESS

 

The Company

 

Our primary business is providing streaming solutions to internet and mobile broadcasters and content providers and earning revenue from advertisers. As of the end of our fiscal year ending August 31, 2016, we had total assets of $461,168, total liabilities of $5,068,577 and total stockholders’ deficit of $6,297,909. Revenues for the fiscal year were $543,816 and we had a net loss of $1,108,509. Please see the “Financial Statements” for more complete details.

 

Business Overview

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). (the “Company”) is a digital media and technology services company. The Company provides advertising and streaming services through its RadioLoyalty™ Platform (the “Platform”) to over 5,000 internet and terrestrial radio stations as well as other broadcast content providers. The Platform consists of a web-based and mobile player that manages streaming audio and video content, social media engagement, display and video ad serving within the web player and is also capable of replacing audio ads with video ads within the web player in a live or on-demand environment. The Company offers the Platform directly to its broadcasters and integrates or white labels its technologies with web-based internet radio guides and other web-based content providers. Under development, Robot Fruit is intended to be a powerful marketing tool that combines a mobile app creation platform, customer loyalty program, and content management system into an instant and measurable marketing engine for businesses. The Company is also continuing development of StreamTrak which is being designed to enable fans, artists, bands, music publishers and record labels to distribute, discover, create and share content. The Company through Amped Fantasy has entered the rapidly growing daily fantasy sports industry. The Amped Fantasy brand will offer diverse contests to attract fans of all kinds that will help expand the growing industry. The mobile and web offering which is under development is being designed to include but not be limited to free and paid daily, weekly, pick'em, salary cap, flex or customized roster and guaranteed prize or payout contests. Fantify which is under development is a fully customizable daily fantasy sports and private label fantasy sports technology platform. Once venues signup for Fantify and setup a contest, they invite new or existing customers, and award prizes. It’s free to play for customers to win prizes, compete against friends and others, feel closer to the real life game, and all with no season-long commitment. Through Sports Alert™ the Company owns a subscriber based alert system for various sports with over 100,000 registered users. Users can choose whether they want score updates sent to their mobile phone or email, customizable by sport and events.

 

As of August 31, 2016, we had 193,735 registered RadioLoyalty users, which we define as the total number of accounts that have been created for our loyalty service at period end, and we were adding around 1,600 new registered users every month on average over the last 12 months. For the fiscal year ended August 31, 2016, we streamed over 8.3 million hours of content and had over 18 million launches of our UniversalPlayerTM. For the fiscal year ended August 31, 2015, we streamed over 9.9 million hours of content and had over 23 million launches of our UniversalPlayerTM.

 

Our clients include broadcasters, station rep groups, content owners, artists, bands, musicians, music promoters, direct marketers, brand advertisers and the advertising agencies that service these groups. We offer a suite of products and services that enable broadcasters, content owners and marketers to engage with their current and potential customers online and through internet and mobile devices to increase brand awareness and generate leads and sales. We also offer technology infrastructure tools and services that enable broadcasters and marketers to implement and manage their online advertising across multiple channels including display, email, video, social, and affiliate marketing. The range of products and services that we provide enables our clients to address all aspects of the digital marketing process, including strategic planning, campaign optimization, media sourcing, and comprehensive reporting and analytics.

 

We generate the audiences for our advertisers' campaigns through a unique combination of: broadcast streaming media players, station guides, mobile applications, our network of third-party websites, ad exchanges, ad network optimization providers, search engines, and websites that we own and operate in several key verticals. Our sophisticated data management platform harnesses the large amount of anonymous data that is generated by our businesses. We utilize this data, along with our technology platforms and marketing expertise, to deliver measurable performance for our clients.

 

We are headquartered in Goleta California.

 

 
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History

 

The Company was incorporated in Wyoming on May 6, 2008. Prior to change of control of May 16, 2012, the Company developed businesses, assets and opportunities in the motion picture production and distribution industry and allied industries, which the Company believed would have significant growth potential as new digital delivery and distribution platforms evolve. The Company marketed its motion picture products and distribution businesses under several names (”brands”) including Lux Digital Pictures, Midnight Movies, New Broadway Cinema and Short Screams. The Company expected to compete in today’s entertainment industry by controlling costs of production and distribution by outsourcing most functions to third parties and using, primarily, online marketing tools to promote its products and further its digital strategies. The Company also believed it had developed unique production strategies for the production of a unique brand of commercial documentary feature films. The businesses operated by the Company did not generate substantial profits. In late 2011, the Company began looking at business alternatives such as mergers, acquisitions or reverse acquisitions.

 

RadioLoyalty, Inc. (“RL”) is a California corporation. Michael Hill was a founder and has been a controlling shareholder in RL since its inception, on November 30, 2011. On December 1, 2011, Michael Hill and Aaron Gravitz (the “Executives”), together with RL, executed an asset purchase agreement with their former employer, Lenco Mobile, Inc. (“Lenco”), to acquire certain assets and assume certain liabilities from Lenco. The primary asset acquired from Lenco was the RadioLoyaltyTM Platform (the “Platform”). The Platform consisted of a web player that manages audio and video content streaming, manages ad serving within the web player and is capable of replacing audio ads with video ads within a live or on demand environment. The consideration given to Lenco consisted only of a 3.5% royalty on revenues earned through the Platform for the period from November 1, 2011 through November 1, 2014 (the “Royalty”). Payments to Lenco for the Royalty could not exceed $2,500,000. On March 22, 2012, RL issued 125,000 shares of common stock, valued at $62,250, to an entity controlled by Michael Hill and an unrelated individual in exchange for the WatchThisTM assets. On July 1, 2012, the Company acquired a customer list from Rightmail, LLC. This customer list was inclusive of publishers and advertisers the Company planned to conduct business with on an ongoing basis.

 

On May 16, 2012, the Company’s former majority shareholders executed a stock purchase agreement (the “SPA”) with Michael Hill. The SPA provided for the issuance of 100 shares of Series A Preferred Stock (the “Preferred Shares”) to the former majority shareholders of the Company. The Preferred Shares are convertible into 10% of the Company’s common stock at any time subsequent to the execution date of the SPA. The SPA also caused the transfer of the majority shareholders’ common stock in the Company to Michael Hill in exchange for all of the Company’s assets and the majority of its liabilities as of that date. The SPA also provided for a contribution of assets by Michael Hill, namely the WatchThisTM software. Mr. Hill also became obligated to cause the Company to acquire RL by October 1, 2012. As a result of the SPA, the former majority shareholders of the Company received a dividend in the form of the majority of the Company’s net assets and the newly issued Preferred Shares valued at $1,399,416. The net assets totaled $570,479. The Preferred Shares issued to the former majority shareholders were valued at $828,937 based on a discounted cashflow calculation of the WatchThisTM assets and RL business operations. The Company received the WatchThisTM software valued at $83,020. The Company’s securities attorney also received Preferred Shares in exchange for services to be provided in connection with the SPA and the proposed acquisition of RL. Those services were valued at $92,104.

 

On August 31, 2012, the Company executed an asset purchase agreement (the “APA”) to complete the acquisition of certain assets and liabilities of RL and has since entered into an amendment to the APA in order to (i) issue Michael Hill an additional 180,000,000 shares of the Company’s common stock as necessary in order to ensure Michael Hill retains control of the Company through the date of a reverse stock split previously authorized by the Company’s Board of Directors and (ii) to provide a methodology to determine the number of shares of the Company’s stock that would be issued to the shareholders of RL such that the Company’s valuation on the date of the issuance of shares was $14,500,000 (iii) to provide the Company with the right, which has not yet been exercised, to purchase all of the outstanding common stock of RL for $1. Upon the execution of the APA, a plan to complete a reverse stock split was authorized by the Company’s Board of Directors. Upon exercise of the Company’s right to purchase all of the outstanding common stock of RL, all of the outstanding shares of the Company’s Series A Preferred Stock will convert into shares of the Company’s common stock pursuant to the terms of the Series A Preferred Stock (approximately 10% of the Company’s outstanding common stock). The remaining approximately 90% of the Company’s outstanding common stock, on a post-reverse stock split basis, will be held by the former shareholders of RL, of which Michael Hill, the Company’s Chief Executive Officer, is a significant shareholder.

 

 
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Industry Overview

 

The radio broadcast and internet streaming industry is changing rapidly. With this change, we believe there is growing opportunity across the industry for a provider of free quality programming, with a unique, proven advertising monetization model and sales network. While many content providers and technologies are focused on building audience, we believe that the opportunity to provide greater variety and more diverse programming to listeners, while being supported by uniquely generated advertising revenue will prove successful. We believe the advertising revenues generated using our video in-stream technology are unique and no other technology provider currently has a comparable product. We filed a patent with the United States Patent and Trademark Office. The patent application was filed on July 26, 2012, under application number 13/559,503. The Company received a Final Office Action rejecting the company's claims to U.S. App No.: 13/559,503 - Ads with Media Streams - RAD-0045. The Company planned to submit a response to this rejection and file an appeal, and while the Company believes that its claims are patentable, it chose not to pursue the claims further because it would have been cost prohibitive. We believe that our unique technology, coupled with a diverse programming portfolio, sales networks with a vast market coverage, and powerful targeting capabilities make our products and services unique and highly scalable. We believe we are among the leaders in identifying and utilizing industry-leading technologies. Our initial distribution platform, RadioLoyalty™, promotes efficiency for radio stations and streamlines daily operations resulting in a cost reduction for our customers. Our business is driven in part by our heightened focus on customer service, which has allowed us to develop and maintain long-standing relationships with radio stations, advertisers, programming partners and independent content providers. Our commitment to serving our customers and providing a high level of accountability is the core of our business model, and will continue to be so as we look for opportunities to expand our programming offerings and the services we provide.

 

We believe there is a large and growing market opportunity for our RadioLoyalty™, Robot Fruit, StreamTrak, AmpedFantasy, Fantify and SportsAlert. This market opportunity reflects several important trends:

 

 

·

many consumers are now equipped with high-speed broadband connections;

 

 

·

the cost of creating and producing professional audio and video content has dropped dramatically;

 

 

·

audio and video content consumption has become a mainstream online and mobile activity for consumers;

 

 

·

smartphones and tablets are rapidly becoming mainstream tools for digital media consumption;

 

 

·

increasingly, next-generation content experiences are being driven through an adoption of new multi-faceted connected consumer electronics;

 

The daily fantasy sports industry is experiencing rapid growth. Traditional fantasy sports games have been an integral part of the sports industry for decades. Now, the rapidly expanding “daily fantasy” or “DFS” industry is quickly becoming the new alternative with sports fans. According to the Fantasy Sports Trade Association (FSTA) and Eilers & Krejcik, daily fantasy sports revenue in 2014 was around 1 billion dollars and is projected to grow to 8 billion by 2020. With endorsements by professional sports organizations including the NFL, MLB, and NBA along with credible media outlets and organizations including Yahoo!, CBS, Rotowire, and more, daily fantasy sports is quickly becoming commonplace. We believe there is a large and growing market opportunity for our AmpedFantasy, Fantify, and SportsAlert products.

 

Our Services

 

Our platform and offering allows content providers to stream content to an unlimited listener base. We eliminate the bandwidth expense of streaming for our content providers and generate display, video and audio advertising revenues for both ourselves and our content providers.

 

We provide advertisers with a cost effective solution to reach their target audience at scale, from one source. Included in our audience is a consolidation of internet and mobile users accessing our small and medium sized broadcast providers’ content, who can take advantage of the advertising buys of our aggregate and targeted audience that spans the globe.

 

We provide listeners with free, unlimited access to over 5,000 stations with content including music, sports, talk radio, and more. Listeners can access our content providers across the world over the internet, popular mobile and tablet devices.

 

In the short term, we do not expect to generate any meaningful revenue directly from listeners, and will continue to focus our business model around advertising revenue.

 

 
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Broadcasters/Radio Stations/Rep Groups/ Content Owners

 

We offer broadcasters and content providers a streaming media player and broadcasting platform at no out of pocket cost. We generate revenue primarily from advertising. Stations can preserve their cash as well as use it to fuel growth because we offer our programming and services on a barter basis. Stations provide us with advertising inventory in return for our bandwidth/services on a 1:4 display advertising impressions ratio. For example, we receive the first, fifth, ninth, etc. advertising impression as our barter fee and recognize 100% of the revenue from those ad impressions, with content providers being able to monetize the remaining impressions at their discretion. In most cases, we end up buying the remaining inventory from content providers. In almost every scenario, we are able to monetize the advertising inventory of our content providers at much higher ad rates then they are able to due to aggregation and our in-stream video technology. This advertising solution is what enables us to offer a compelling solution to content owners and sets us apart from our competitors.

 

We offer groups that represent radio broadcasters (“Rep Groups”) a self-managed software-as-a-service (“SAAS”) platform to provide management services to their respective station owners. We offer content providers a full-service partnership, which is unique in the radio industry. When we work with a Rep Group they “represent” a content provider on a domestic and/or international level, our ad sales team reaches out to advertisers (both national and international), our content department provides audience metrics and relevant demographic information and our trafficking department provides back office support so content providers can focus on developing their content rather than focusing on the end user experience. Our sales team is managed by industry veterans.

 

Listener/User

 

We offer our service to listeners at no cost through our UniversalPlayer™ in online environments, and through our RadioLoyalty™ app in popular mobile and IP environments. We generate revenue primarily from advertising. Listeners earn RadioLoyalty™ points for listening and other designated user interactions. RadioLoyalty™ points can be redeemed in our store for merchandise but maintain a zero cash value at all times.

 

Listeners can also earn points by sharing their listening across social media using our share and refer a friend features. Our website and mobile apps are integrated with Facebook Connect allowing our listeners easy signup, login, and sharing functions with their Facebook friends.

 

Advertising /Advertising Agency/Advertising Network

 

We generate revenue primarily from advertising. We offer advertisers (and the advertising agencies that represent them) and sales networks with international market coverage and broad demographic targeting given our broad range of programming and services. With over 5,000 radio stations as our clients, we help ensure advertisers that their message will be heard and seen worldwide by listeners they are seeking.

 

We believe our advertising network offers advertisers a powerful lead generation and/or branding solution that effectively targets a global audience. Our network exclusively represents the media inventory of our owned properties including RadioLoyalty™ as well as other vertical based websites. We offer a comprehensive suite mixed of display, audio and video advertising products across our traditional computer, mobile and connected device platforms. Our advertising products allow international, national, regional and local advertisers to target and connect with our audience - based on attributes including geographic, demographic and content preferences, and we provide analytics for our advertisers detailing campaign metrics and performance.

 

 

·

Display Advertising. Our display products offer advertisers opportunities to gain exposure to our listeners through our desktop, internet and mobile service interfaces, which are divided between our UniversalPlayer™ containing our player and “now playing” information, and the information space surrounding our UniversalPlayer™. Our display ads include IAB industry standard banner ads of various sizes and placements depending on platform and listener interaction.

 

 

·

Audio Advertising. Our audio advertising products allow custom audio messages to be delivered between songs during short ad interludes. Audio ads are available across all of our delivery platforms. On supported platforms, the audio ads can be accompanied by display ads to further enhance advertisers’ messages.

 

 

·

Video Advertising. Our video advertising products allow delivery of rich branded messages to further engage listeners through video pre-roll, video mid-roll, in-banner user-initiated videos, and a unique and proprietary video in-stream advertisement. We currently utilize video advertising through our desktop interfaces, and anticipate expanding video advertising across our mobile service interfaces in 2017.

 

 
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We offer multiple pricing models designed around maximizing our customers' return on investment (RIO). Our display, audio, and video for internet, IP connected devices and mobile advertising placements are offered on several pricing models including: cost-per-thousand-impression (CPM), whereby our customers pay based on the number of times the target audience is exposed to the advertisement; cost-per-view (CPV), whereby our customers pay based on the number of times a unique video asset is viewed by the consumer; cost-per-lead (CPL), whereby our customers pay when a consumer completes the pre-defined registration fields and submits the completed forms; cost-per-click (CPC), whereby payment is triggered only when an interested individual clicks on our customer's advertisement; and cost-per-action (CPA), whereby payment is triggered only when a specific, pre-defined action is performed by an online consumer.

 

Through our wholly-owned subsidiary StreamTrack Media, Inc. (“StreamTrack Media”), we offer lead generation services for advertisers and publishers through our advertising network. Advertisers use our lead generation services to generate leads on a CPM, CPV, CPL, CPC and CPA basis while publishers use our advertising network to find advertisers to distribute to their internet traffic. The publisher places the advertiser's display video ads, display ads or text links on their website, in email campaigns, registration paths, or in search listings, and receives a commission from the advertiser only when a visitor takes an agreed-upon action.

 

Technology/Platform/Websites

 

RadioLoyalty™

 

We believe that our RadioLoyalty™ platform is quickly becoming a leading way to listen to music, talk radio, and sports over the Internet, IP connected devices, tablets and on mobile devices. Listeners can listen to their favorite radio stations and songs while earning loyalty points redeemable for merchandise. With more than five thousand stations, we believe it is easy to find stations to love.

 

UniversalPlayer™

 

The UniversalPlayer™ Platform has standardized digital ad buying for more than five thousand internet radio stations. Its technology for in-stream video ad insertion is unique and we believe it is changing the way the traditional internet radio model executes. As we continue to expand the use of our UniversalPlayer™ to a larger broadcaster base, we anticipate seeing significant increases in advertising rates and revenue with this addition.

 

WatchThis™

 

WatchThis™ consists of a web or television-based player that manages streaming audio and video content, social media engagement, display and video ad serving within the player and is also capable of tagging merchandise within the content and providing the viewer with the opportunity to select and purchase the merchandise. The technology operates in a live or on demand environment.

 

In June 2015, the Company received an Office Action where the examiner laid out new grounds of rejection addressed to the new claim language from our previous amendment to U.S. App No.: 12/146,922 - WATCH THIS - RAD-00330. Claims 20, 22-27, 36, and 38-43 were rejected under 35 U.S.C. 103(a) as being unpatentable over US 2006/0089843 filed 10/26/2004 by Flather in view of US 2008/0307454 filed 6/6/08 by Ahanger et al in view of US 2008/0109844 filed 11/2/06 by Baldeschwieler et al. in view of US 2013/0061262 with priority to 1/30/0S, filed by Briggs et al. The Company had until June 19, 2015 to respond to this decision, and while the Company believes that its claims are patentable, it choose not to pursue the claims further because it would have been cost prohibitive.

 

The Company is exploring alternative options as it relates to the WatchThis related technology. While the USPTO has rejected our claims put forth, management believes that the viability of the technology is still feasible. Currently we have stopped development of this product until management identifies all of the options that are available for the business to potentially pursue. We sold the www.watchthis.com domain name for $30,000 in February 2016.

 

 
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Livon.Tv

 

Livon.Tv lets users instantly broadcast live video online and chat with your viewers. The purchase included iOS app, Android app, site, licensed software, domain, identity (custom logo), hosting for 1 year. Over 9,000 downloads and 6,000 registered users. The company purchased this in 2016.

 

Lead Generation Websites

 

We own approximately 10 websites and 40 URLs (Uniform Resource Locators or internet domains) that have been acquired and developed over many years. Several of these websites have a strong, established history with the top tier search engines. We generate traffic to our websites, link our sites with key partners, and take other steps designed to improve the ranking of our sites on major search engines and improve their appeal to consumers who view them. We also monitor and perform search engine optimization on our sites to increase the profile of our sites on major search engines such as Google, Yahoo and Bing.

 

Our internet advertising network operates under StreamTrack Media. We provide advertisers with products and services to reach consumers online in a highly-focused manner leading to better response rates on advertisements, higher quality leads and the ability to measure the success of each advertising campaign.

 

RadioLoyalty™, an owned and operated property, can provide advertisers a cost effective means to reach its worldwide targeted audience. Through advertising, brands and direct response advertisers can generate both brand awareness and generate leads.

 

Amped Fantasy is a daily fantasy sports platform. The Company through ampedfantasy.com has entered the rapidly growing daily fantasy sports industry. The Amped Fantasy brand will offer diverse contests to attract fans of all kinds that will help expand the growing industry. The mobile and web offering which is under development is being designed to include, but not be limited to free and paid daily, weekly, pick'em, salary cap, flex or customized roster and guaranteed prize or payout contests.

 

Fantify which is under development, is a fully customizable daily fantasy sports and private label fantasy sports technology platform. Fantify is now offering customized fantasy league games to U.S. based brands, casinos, sports bars, and restaurants. Once venues signup for Fantify and setup a contest, they invite new or existing customers, and award prizes. This can bring many benefits to venues including: increasing sales by involving customers, creating loyalty purchases and visits from new and existing customers, creating a fun environment for customers, reinforcing their brand with targeted marketing, becoming customer’s go-to sports venue, and being one of the first venues to offer fantasy sports! Contests are simple enough for the casual sports fan yet deliver the authenticity required to engage even the most seasoned fantasy sports players. Customers simply fill out a roster from the available players and watch live results on their mobile devices as the games are played. It’s free to play for customers to win prizes, compete against friends and others, feel closer to the real life game, and all with no season-long commitment.

 

Through sportsalert.com the Company owns a subscriber based alert system for various sports with over 100,000 registered users. Users can choose whether they want score updates sent to their mobile phone or email, customizable by sport and events.

 

Intellectual Property

 

We received rejections to two applications with the United States Patent and Trademark Office (“USPTO”).

 

We filed a patent with the United States Patent and Trademark Office. The patent application was filed on July 26, 2012, under application number 13/559,503. The Company received a Final Office Action rejecting the company's claims to U.S. App No.: 13/559,503 - Ads with Media Streams - RAD-0045. The Company planned to submit a response to this rejection and file an appeal, and while the Company believes that its claims are patentable, it choose not to pursue the claims further because it would have been cost prohibitive

 

 
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In June 2015, the Company received an Office Action where the examiner laid out new grounds of rejection addressed to the new claim language from our previous amendment to U.S. App No.: 12/146,922 - WATCH THIS - RAD-00330. Claims 20, 22-27, 36, and 38-43 were rejected under 35 U.S.C. 103(a) as being unpatentable over US 2006/0089843 filed 10/26/2004 by Flather in view of US 2008/0307454 filed 6/6/08 by Ahanger et al in view of US 2008/0109844 filed 11/2/06 by Baldeschwieler et al. in view of US 2013/0061262 with priority to 1/30/0S, filed by Briggs et al. The Company had until June 19, 2015 to respond to this decision, and while the Company believes that its claims are patentable, it choose not to pursue the claims further because it would have been cost prohibitive.

 

The Company is exploring alternative options as it relates to the WatchThis brand and technology. While the USPTO has rejected our claims put forth, management believes that the viability of the technology is still feasible. Currently we have stopped development of this product until management identifies all of the options that are available for the business to potentially pursue.

 

Distribution

 

The RadioLoyalty™ platform primarily generates listeners from its content provider’s websites. It also generates listeners through its station guide on radioloyalty.com as well as syndication of its station guide to third party websites. Through a “listen live” or similar button on content provider’s websites and guides, listeners launch the UniversalPlayerTM. In addition to streaming to traditional online computers, we have developed and deployed popular mobile apps for Android phones, and IOS devices including iphones and ipads. We plan to make the RadioLoyalty™ service available on additional devices through partnerships with electronic manufacturers and OEM providers.

 

Revenue Model

 

We derive most of our revenues from the sale of advertising. Advertisers buy inventory and lead generation services from us on a CPM, CPL, CPV, CPC and CPA basis. We deploy pre-roll video advertisements to listeners prior to reaching their desired content, and then deploy in-stream video advertisements during our content provider’s scheduled commercial breaks using our technology. We further monetize content with display advertising consisting of IAB compliant 300x250 and 728x90 (among other) ad units within the UniversalPlayer™, monetization outside of the player and through our member’s area.

 

There are a number of factors that influence our revenue, that include but are not limited to: (1) our financial funding requirements and ability to operate; (2) the growth and maintenance of our content providers and listeners; (3) the economic conditions of the United States and Worldwide economies; (4) competition from other streaming providers; and (5) advertiser demand for inventory.

 

 
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Sales and Marketing

 

We market our products and services primarily through word of mouth and online advertising. We also market them through our internal websites.

 

We have a sales division dedicated to recruit advertisers and advertising networks to purchase advertising and leads from us. We also have a team focused on publisher and station guide distribution through our advertising network.

 

Our content provider onboarding team assists with the recruitment, setup, implementation and optimization of content providers.

 

Our listener marketing division is in charge of portraying our brand messaging through our players and improving the experience to drive listener hours. Through refer a friend and the social media sharing features in the UniversalPlayer™ viral listeners are generated for us and our content providers providing a tool for growth.

 

Competition

 

Competition for Listeners

 

A number of factors affect how we compete for listening time. These include the demand and accessibility of the content, the quality of the listening experience, advertising perception, brand awareness, and the advertising dollars spent on marketing campaigns. We offer our service at no cost providing unlimited listening to listeners. We also award loyalty points and provide viral incentives to our listeners, which we believe helps grow our listenership. Many of our current and potential future competitors enjoy substantial competitive advantages including greater brand recognition, longer operating histories, larger marketing budgets, as well as greater technical, personal, financial and other resources. We compete for listeners with other content providers, including satellite radio providers such as Sirius XM, terrestrial and online radio providers such as Clear Channel, Slacker, and iHeart, and services such as Pandora that provide personalized content.

 

While we believe that our service and business model will result in us gaining a larger market share, competition for listeners could result in listeners moving or not coming onto our platform in favor of a competing service. Our ability to operate and grow is dependent on generating additional listeners.

 

Competition for Content Providers

 

We face competition from providers of other streaming platforms that offer services and tools to content providers. The content delivery marketplace continues to evolve rapidly providing listeners with a growing number of alternatives and new content delivery platforms.

 

Our primary competitors include Clear Channel, Cumulus Media, Soundcloud, Spotify, Tunein, Triton Media and Pandora. Unlike our primary competitors, we do not own radio stations and are a technology platform that is not affiliated with or controlled by a major media company or broadcaster. We believe this operating model gives us distinct advantages, including not limited to being liable for the content royalties that these competitors are. We market our platform to content providers that we believe will have desirable listening audiences. Our technology provides these content providers with a way to eliminate broadband streaming expenses and earn increased revenue, while holding the content provider responsible for content royalties.

 

We believe that the quality, diversity and breadth of our programming and services, coupled with our advertising sales forces and unique monetization model supported by our technology, enable us to compete effectively with other forms of media and content delivery networks. While we believe our platform offers unique advantages over other streaming platforms, content providers may choose not to stream using our platform in favor of other platforms.

 

 
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Other Media Forms Other providers of content delivery provide content on demand through internet streaming and IP television, such as Hulu, Vemeo, Vevo, or YouTube. We compete for the time and attention of listeners with all other media forms. These content services pose a competitive threat.

 

Competition for Advertisers

 

We compete with other content providers for higher advertising rates and a share of our advertising customers’ overall marketing budgets. A number of factors impact competition for advertisers including but not limited to: technology capabilities, budgets, pricing structures, the ability to generate successful campaign metrics, return on investment, and targeting abilities. We believe that our video in-stream ad insertion technology gives us a unique advantage. However, securing budget and premium rates from advertisers is intensely competitive and rapidly changing. With new companies entering the market and the introduction of new technologies, we expect competition to increase and potentially have an adverse effect.

 

Our competitors include:

 

Other Internet Companies. As web based advertising becomes more popular, the market for online advertising is becoming increasingly competitive. We compete for online advertisers with other internet websites such as Pandora, Spotify, AOL, Slacker, Apple Radio, Facebook, Google, MSN, and Yahoo! These large internet companies with greater brand recognition may have greater funding, more skilled personal, technology and intellectual property advantages, and consequently enjoy significant advantages.

 

Broadcast Radio. Terrestrial and satellite broadcasting are significant sources of competition for advertising dollars. These providers deliver ads across platforms that may be more familiar to traditional advertisers than the internet or mobile advertising opportunity we offer. Advertisers may not want to migrate advertising dollars to our internet-based platform because of this source of competition.

 

Television and Print Media Providers. Traditional media companies in television and print such as CBS, ABC and NBC are a source of competition for advertising dollars. These traditional media types present competitive challenges in attracting advertising dollars including larger established audiences, greater operating history, and greater brand recognition.

 

Competition for Fantasy Sports Players

 

We compete with other Daily Fantasy Sports companies for users/players. Competing with these large companies with an established footprint may prove to be difficult. These large companies with greater brand recognition may have greater funding, more skilled personal, technology and intellectual property advantages, and consequently enjoy significant advantages.

 

Government Regulation

 

As a company conducting business on the internet, we are subject to a number of foreign and domestic laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws and regulations are still evolving and could be interpreted in ways that could harm our business. In the area of information security and data protection, the laws in several states require companies to implement specific information security controls to protect certain types of information. Likewise, all but a few states have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their information. Any failure on our part to comply with these laws may subject us to significant liabilities.

 

We are also subject to federal and state laws regarding privacy of listener data. Our privacy policy and terms of use describe our practices concerning the use, transmission and disclosure of listener information and are posted on our website. Any failure to comply with our posted privacy policy or privacy-related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. Further, any failure by us to adequately protect the privacy or security of our listeners’ information could result in a loss of confidence in our service among existing and potential listeners, and ultimately, in a loss of listeners and advertising customers, which could adversely affect our business.

 

We are subject to keeping in compliance with any applicable State and Federal guidelines with our fantasy sports products: AmpedFantasy and Fantify. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) defines fantasy sports as a skill based game and exempted fantasy sports from restrictions on Federal internet gaming restrictions. Laws vary state-to-state. The regulatory environment is changing rapidly and we are keeping informed of the changing landscape. Much of this changing landscape is within State law, however we may be effected adversely in the future depending on legislation.

 

 
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Seasonality

 

Our results may reflect the effects of some seasonal trends in listener behavior due to increased internet usage and sales of media-streaming devices during certain vacation and holiday periods. We may also experience higher advertising sales during the fourth quarter of each calendar year due to greater advertiser demand during the holiday season, and lower advertising sales during the start of quarter’s given advertiser demand. Given the rapid growth of new media delivery and new user device adoption, we may see a shift in this pattern in the future.

 

Employees

 

As of August 31, 2016, we had 2 employees.

 

Corporate and Available Information

 

We were incorporated as a Wyoming corporation on May 6, 2008. Our principal executive offices are located at 5662 Calle Real #231, Goleta, California 93117 and our telephone number is (805) 308-9151. Our website is located at www.totalsportsmedia.com.

 

We have an August 31 fiscal year end. Accordingly, in this Annual Report on Form 10-K, all references to a fiscal year refer to the 12 months ended August 31 of such year, and references to the first, second, third and fourth fiscal quarters refer to the three months ended November 30, February 29, May 31 and August 31, respectively.

 

We file reports with the Securities and Exchange Commission (“SEC”), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any other filings required by the SEC. During the year ended August 31, 2016 we make available on our Investor Relations website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.

 

The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http:// www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

ITEM 1A. RISK FACTORS

 

Not required for small business issuers.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

 
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ITEM 2. PROPERTIES

 

Our principal executive offices are located in Goleta, California.

 

We cannot guarantee that our websites will always be error free or operational 24/7.

 

We believe that our current facilities are adequate to meet our customers’ needs for the near future and that suitable additional or alternative space will be available on commercially reasonable terms to accommodate our foreseeable future operations.

 

ITEM 3. LEGAL PROCEEDINGS

 

We may be involved in legal actions and claims arising in the ordinary course of business, from time to time. On June 17, 2016, a lawsuit was filed against StreamTrack Media, Inc. by AllDigital, Inc. for $33,580 plus attorney fees for breach of contract, goods and services rendered, and quantum meruit. The Company is reviewing the case and plans to respond accordingly. We may file collection actions or be involved in other litigation in the future.

 

ITEM 4. MINE SAFETY DISLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common Stock

 

Our common stock is traded on the OTC (the “OTC”) under the symbol “STTK.” The following table sets forth the range of high and low sales prices on the OTC of our common stock for the periods indicated, as reported by the OTC.

 

Our common stock has traded on the OTC under the symbol “STTK” since April 4, 2013. Prior to that date our common stock traded under the symbol LUXD since August 27, 2009.

 

The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the OTC.

 

 

 

High

 

 

Low

 

Fiscal Year Ended August 31, 2016

 

 

 

 

First quarter (September 1, 2015 – November 30, 2015)

 

$ 0.08

 

 

$ 0.08

 

Second quarter (December 1, 2015 – February 28, 2016)

 

$ 0.08

 

 

$ 0.08

 

Third quarter (March 1, 2016 – May 31, 2016)

 

$ 0.08

 

 

$ 0.08

 

Fourth quarter (June 1, 2016 – August 31, 2016)

 

$ 0.08

 

 

$ 0.08

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

Low

 

Fiscal Year Ended August 31, 2015

 

 

 

 

 

First quarter (September 1, 2014 – November 30, 2014)

 

$ 1.60

 

 

$ 0.16

 

Second quarter (December 1, 2014 – February 28, 2015)

 

$ 2.16

 

 

$ 0.08

 

Third quarter (March 1, 2015 – May 31, 2015)

 

$ 0.56

 

 

$ 0.08

 

Fourth quarter (June 1, 2015 – August 31, 2015)

 

$ 0.08

 

 

$ 0.08

 

 

On August 31, 2016, the closing price per share of our common stock as reported on the OTC was $0.08 per share. As of August 31, 2016, there were approximately 37 holders of record of our common stock. The number of beneficial stockholders is substantially greater than the number of holders of record because a large portion of our common stock is held through brokerage firms.

 

Dividend Policy

 

We have not declared or paid any cash dividends on our common stock and currently do not anticipate paying any cash dividends in the foreseeable future. Instead, we intend to retain all available funds and any future earnings for us in the operation and expansion of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our future earnings, capital requirements, financial condition, future prospects, and applicable Wyoming law.

 

Equity Compensation Plan Information

 

The Company does not have any equity compensation plans.

 

 
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Series A Preferred Stock

 

Effective May 16, 2012, the Company issued 100 shares of Series A Preferred Stock to Lux GmbH, the former majority shareholder of the Company pursuant to a stock purchase agreement dated May 16, 2012. The 100 shares of Series A Preferred Stock were converted into common stock during the year ended August 31, 2013. Each share of Series A Preferred Stock has voting rights equal to the voting equivalent of the common stock into which it is convertible at the time of the vote. All outstanding shares of Series A Preferred Stock will automatically convert into common stock on the first business day after the closing date of the acquisition by the Company of 100% of the total issued and outstanding capital stock of RadioLoyalty, Inc., a California corporation. The holders of the Series A Preferred Stock are not entitled to dividends. The Series A Preferred Stock has no preferential rights to the Company’s common stock and will share in any liquidation proceeds with the common stock on an as converted basis.

 

Series B Preferred Stock

 

On October 25, 2013, the Company filed a Certificate of Designation of Series B Preferred Stock (the "Series B Certificate of Designation") with the Secretary of State of Wyoming. Pursuant to the Series B Certificate of Designation, the Company designated 200,000 shares of its blank check preferred stock as Series B Preferred Stock. The Series B Preferred Stock will rank senior to the common stock, Series A Preferred Stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series B Preferred Stock (the "Junior Stock"). The Series B Preferred Stock will not be entitled to dividends. In the event of a liquidation, the Series B Preferred Stock will be entitled to a payment of the Stated Value of $1.00 per share prior to any payments being made in respect of the Junior Stock. Each share of Series B Preferred Stock will entitle the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series B Preferred Stock will entitle the holder to cast such number of votes equal to 0.000255% of the total number of votes entitled to be cast. Effective upon the closing of a Qualified Financing, all issued and outstanding shares of Series B Preferred Stock will automatically convert into common stock in an amount determined by dividing the product of the number of shares being converted and the Stated Value by the Conversion Price. The Conversion Price will be equal to the price per share of the common stock sold under the Qualified Financing (or, if the Qualified Financing involves the sale of securities convertible into common stock, by the conversion price of such convertible securities). A "Qualified Financing" is defined as the sale by the Company in a single offering of common stock or securities convertible into common stock for gross proceeds of at least $5,000,000.

 

Series C Preferred Stock

 

Effective December 29, 2014, the Company filed a Certificate of Designation of Series C Convertible Preferred Stock (the “Series C”) with the Secretary of State of Wyoming. Pursuant to the Series C, the Company designated 20,000 shares of its blank check preferred stock as Series C Preferred Stock. Each share of Series C is convertible into $150 in fair market value of the Company’s common stock, which fair market value will be equal to the average closing price of the common stock on the over-the-counter market during the 10 trading days immediately prior to the delivery to the Company of a conversion notice. The Series C will share in any liquidation proceeds with the common stock on an as-converted basis, will not have voting rights prior to being converted to common stock, and in the event of any payment of dividends by the Company, will be entitled to dividends on an as-converted basis with the common stock. The Company has presented the Series C outside of stockholders' equity due to the variable conversion price.

 

Recent Sales of Unregistered Securities

 

The following is a list of the issuance of securities by us during the fiscal year ending August 31, 2016 in transactions exempt from registration that were not previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K, the proceeds of which were generally used for working capital:

 

Number of

 

Dollar Amount/Value

 

Services Or Other

 

Exemption from

Shares

 

of Consideration

 

Consideration

 

Date of Sale

 

Registration

 

Rule 506

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

 
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to those discussed below and elsewhere in this report, particularly in the sections entitled “Special Note Regarding Forward-Looking Statements and Industry Data” and “Risk Factors.”

 

Cautionary Statements

 

This Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following:

 

 

(a)

volatility or decline of our stock price;

 

 

(b)

potential fluctuation in quarterly results;

 

 

(c)

our failure to earn revenues or profits;

  

 

(d)

inadequate capital to continue the business and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

 

 

(e)

failure to commercialize our technology or to make sales;

 

 

(f)

changes in demand for our products and services;

 

 

(g)

rapid and significant changes in markets;

 

 

(h)

litigation with or legal claims and allegations by outside parties, causing us to incur substantial losses and expenses;

 

 

(i)

insufficient revenues to cover operating costs; and

 

 

(j)

dilution in the ownership of the Company through the issuance by us of additional securities and the conversion of outstanding warrants, notes and other securities.

 

 
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Opportunities, Challenges and Risks

 

Advertising revenue constitutes the majority of our total revenue, representing 97% and 95% of total revenue for the years ended August 31, 2016 and 2015, respectively. We deliver content on mobile devices through our RadioLoyalty™ app but we do not currently generate significant mobile advertising revenues. Management believes that mobile advertising represents an opportunity for the Company in the next coming years and on an ongoing basis. We streamed content to our listeners for over 8.3 million hours during the fiscal year ended August 31, 2016. A total of 97.5% of these listener hours were generated by listeners through our web-based Universal Player™, with the remainder of listener hours delivered on tablet computers, smartphones and other mobile devices. Management expects the mobile advertising market will grow at substantial rates in the coming years. However, many challenges exist in this market. We believe these challenges will be solved primarily with new technologies. We believe our current technologies and other technology under development will solve some of these challenges. By solving these challenges, we will be able to monetize the mobile listenership we are growing today. From September 1, 2014 to August 31, 2015 we had 406,078 listening hours streamed through mobile devices. From September 1, 2015 to August 31, 2016 we had 211,991 hours streamed through mobile devices. Due to the inability of Apple’s IOS devices to run flash, and the different technical frameworks that run mobile devices versus online desktop devices, serving ads inside of mobile devices involves other complexities from a technical perspective as compared to serving ads inside of our desktop UniversalPlayer™. We are currently unable to utilize our video in-stream technology inside of our current Apps. However, depending upon the availability of capital, we will invest in the development of our video in-stream technology in the mobile format.

 

Key Metrics:

 

We track listener hours because it is the best key indicator of the growth of our RadioLoyalty™ business. Revenues from advertising through our RadioLoyalty™ Platform represented substantially all of revenues for the year ended August 31, 2016. We also track the number of registered users on our RadioLoyalty™ web-based product as well as the RadioLoyalty™ app as indicators of the size and quality of our audience, which are particularly important to potential advertisers. We plan to expand our internet product portfolio in the year ending August 31, 2017. Once these products are launched we will determine key indicators of growth for those products.

 

We calculate actual listener hours using our internal analytics systems. Some of our competitors do not always calculate their listener hours in the same way we do. As a result, their stated listener hours may not represent a truly comparable figure.

  

Player launches are defined as the number of individual times the UniversalPlayer™ was launched. The UniversalPlayer™ is launched by users who want to access internet radio content. The majority of users click from a “Listen Live” button on our broadcast partner’s websites, or through our station guide at http://radioloyalty.com/station-guide/index.php or our publisher sites. We also work with Internet radio guides such as TuneIn.com. Users can click on stations that broadcast with us to listen to content, which launches the UniversalPlayer™. Registered users have signed up to earn loyalty points, whereas all users have not signed up to earn loyalty points. For users to launch the UniversalPlayer™, they do not have to be a registered user. The UniversalPlayer™ needs to be launched with each successive use by users, and not only the first time users listen to content.

 

Registered users are defined as the number of users who have signed up for an account with us in order to access our broadcasters’ content and to earn loyalty points. The number of registered users may overstate the number of actual unique individuals who have signed up for an account with us in order to earn loyalty points, as an individual may register for, and use, multiple accounts under unique brands or private labels. We define registered users as those who have signed up with us to receive loyalty points. We calculate this by the number of submissions we receive from users signing up for our loyalty service.

 

Stations are defined as the total of all stations created by our Broadcasters. A single broadcaster may create many stations and these stations may be active or inactive.

 
 
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Listener hours are calculated as follows. When the UniversalPlayerTM is launched a session is created - this is considered the listener's start time. At one minute following the launch of the UniversalPlayerTM, we record that as 1 minute of listening time. If a session lasts between 1 and 59 seconds, we record that as 30 seconds of listening time. At ten-minute intervals following the session being created, we count each 10 minute period as listening time. So for example, if a user launched the UniversalPlayer TM at 11:00am, we will recognize 1 minute of listening time at 11:01, then 10 minutes of listening time at 11:10, 20 minutes at 11:20, etc.

 

The last event we see for the user is considered the end of their session. Events are user interactions such as a 10 minute interval, clicking song like/dislike, sharing what they are listening to, checking the news through our news app in the player, etc. We then take that time minus the time the session started to determine how long the session is. So for example, if a user launched the UniversalPlayer TM at 11am, and liked a song at 11:07am, but exited the player at 11:09am, we would recognize that as 7 minutes of listening.

 

The tables below set forth our listener hours for the year ended August 31, 2016, our player launches, and our registered users as of August 31, 2016.

 

Listener hours (in millions)

 

 

8.3

 

Player launches (in millions)

 

 

18.3

 

Registered users (in thousands)

 

 

193.7

 

 

The tables below set forth our listener hours for the year ended August 31, 2015, our player launches, and our registered users as of August 31, 2015.

 

Listener hours (in millions)

 

 

9.9

 

Player launches (in millions)

 

 

23.2

 

Registered users (in thousands)

 

 

174.0

 

 

For the fiscal year ended August 31, 2016 we streamed over 8.3 million hours of content and had over 18.3 million launches of our UniversalPlayerTM. For the fiscal year ended August 31, 2015 we streamed over 9.9 million hours of content and had over 23 million launches of our UniversalPlayerTM.

 

 
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Results of Operations for the Year Ended August 31, 2016 as Compared to the Year Ended August 31, 2015

 

 

For the Years Ended August 31,

 

Revenue

 

2016

 

 

2015

 

Revenue

 

 

 

 

 

 

Advertising

 

 

 

 

 

 

Video

 

$ 231,273

 

 

 

371,836

 

Display

 

 

289,642

 

 

 

517,171

 

Other

 

 

6,063

 

 

 

6,400

 

Total

 

 

526,978

 

 

 

895,407

 

Services

 

 

16,838

 

 

 

35,750

 

Total revenue

 

$ 543,816

 

 

$ 931,157

 

 

Revenues for the year ended August 31, 2016 totaled $543,816 compared to $931,157 for the year ended August 31, 2015, a decrease of $387,341 or 42%. We generated substantial revenues from video, audio and display advertising placements utilizing our RadioLoyaltyTM Platform and the listenership from over 5,000 of our radio stations. Revenue declined year over year due to various contributing factors including but not limited to, broadcaster royalty obligations, new advertising industry standards, adoption of new advertising measurements, advertising CPM rates, along with various other standards within the industry that are set out by various industry organizations that are obligated to publish best practices along with industry standards.

 

 

For the Years Ended August 31,

 

Costs of Revenue

 

2016

 

 

2015

 

Costs of revenues

 

 

 

 

 

 

Media network

 

$ 299,388

 

 

$ 335,452

 

Depreciation

 

 

-

 

 

 

77,986

 

Colocation hosting services

 

 

23,949

 

 

 

145,556

 

Broadcaster fees

 

 

41,051

 

 

 

105,889

 

Other

 

 

2,246

 

 

 

2,858

 

Total costs of revenue

 

$ 366,634

 

 

$ 667,741

 

 

Costs of revenues for the year ended August 31, 2016 totaled $366,634 compared to $667,741 for the year ended August 31, 2015, a decrease of $301,107 or 45%. We incurred substantial media network costs associated with the distribution of our content across a variety of advertising networks. Our costs of distributing our content will proportionally decrease dramatically, should we reach scale. The decrease in our cost of goods is a direct correlation to our reduction revenue. Based on the recent changes within the newly published industry best practices that include but are not limited to the reduction in broadcaster publishing due to increased broadcaster royalty obligations, lower CPM rates due to new advertising industry standards, adoption of new advertising measurements which reduces the revenue per listening hour along with various other direct or indirect impacts that alter our existing and future initiatives. We will continue to monitor the constantly evolving industry standards to best identify when we should resume our previous initiatives, should they remain intact under newly formed best practices. In order to operate the RadioLoyaltyTM online broadcasting platform, RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We utilize ASW’s cloud for streaming. We refer to these costs as colocation services. Our advertising sales arrangements with over 5,000 RadioLoyaltyTM stations facilitate us paying the broadcasters a monthly revenue sharing fee or license fee in exchange for advertising inventory around their content and listenership. We refer to these costs as broadcaster commissions in the event that we purchase the ad inventory. Other costs of sales include depreciation associated with the computer servers from our previous two colocation facilities, streaming costs, adserving costs, and various application technologies that support our primary product offerings.

 
 
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For the Years Ended August 31,

 

Operating Expenses

 

2016

 

 

2015

 

Operating expenses

 

 

 

 

 

 

Consulting fees

 

$ 311,697

 

 

 

101,948

 

Professional fees

 

 

107,712

 

 

 

190,442

 

Product development

 

 

2,210

 

 

 

20,568

 

Marketing and sales

 

 

20,736

 

 

 

103,123

 

Rents

 

 

89,264

 

 

 

150,125

 

Officer compensation

 

 

100,000

 

 

 

79,424

 

Bad debt

 

 

-

 

 

 

181,500

 

Other

 

 

450,264

 

 

 

493,006

 

Total operating expenses

 

$ 1,081,883

 

 

$ 1,320,136

 

 

Operating expenses for the year ended August 31, 2016 totaled $1,081,883 compared to $1,320,136 for the year ended August 31, 2015, a decrease of $238,253 or 18%. We incurred substantial consulting fees during the year ended August 31, 2016 associated with business development efforts and financial advisory services. Additionally, the Company acquired certain assets in February 2016 that exist in a relatively new industry that recently came under scrutiny. The Company believes it was in its’ best interest to delay the development and deployment strategy relating to these assets until the standard was published or defined in a way that the Company could reasonably rely upon it. We have a broad-based business strategy to acquire more broadcasters directly, enter into joint ventures, revenue sharing arrangements or similar contracts with internet radio station guides (aggregators), and consider mergers and acquisition targets on an ongoing basis. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio including the Robot Fruit, StreamTrak, Amped Fantasy, Fantify, SportsAlert and mobile technology. The Company believes it was in its’ best interest to delay certain product development initiatives and to discontinue certain operational directives due to a number of contributing factors relating to newly proposed industry regulations and royalty standards. Given the recent uncertainty in the industry, the Company believed that it was in the Company’s best interest to focus on our core offering until there was a more defined industry standard, thus it was best to delay future capital investments into our future development strategies previously mentioned. We anticipate these costs to increase in the current fiscal year, assuming that the industry standards or best practices are published. Marketing and sales costs included compensation for our sales staff and various internet marketing-related costs will increase upon the Company’s satisfaction of a newly published industry standards or best practices. Rents were primarily related to three leases we were obligated under for our Santa Barbara, California office. Officer compensation related to a variety of accruals to the two primary executives that operate our business. Bad debts were substantial higher in the prior year primarily because of reserve needed in connection with one customer and other one-time write offs. During the current fiscal year, we collected on receivables in which had been fully reserved in the prior year. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

 

 

For the Years Ended August 31,

 

Other Income (Expense)

 

2016

 

 

2015

 

Other income (expense)

 

 

 

 

 

 

Other income

 

$ -

 

 

$ (89,501 )

Interest expense

 

 

(822,282 )

 

 

(1,116,227 )

Gain on sale of co-location and domain

 

 

175,992

 

 

 

-

 

Loss on extinguishment

 

 

-

 

 

 

(99,062 )

Loss on settlements

 

 

-

 

 

 

(1,574,848 )

Change in fair value of derivative

 

 

337,482

 

 

 

454,674

 

Total other expenses

 

$ (308,808 )

 

$ (2,424,964 )

 

Other expenses for the year ended August 31, 2016 totaled $308,808 compared to $2,424,964 for the year ended August 31, 2015, a decrease of $2,116,156 or 87%. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit. We also recorded the accretion of various debt discounts associated with our convertible promissory notes. Debt discounts recorded during the years ended August 31, 2016 and 2015 represented the beneficial conversion feature, warrants to purchase stock, and derivative liability associated with the convertible promissory notes. The original value of the derivative liability was recorded as a debt discount. As a result of the derivative classification, the debt discount had to be re-measured as of the reporting date. The re-measurement and day one losses resulted in a net (increase) decrease to the derivative liability of $337,482 and $454,674 for the years ended August 31, 2016 and 2015, respectively.

 

 
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Provision for Income Taxes

 

We did not generate profits for the years ended August 31, 2016 and 2015. As a result, no provision for income taxes was recorded.

 

 

For the Years Ended August 31,

 

Net Loss Attributable to Common Shareholders

 

2016

 

 

2015

 

Net loss attributable to common shareholders

 

 

 

 

 

 

Net loss

 

$ (1,213,509 )

 

$ (3,481,684 )

Deemed dividends

 

 

-

 

 

 

-

 

Net loss attributable to common shareholders

 

$ (1,213,509 )

 

$ (3,481,684 )

 

We generated a net loss of $1,213,509 for the year ended August 31, 2016 compared to $3,481,684 for the year ended August 31, 2015, a decrease of $2,268,175 or 65% for the reasons set forth above.

  

Liquidity and Capital Resources

 

As of August 31, 2016 we had cash totaling $6,461, which consisted of cash funds held at major financial institutions. We had net a working capital deficit of $4,846,686 as of August 31, 2016, compared to a net working capital deficit of $3,684,709 as of August 31, 2015. Our principal uses of cash during the fiscal year ending August 31, 2016 were funding our operations as described below.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted 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. For the year ended August 31, 2016, the Company recorded a net loss of $1,213,509 and had negative working capital as of August 31, 2016 of $4,951,686. The net loss and negative working capital indicates that the Company may have difficulty continuing as a going concern.

 

Management is confident but cannot guarantee that additional capital can be raised in order to repay debts and continue operations. During the fiscal year ending August 31, 2017, the Company is obligated to make payments on certain convertible debts and a capital lease. Normal operating costs are also significant and include product development costs and marketing and sales costs associated with management’s business plan. Additionally, the Company is currently in default on its capital lease. Since inception and through August 31, 2016, the Company has successfully raised a significant amount of capital. Additionally, the Company anticipates launching several new product offerings in the fiscal year ending August 31, 2017. The Company expects those products to be profitable but notes that it will require significant capital for product development and ultimately commercially deployment. However, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan in order to reach break-even and become profitable. If the Company is unable to become profitable or sustain its cash flow, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its 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.

 

 
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Table of Contents

  

Working Capital Related Party Financing

 

The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. Once the Company’s track record is more established and results of operations are profitable, then external sources of capital should become more readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

 

Our Indebtedness

 

As of August 31, 2016, we had issued a total of $2,039,487 in current convertible promissory notes and $150,000 in long term convertible promissory notes that remained outstanding. We also owe significant balances under a line of credit, a lease agreement for computer servers, and significant balances are owed to the two primary executives that operate our business.

 

As of August 31, 2016, the conversion price of a total of $791,404 of the Company’s convertible notes and accrued interest is based upon discounts ranging from 10-50% to the then-prevailing price of the Company’s common stock. As a result, the lower the stock price at the time the investor converts the notes, the more common shares the investor will receive.

  

To the extent the investor converts the notes and then sells its common stock, the common stock may decrease due to the additional shares in the market. This could allow the investor to receive greater amounts of common stock upon conversion. The sale of each share of common stock further depresses the stock price.

 

Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the investors would be issued upon conversion. As of August 31, 2016, if the investors elected to convert the notes to common shares, the investors would have been issued approximately 15,790,371 shares of the Company’s common stock. If the investors had made an election to convert the notes as of August 31, 2016, this issuance would have represented approximately 301% of the issued and outstanding common stock as of August 31, 2016.

  

The shares issuable upon conversion of the notes may result in substantial dilution to the interests of the Company’s other shareholders. In this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way, the investor could sell more than 9.99% limit while never holding more than the limit.

 

 
23
Table of Contents

  

Line of Credit

 

On April 11, 2013, the Company closed a non-dilutive line of credit financing for $250,000 with an institutional fund. Subsequently, on September 6, 2016 the institutional fund has increased the Company’s line of credit to $1,055,000.

 

Capital Expenditures

 

Based on current estimates, we believe that our anticipated capital expenditures will be adequate to implement our current plans.

 

Historical Trends

 

The following table summarizes our cash flow data for the years ended August 31, 2016 and 2015.

 

 

 

Fiscal Year Ended August 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities of continuing operations

 

$ (619,853 )

 

$ (338,314 )

Net cash provided by investing activities of continuing operations

 

 

176,535

 

 

 

(378,748 )

Net cash provided by financing activities of continuing operations

 

 

441,870

 

 

 

698,381

 

 

Cash flow used in operating activities totaled $619,853 for the year ended August 31, 2016, compared to $338,314 used in operations for the year ended August 31, 2015. Operating cash flow was negative during the year ended August 31, 2016 due to our reduction of online traffic in operations and the increase in accounts payable.

 

Cash flow provided by investing activities was $176,535 for the year ended August 31, 2016, as compared to $378,748 used in the year ended August 31, 2015. During fiscal 2015, we capitalized costs in connection with various products in which were are currently developing, however, we ceased capitalizing costs in fiscal 2016. The products were launched in fiscal 2016. During February 2016, the Company, entered into and closed an Asset Purchase Agreement with Electric Lightwave, to which, Electric Lightwave purchased from the Company certain assets related to the Company's data center located in Santa Barbara, including equipment and inventory, for a purchase price of $150,000. As of the date of the sale all the assets were fully depreciated. In connection with the transaction, the Company recorded a gain of $146,012, as rent deposit of $3,988 was transferred as part of the sale, which is recorded within gain on sale of co-location and domain on the accompanying consolidated statement of operations. The Company sold the watchthis.com domain name for $30,000, which is recorded within gain on sale of co-location and domain on the accompanying consolidated statement of operations.

 

Cash flow provided by financing activities were $441,870 for the year ended August 31, 2016, compared to $698,381 provided by for the year ended August 31, 2015. We raised substantial capital to fund operations from our existing line of credit and through the issuance of convertible promissory notes from related parties during the years ended August 31, 2016 and 2015.

 

 
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Off-Balance Sheet Arrangements

 

As of August 31, 2016 and 2015, we did not have any off-balance sheet arrangements.

 

Quarterly Trends

 

Our operating results fluctuate from quarter to quarter as a result of a variety of factors. We expect our operating results to continue to fluctuate in future quarters.

 

Our results may reflect the effects of some seasonal trends in listener behavior due to increased internet usage and sales of media-streaming devices during vacation and holiday periods. We may experience higher advertising sales during the fourth quarter of each calendar year due to greater advertiser demand during the holiday season and lower advertising sales during the first quarter of each calendar year results from a generally decreased advertising demand. While we believe these seasonal trends have affected and will continue to affect our operating results, our lack of operating history provides for less insight into the effect of these factors. We believe that our business may become more seasonal in the future. Seasonal variations in listener behavior may result in fluctuations in our financial results.

 

In addition, expenditures by advertisers tend to be cyclical and discretionary in nature, reflecting overall economic conditions, the economic prospects of specific advertisers or industries, budgeting constraints, buying patterns and a variety of other factors. Many of these market conditions are not possible for us to control.

 

Critical Accounting Policies and Estimates

 

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

 

We believe that the assumptions and estimates associated with our revenue recognition, costs of revenues, stock based compensation and accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

 

Revenue Recognition

 

The Company’s revenue is principally derived from advertising services.

 

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.

 

 
25
Table of Contents

 

Advertising Revenue. The Company generates advertising revenue primarily from display and video advertising. The Company generates the majority of its advertising revenue through the delivery of advertising impressions sold on a cost per thousand, or CPM, basis. Currently, advertising revenues are generated through our proprietary technologies from internet-based content. The Company does not currently generate significant revenues from mobile advertising. 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 generally recognizes revenue based on delivery information from its campaign trafficking systems.

 

The Company also generates advertising revenue pursuant to arrangements with advertising agencies and brokers. Under these arrangements, the Company provides the agencies and brokers the ability to sell advertising inventory on the Company’s service directly to advertisers. The Company reports this revenue net of amounts due to agencies and brokers because the Company is not the primary obligor under these arrangements, the Company does not set the pricing, and does not establish or maintain the relationship with the advertisers. In some events, smaller advertisers are reported as gross revenue with an expense recorded against the revenue.

 

Services Revenue. The Company generated services revenues for the period from September 1, 2015 through August 31, 2016. These revenues related to the provision of data and streaming hosting services to one customer.

 

Deferred Revenue. Deferred revenue consists of both prepaid unrecognized revenues and advertising fees received or billed in advance of the delivery or completion of the services or in instances when revenue recognition criteria have not been met. Deferred revenue is recognized when the services are provided and all revenue recognition criteria have been met.

 

Multiple-Element Arrangements. The Company could potentially enter into arrangements with customers to sell advertising packages that include different media placements or ad services that are delivered at the same time, or within close proximity of one another. The Company uses the prospective method for all arrangements entered into or materially modified from the date of adoption that involve multiple element arrangements. Under this new guidance, the Company allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables or those packages in which all components of the package are delivered at the same time, based on the relative selling price method in accordance with the selling price hierarchy, which includes: (1) vendor-specific objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if VSOE is not available; and (3) best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.

 

VSOE. The Company determines VSOE based on its historical pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. The Company has not historically priced its advertising products within a narrow range. As a result, the Company has not been able to establish VSOE for any of its advertising products.

 

TPE. When VSOE cannot be established for deliverables in multiple element arrangements, the Company applies judgment with respect to whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’s go-to-market strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of services cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, the Company has not been able to establish selling price based on TPE.

 

 
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Table of Contents

 

BESP. When it is unable to establish selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the service were sold on a stand-alone basis. BESP is generally used to allocate the selling price to deliverables in the Company’s multiple element arrangements. The Company determines BESP for deliverables by considering multiple factors including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing practices. The Company limits the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on future performance or future deliverables. The Company regularly reviews BESP. Changes in assumptions or judgments or changes to the elements in the arrangement may cause an increase or decrease in the amount of revenue that the Company reports in a particular period.

 

The Company recognizes the relative fair value of the media placements or ad services as they are delivered assuming all other revenue recognition criteria are met.

 

Cost of Revenue

 

Cost of revenue consists of the revenue-sharing amounts paid to broadcasters and publishers who provide us with their content and listenership, infrastructure costs related to content streaming, costs related to creating and serving advertisements as well as third party ad serving technology providers. The Company makes payments to third-party ad servers for the period the advertising impressions or click-through actions are delivered or occur, and accordingly, the Company records this as a cost of revenue in the related period.

 

Stock-Based Compensation

 

Stock-based payments made to employees, including grants of restricted stock units and employee stock options, are recognized in the statements of operations based on their fair values. The Company has previously issued restricted stock units and has not issued any employee stock options to date. The Company recognizes stock-based compensation for awards granted that are expected to vest, on a straight-line basis using the single-option attribution method over the service period of the award, which is generally three years. Because the restricted stock units vest on a daily basis, the Company has estimated the forfeiture rate of these stock awards to be 0%. Should the Company issue stock-based compensation in the form of employee stock options, the resulting expense recognized in the statements of operations may been reduced for estimated forfeitures. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rates used for valuing stock-based compensation payments would be estimated based on historical experience. The Company would estimate the fair value of employee stock options using the Black-Scholes valuation model. The determination of the fair value of a stock-based award is affected by the deemed fair value of the underlying stock price on the grant date, as well as other assumptions including the risk-free interest rate, the estimated volatility of the Company’s stock price over the term of the award, the estimated period of time that the Company expects employees to hold their stock options and the expected dividend rate.

 

The Company has elected to use the “with and without” approach as described in Accounting Standards Codification 740 Tax Provisions in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through the statement of operations.

 

 
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Table of Contents

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the realizability of deferred tax assets and valuation allowances are provided when necessary to reduce net deferred tax assets to the amounts expected to be realized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company will recognize interest and penalties related to unrecognized tax benefits in the income tax provision in the accompanying statement of operations.

 

The Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income taxes paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We have operations wholly within the United States and we are exposed to market risks in the ordinary course of our business, including inflation risks.

 

Inflation Risk

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

 
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ITEM 8. FINANCIAL STATEMENTS

 

TOTAL SPORTS MEDIA, INC. (FORMERLY KNOWN AS STREAMTRACK, INC.).

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page No.

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

F-1

 

 

 

 

 

 

Consolidated Balance Sheets as of August 31, 2016 and 2015

 

 

F-2

 

 

 

 

 

 

Consolidated Statements of Operations for the fiscal years ended August 31, 2016 and 2015

 

 

F-3

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Deficit for the fiscal years ended August 31, 2016 and 2015

 

 

F-4

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the years ended August 31, 2016 and 2015

 

 

F-5

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

F-6

 

 

 
29
 
 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Total Sports Media, Inc.

 

We have audited the accompanying consolidated balance sheets of Total Sports Media, Inc. (f/k/a Streamtrack, Inc.) as of August 31, 2016 and 2015 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. Total Sports Media, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Total Sports Media, Inc. as of August 31, 2016 and 2015, the results of their operations, and their cash flows, for the years ended August 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note (1) to the consolidated financial statements, the Company has incurred losses from operations, has negative working capital and is in need of additional capital to grow its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note (1). The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

/s/ KLJ & Associates, LLP

 

KLJ & Associates, LLP

Edina, MN

March 7, 2017

 

 
F-1
Table of Contents

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

Consolidated Balance Sheets

 

 

 

As of

August 31,

2016

 

 

As of

August 31,

2015

 

Assets:

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 6,461

 

 

$ 7,909

 

Accounts receivable, net of allowances of $6,000 and $6,000, respectively

 

 

64,499

 

 

 

114,253

 

Prepaid expenses

 

 

931

 

 

 

2,196

 

Total current assets

 

 

71,891

 

 

 

124,358

 

Property and equipment, net

 

 

362,244

 

 

 

660,973

 

Other assets

 

 

 

 

 

 

 

 

Other assets

 

 

27,033

 

 

 

56,613

 

Total other assets

 

 

27,033

 

 

 

56,613

 

Total assets

 

$ 461,168

 

 

$ 841,944

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Account payable and accrued expenses

 

$ 1,255,239

 

 

$ 1,147,249

 

Line of credit

 

 

955,320

 

 

 

610,950

 

Capital lease payable - in default

 

 

54,704

 

 

 

54,704

 

Related party payables

 

 

281,291

 

 

 

159,660

 

Convertible notes payable, net of discount of $56,151 and $19,794, respectively

 

 

954,372

 

 

 

739,798

 

Related party convertible notes payable, net of discount of $67,687 and $0, respectively

 

 

961,277

 

 

 

197,850

 

Derivative liabilities embedded within convertible notes payable

 

 

561,374

 

 

 

898,856

 

Total current liabilities

 

 

5,023,577

 

 

 

3,809,067

 

Long term liabilities

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount of $0 and $155,249, respectively

 

 

75,000

 

 

 

115,907

 

Related party convertible notes payable, net of discount of $0 and $442,744, respectively

 

 

75,000

 

 

 

428,370

 

Total long term liabilities

 

 

150,000

 

 

 

544,277

 

Total liabilities

 

 

5,173,577

 

 

 

4,353,344

 

 

 

 

 

 

 

 

 

 

Series C preferred stock; $0.0001 par value; 20,000 shares authorized; 11,270 and 11,800 shares issued and outstanding as of August 31, 2016 and 2015

 

 

1,690,500

 

 

 

1,770,000

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Series A preferred stock; $0.0001 par value; 100 shares authorized; 0 shares issued and outstanding as of August 31, 2016 and 2015

 

 

-

 

 

 

-

 

Series B preferred stock; $0.0001 par value; 200,000 shares authorized; 200,000 shares issued and outstanding as of August 31, 2016 and 2015

 

 

20

 

 

 

20

 

Common stock, $0.0001 par value; Unlimited shares authorized at August 31, 2016 and 2015; 5,248,150 shares issued and outstanding at August 31, 2016; 4,254,400 shares issued and outstanding as of August 31, 2015

 

 

525

 

 

 

425

 

Additional paid-in capital

 

 

3,761,164

 

 

 

3,681,764

 

Common stock to be issued

 

 

87,500

 

 

 

75,000

 

Accumulated deficit

 

 

(10,252,118 )

 

 

(9,038,609 )

Total stockholders' deficit

 

 

(6,402,909 )

 

 

(5,281,400 )

Total liabilities and stockholders' deficit

 

$ 461,168

 

 

$ 841,944

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 
F-2
Table of Contents

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

Consolidated Statements of Operations

 

 

 

For the Year

Ended

August 31,

2016

 

 

For the Year

Ended

August 31,

2015

 

Revenues:

 

 

 

 

 

 

Advertising

 

$ 526,978

 

 

$ 895,407

 

Services

 

 

16,838

 

 

 

35,750

 

Total revenues

 

 

543,816

 

 

 

931,157

 

 

 

 

 

 

 

 

 

 

Costs of revenues:

 

 

 

 

 

 

 

 

Media network

 

 

299,388

 

 

 

335,452

 

Depreciation and amortization

 

 

-

 

 

 

77,986

 

Colocation services

 

 

23,949

 

 

 

145,556

 

Broadcaster commissions

 

 

41,051

 

 

 

105,889

 

Other costs

 

 

2,246

 

 

 

2,858

 

Total costs of revenues

 

 

366,634

 

 

 

667,741

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

177,182

 

 

 

263,416

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Consulting fees

 

 

311,697

 

 

 

101,948

 

Professional fees

 

 

107,712

 

 

 

190,442

 

Product development

 

 

2,210

 

 

 

20,568

 

Officer compensation

 

 

100,000

 

 

 

79,424

 

Rents

 

 

89,264

 

 

 

150,125

 

Sales and marketing

 

 

20,736

 

 

 

103,123

 

Bad debts

 

 

-

 

 

 

181,500

 

Other expenses

 

 

450,264

 

 

 

493,006

 

Total operating expenses

 

 

1,081,883

 

 

 

1,320,136

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(904,701 )

 

 

(1,056,720 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Other expense

 

 

-

 

 

 

(89,501 )

Interest expense (including accretion of debt discount of $493,950 and $761,356, respectively)

 

 

(822,282 )

 

 

(1,116,227 )

Gain on sale of co-location and domain

 

 

175,992

 

 

 

-

 

Loss on extinguishment

 

 

-

 

 

 

(99,062 )

Loss on settlements

 

 

-

 

 

 

(1,574,848 )

Change in fair value of derivatives

 

 

337,482

 

 

 

454,674

 

Total other income (expense)

 

 

(308,808 )

 

 

(2,424,964 )

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(1,213,509 )

 

 

(3,481,684 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (1,213,509 )

 

$ (3,481,684 )

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share attributable to common stockholders

 

$ (0.22 )

 

$ (1.31 )

Weighted-average number of shares used in computing basic and diluted per share amounts

 

 

5,639,736

 

 

 

2,665,708

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 
F-3
Table of Contents

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

Consolidated Statements of Stockholders’ Deficit

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Common

Stock

 

 

 

 

 

 

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Par

 

 

Paid in

 

 

to be

 

 

Accumulated

 

 

 

 

 

 

Issued

 

 

$

0.0001

 

 

Issued

 

 

$

0.0001

 

 

Capital

 

 

Issued

 

 

Deficit

 

 

Total

 

Balance, August 31, 2014

 

 

200,000

 

 

 

20

 

 

 

230,983

 

 

 

23

 

 

 

2,128,108

 

 

 

-

 

 

 

(5,556,925 )

 

 

(3,428,774 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued on debt conversion

 

 

-

 

 

 

-

 

 

 

3,071,861

 

 

 

307

 

 

 

305,871

 

 

 

-

 

 

 

-

 

 

 

306,178

 

Common stock issued for true up on debt conversion

 

 

-

 

 

 

-

 

 

 

109,111

 

 

 

11

 

 

 

12,834

 

 

 

-

 

 

 

-

 

 

 

12,845

 

Proceeds to be satisfied with common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

75,000

 

 

 

-

 

 

 

75,000

 

Discount on convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

963,614

 

 

 

-

 

 

 

-

 

 

 

963,614

 

Common stock for settlement of accounts payable

 

 

-

 

 

 

-

 

 

 

127,454

 

 

 

13

 

 

 

10,183

 

 

 

-

 

 

 

-

 

 

 

10,196

 

Common stock issued in connection with debt exchange

 

 

-

 

 

 

-

 

 

 

12,500

 

 

 

1

 

 

 

6,999

 

 

 

-

 

 

 

-

 

 

 

7,000

 

Common stock for ASC settlement

 

 

-

 

 

 

-

 

 

 

421,241

 

 

 

42

 

 

 

231,683

 

 

 

-

 

 

 

-

 

 

 

231,725

 

Conversions of Series C preferred stock

 

 

-

 

 

 

-

 

 

 

281,250

 

 

 

28

 

 

 

22,472

 

 

 

-

 

 

 

-

 

 

 

22,500

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,481,684 )

 

 

(3,481,684 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2015

 

 

200,000

 

 

 

20

 

 

 

4,254,400

 

 

 

425

 

 

 

3,681,764

 

 

 

75,000

 

 

 

(9,038,609 )

 

 

(5,281,400 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds to be satisfied with common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,500

 

 

 

-

 

 

 

12,500

 

Conversions of Series C preferred stock

 

 

-

 

 

 

-

 

 

 

993,750

 

 

 

100

 

 

 

79,400

 

 

 

-

 

 

 

-

 

 

 

79,500

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,213,509 )

 

 

(1,213,509 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2016

 

 

200,000

 

 

$ 20

 

 

 

5,248,150

 

 

$ 525

 

 

$ 3,761,164

 

 

$ 87,500

 

 

$ (10,252,118 )

 

$ (6,402,909 )

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 
F-4
Table of Contents

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

Consolidated Statements of Cash Flows

 

 

 

For the Year

Ended

August 31,

2016

 

 

For the Year

Ended

August 31,

2015

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (1,213,509 )

 

$ (3,481,684 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

-

 

 

 

181,500

 

Depreciation and amortization

 

 

327,766

 

 

 

326,330

 

Re-measurement of derivative liabilities

 

 

(337,482 )

 

 

(454,674 )

Accretion of debt discount

 

 

493,950

 

 

 

761,356

 

Stock issued for services and finance fees

 

 

-

 

 

 

10,134

 

Amortization of finance fees

 

 

-

 

 

 

12,844

 

Gain on sale of co-location and domain

 

 

(175,992 )

 

 

-

 

Loss on settlements

 

 

-

 

 

 

1,574,848

 

Loss on extinguishment of debt

 

 

-

 

 

 

101,562

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

49,754

 

 

 

200,478

 

Prepaid expenses

 

 

1,265

 

 

 

14,662

 

Note receivable

 

 

-

 

 

 

(10,500 )

Other current assets

 

 

-

 

 

 

10,150

 

Accounts payable and accrued expenses

 

 

112,764

 

 

 

262,842

 

Related party accrued liabilities

 

 

121,631

 

 

 

151,838

 

Net cash used in operating activities

 

 

(619,853 )

 

 

(338,314 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase or development of property and equipment

 

 

(18,277 )

 

 

(487,988 )

Proceeds from sale of co-location and domain

 

 

179,980

 

 

 

-

 

Other assets

 

 

14,832

 

 

 

109,240

 

Net cash used in investing activities

 

 

176,535

 

 

 

(378,748 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible promissory notes

 

 

-

 

 

 

181,459

 

Payments on related party notes payable

 

 

-

 

 

 

(89,284 )

Proceeds from line of credit

 

 

344,370

 

 

 

78,645

 

Payments on capital lease

 

 

-

 

 

 

(9,000 )

Proceeds from issuance of convertible promissory notes - related parties

 

 

85,000

 

 

 

402,250

 

Fees paid to ASC under settlement

 

 

-

 

 

 

59,311

 

Proceeds from sale of common stock / common stock to be issued

 

 

12,500

 

 

 

75,000

 

Net cash provided by financing activities

 

 

441,870

 

 

 

698,381

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(1,448 )

 

 

(18,681 )

Cash and cash equivalents, beginning of period

 

 

7,909

 

 

 

26,590

 

Cash and cash equivalents, end of period

 

$ 6,461

 

 

$ 7,909

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 162,856

 

 

$ 97,231

 

Cash paid for income taxes

 

$ -

 

 

$ 2,400

 

 

 

 

 

 

 

 

 

 

Non cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of debt and accrued interest

 

$ -

 

 

$ 306,178

 

Conversion of Series C preferred stock in common stock

 

$ 79,500

 

 

$ 22,500

 

Beneficial conversion feature recorded on convertible debt

 

$ -

 

 

$ 963,614

 

Issuance of common stock for accounts payable

 

$ -

 

 

$ 172,414

 

Increase in line of credit for facility fee

 

$ 2,500

 

 

$ -

 

Assets acquired with Series C preferred stock

 

$ -

 

 

$ 120,000

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 
 
F-5
Table of Contents

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

Notes to Consolidated Financial Statements

 

1. Description of Business and Basis of Presentation 

 

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). (the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through its RadioLoyaltyTM Platform (the “Platform”) to over 5,000 internet and terrestrial radio stations and other broadcast content providers. The Platform consists of a web-based and mobile player that manages streaming audio and video content, social media engagement, display and video ad serving within the web player and is also capable of replacing audio ads with video ads within the web player in a live or on-demand environment. The Company offers the Platform directly to its broadcasters and integrates or white labels its technologies with web-based internet radio guides and other web-based content providers. The Company is also continuing development of Amped Fantasy and SportsAlert™, a fantasy sports product. The Company was incorporated as a Wyoming corporation on May 6, 2008.

 

Basis of Presentation

 

The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted 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. For the year ended August 31, 2016, the Company recorded a net loss of $1,213,509 and had negative working capital of $4,951,686. The net loss and negative working capital indicate substantial doubt about the entity's ability to continue as a going concern.

  

Management is confident but cannot guarantee that additional capital can be raised in order to repay debts and continue operations. For the twelve months ending August 31, 2017, the Company is obligated to make payments on certain convertible debts, and a capital lease. The Company's normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Since inception and through the date of these financial statements, the Company has successfully raised a significant amount of capital through debt and equity offerings. The Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2017. The Company anticipates those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. The Company will attempt to have its potential partners pay for the some of these costs but management cannot be certain that it will succeed in entering into such arrangements. Management may potentially make a business decision to move forward, delay, or cancel certain partnerships because of the Company’s overall capital needs. Nonetheless, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan and become profitable. If the Company is unable to become profitable and sustain positive cash flow from operations, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its 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.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates are used for determining the allowance for doubtful accounts, stock-based compensation, fair values of warrants to purchase common stock, derivative liabilities and income taxes. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, the Company’s financial statements could be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

 

Segments

 

The Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages the Company’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews separate revenue and expense information for the Company’s RadioLoyaltyTM, WatchThisTM, StreamTrack Media, Amped Fantasy, SportsAlert, Fantify and other online product offerings, while all other financial information is reviewed on a consolidated basis. All of the Company’s principal operations are located in Goleta, California.

 

 
F-6
Table of Contents

  

2. Summary of Significant Accounting Policies

 

Revenue Recognition

 

The Company’s revenue is principally derived from advertising services.

 

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 and video advertising. The Company generates the majority of its advertising revenue through the delivery of advertising impressions sold on a cost per thousand, or CPM, basis. Currently, advertising revenues are generated through our proprietary technologies from internet-based content. The Company does not currently generate significant revenues from mobile advertising. 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 generally recognizes revenue based on delivery information from its campaign trafficking systems.

 

The Company also generates advertising revenue pursuant to arrangements with advertising agencies and brokers. Under these arrangements, the Company provides the agencies and brokers the ability to sell advertising inventory on the Company’s service directly to advertisers. The Company reports this revenue net of amounts due to agencies and brokers because the Company is not the primary obligor under these arrangements, the Company does not set the pricing, and does not establish or maintain the relationship with the advertisers. In some events, smaller advertisers are reported as gross revenue with an expense recorded against the revenue.

 

Services Revenue. The Company generated services revenues for the period from September 1, 2015 through August 31, 2016. These revenues related to the provision of data and streaming hosting services to one customer.

 

Deferred Revenue. Deferred revenue consists of both prepaid unrecognized revenues and advertising fees received or billed in advance of the delivery or completion of the services or in instances when revenue recognition criteria have not been met. Deferred revenue is recognized when the services are provided and all revenue recognition criteria have been met.

 

Multiple-Element Arrangements. The Company could potentially enter into arrangements with customers to sell advertising packages that include different media placements or ad services that are delivered at the same time, or within close proximity of one another. The Company uses the prospective method for all arrangements entered into or materially modified from the date of adoption that involve multiple element arrangements. Under this new guidance, the Company allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables or those packages in which all components of the package are delivered at the same time, based on the relative selling price method in accordance with the selling price hierarchy, which includes: (1) vendor-specific objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if VSOE is not available; and (3) best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.

 

VSOE. The Company determines VSOE based on its historical pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. The Company has not historically priced its advertising products within a narrow range. As a result, the Company has not been able to establish VSOE for any of its advertising products.

 

 
F-7
Table of Contents

  

TPE. When VSOE cannot be established for deliverables in multiple element arrangements, the Company applies judgment with respect to whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’s go-to-market strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of services cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, the Company has not been able to establish selling price based on TPE.

 

BESP. When it is unable to establish selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the service were sold on a stand-alone basis. BESP is generally used to allocate the selling price to deliverables in the Company’s multiple element arrangements. The Company determines BESP for deliverables by considering multiple factors including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing practices. The Company limits the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on future performance or future deliverables. The Company regularly reviews BESP. Changes in assumptions or judgments or changes to the elements in the arrangement may cause an increase or decrease in the amount of revenue that the Company reports in a particular period.

 

The Company recognizes the relative fair value of the media placements or ad services as they are delivered assuming all other revenue recognition criteria are met.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company maintains cash and cash equivalents with domestic financial institutions of high credit quality. The Company performs periodic evaluations of the relative credit standing of all of such institutions.

 

The Company performs ongoing credit evaluations of customers to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, and review of the invoicing terms of the contract. The Company generally does not require collateral. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. Actual credit (gains) losses during the fiscal years ended August 31, 2016 and 2015 totaled $0 and $181,500, respectively.

 

Cash and Cash Equivalents

 

The Company classifies its highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations as of each investment as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method.

 

 
F-8
Table of Contents

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts. The Company also considers any changes to the financial condition of its customers and any other external market factors that could impact the collectability of its receivables in the determination of its allowance for doubtful accounts.

 

Property and Equipment

 

Property and equipment is recorded at cost, less accumulated depreciation and amortization. Computer servers and potentially other assets that are controlled by the Company under lease obligations are reviewed to determine whether the assets should be capitalized and a capital lease obligation recorded as a liability on the balance sheets. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets as follows:

 

Internally developed and purchased software, computer servers and computers

 

3 years

Office furniture and equipment

 

3 to 5 years

Leasehold improvements

 

Shorter of the estimated useful life of 5 years or the lease term

 

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

 

Internal Use Software and Website Development Costs

 

Costs incurred to develop software for internal use are required to be capitalized and amortized over the estimated useful life of the asset if certain criteria are met. Costs related to design or maintenance of internal-use software are expensed as incurred. The Company evaluates the costs incurred during the application development stage of website development to determine whether the costs meet the criteria for capitalization. Costs related to preliminary project activities and post implementation activities are expensed as incurred. For the year ended August 31, 2016 and 2015, the Company capitalized $18,277 and $407,989 in costs related to internal use software and website development, respectively. Management also determined that $2,210 and $20,568 in certain software and website development costs did not meet the relevant criteria to be capitalized during fiscal 2016 and 2015, respectively. As a result, all of these costs were expensed and included within the accompanying statement of operations as “product development” during the years indicated. See Note 3 for discussion related to the impairment of a product.

 

Derivatives

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company reviews the terms of the common stock, warrants to purchase common stock and debt instruments it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a Black-Scholes model for valuation of the derivative. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.

 

 
F-9
Table of Contents

 

Stock-Based Compensation

 

Stock-based payments made to employees and non-employees, including grants of restricted stock units and employee stock options, are recognized in the statements of operations based on their fair values. The Company has previously issued restricted stock units and has not issued any employee stock options to date. The Company recognizes stock-based compensation for awards granted to employees that are expected to vest, on a straight-line basis using the single-option attribution method over the service period of the award, which is generally three years. The Company recognizes stock-based compensation for awards granted to non-employees over the expected service period revaluing the award at each reporting period in accordance with the appropriate accounting guidance. Because the restricted stock units vest on a daily basis, the Company has estimated the forfeiture rate of these stock awards to be 0%. Should the Company issue stock-based compensation in the form of employee stock options, the resulting expense recognized in the statements of operations may been reduced for estimated forfeitures. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rates used for valuing stock-based compensation payments would be estimated based on historical experience. The Company would estimate the fair value of employee stock options using the Black-Scholes valuation model. The determination of the fair value of a stock-based award is affected by the deemed fair value of the underlying stock price on the grant date, as well as other assumptions including the risk-free interest rate, the estimated volatility of the Company’s stock price over the term of the award, the estimated period of time that the Company expects employees and non-employees to hold their stock awards and the expected dividend rate.

 

The Company has elected to use the “with and without” approach as described in Accounting Standards Codification 740 Tax Provisions in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through the statement of operations.

 

Cost of Revenue

 

Cost of revenue consists of the revenue-sharing amounts paid to broadcasters and publishers who provide us with their content and listenership, infrastructure costs related to content streaming, costs related to creating and serving advertisements as well as third party ad serving technology providers. The Company makes payments to third-party ad servers for the period the advertising impressions or click-through actions are delivered or occur, and accordingly, the Company records this as a cost of revenue in the related period.

 

Consulting Fees

 

Several consultants were involved in the Company’s business development activities and also provided the Company with financial advisory services during the years ended August 31, 2016 and 2015. The Company does have ongoing commitments with the majority of the consultants the Company worked with during the years ended August 31, 2016 and 2015.

 

Professional Fees

 

Professional fees include legal fees for entertainment audio, video and radio industry-specific issues, legal fees for SEC reporting, and audit fees associated with the SEC compliance of the Company.

 

Product Development

 

The Company incurs product development expenses consisting of consulting fees, employee compensation, information technology and facilities-related expenses. The Company incurs product development expenses primarily for development and improvements to the Universal PlayerTM, the RadioLoyaltyTM, online and mobile content integration and development of new advertising products or development, enhancement of other new technologies and its fantasy sports products. The Company expenses product development costs to the extent they can't be capitalized under the pertaining accounting guidance.

 

 
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Marketing and Sales

 

Marketing and sales expenses consist of consulting fees, employee compensation, commissions and benefits related to employees in sales, marketing and advertising departments. In addition, marketing and sales expenses include external sales and marketing expenses such as third-party marketing, branding, advertising and public relations expenses, and infrastructure costs such as facility and other supporting overhead costs.

 

Officer Compensation

 

The Company’s Officers are not currently under long-term contracts with the Company. During the years ended August 31, 2016 and 2015, compensation was either accrued or paid to these executives out of operations from time to time but no formal compensation plan has been in place. See Notes 9 and 10 for additional information.

 

General and Administrative

 

General and administrative expenses include consulting fees and employee compensation for finance, accounting, internal information technology and other administrative personnel. In addition, general and administrative expenses include professional services costs for outside legal and accounting services, and infrastructure costs for facility, supporting overhead costs and merchant and other transaction costs, such as credit card fees.

 

Content Acquisition Costs

 

Content acquisition costs principally consist of amounts paid to internet-based, terrestrial and mobile content providers. The Company did not incur any substantial content acquisition costs for the years ended August 31, 2016 and 2015, respectively. However, these costs are likely to become substantial in the future as the Company expands its online product portfolio.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the realizability of deferred tax assets and valuation allowances are provided when necessary to reduce net deferred tax assets to the amounts expected to be realized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company will recognize interest and penalties related to unrecognized tax benefits in the income tax provision in the accompanying statement of operations.

 

The Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income taxes paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made.

 

 
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Net Loss Per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period.

 

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including convertible debt instruments, preferred stock, restricted stock unit grants and detachable stock warrants. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential common shares outstanding would have been anti-dilutive.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” (Topic 606). Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for the Company beginning January 1, 2018. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued ASU No. 2014-15 "Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern"” (Subtopic 205-40), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

 

In November 2015, the FASB issued ASU No. 2015-17 “Income Taxes: Balance Sheet Classification of Deferred Taxes” (Topic 740), which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. ASU No. 2015-17 will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual years, and early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02 “Leases” (Topic 842), that requires organizations that lease assets, referred to as “lessees”, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. ASU No. 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases and will include qualitative and quantitative requirements. The new standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those annual years, and early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

 

The FASB issues ASUs to amend the authoritative literature in the FASB Accounting Standards Codification (“ASC”). There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact the Company’s consolidated financial statements.

 

 
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3. Composition of Certain Financial Statement Captions 

 

Property and Equipment

 

Property and equipment consisted of the following:

 

 

 

As of August 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Software

 

$ 1,804,257

 

 

$ 1,775,220

 

Servers, computers, and other related equipment

 

 

153,824

 

 

 

198,924

 

Leasehold improvements

 

 

1,675

 

 

 

1,675

 

 

 

 

1,959,756

 

 

 

1,975,819

 

Less accumulated depreciation and amortization

 

 

(1,597,512 )

 

 

(1,314,846 )

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$ 362,244

 

 

$ 660,973

 

 

Depreciation and amortization expense totaled $327,766 and $326,330 for the years ended August 31, 2016 and 2015, respectively. During the year ended August 31, 2015, the Company impaired approximately $40,000 in assets in which future cash flows were not expected to support. There were no write-offs during the fiscal year ended August 31, 2016.

 

 
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Note Receivable

 

Note receivable consisted of a $150,000 convertible promissory and accrued interest of $21,000 at August 31, 2014. The note bears interest at 7% and is due from a digital content provider on or before August 28, 2016. The balance owed can be converted into either preferred stock or common stock of the digital content provider, at the Company’s election, subject to certain conditions and contingencies. The Company agreed to work with the digital content provider to make modifications to its Universal PlayerTM technology platform to better suit the digital content provider’s specific needs. The Company received a $25,000 deposit previously. The Company has received the remaining fees, which are recorded as a note receivable. The Company wrote off the balance of the note and accrued interest totaling $181,500 in August 2015 due to the probability the notes receivable would not paid. In September 2015, the Company received notice that the digital content provider had filed for bankruptcy.

 

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following:

 

 

 

As of August 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

Accounts payable

 

$ 814,707

 

 

$ 751,129

 

Accrued broadcaster commissions

 

 

87,661

 

 

 

92,304

 

Accrued interest

 

 

301,883

 

 

 

184,007

 

Credit card

 

 

50,989

 

 

 

120,049

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,255,239

 

 

$ 1,147,489

 

 

4. Fair Value

 

The Company records cash equivalents, debt discounts on convertible promissory notes and derivatives at fair value.

 

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following fair value hierarchy:

 

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3 – Inputs lack observable market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available.

 

 
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Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of August 31, 2016 and 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, prepaids, accounts payable, accrued liabilities, notes payable, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short term in nature or they are payable on demand.

 

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at August 31, 2016:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$ 6,461

 

 

$

 

 

$

 

 

$ 6,461

 

Total assets measured at fair value

 

$ 6,461

 

 

$

 

 

$

 

 

$ 6,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 

 

$ 561,374

 

 

$

 

 

$ 561,374

 

Total liabilities measured at fair value

 

$

 

 

$ 561,374

 

 

$

 

 

$ 561,374

 

 

The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at August 31, 2015:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$ 7,909

 

 

$

 

 

$

 

 

$ 7,909

 

Total assets measured at fair value

 

$ 7,909

 

 

$

 

 

$

 

 

$ 7,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 

 

$ 898,856

 

 

$

 

 

$ 898,856

 

Total liabilities measured at fair value

 

$

 

 

$ 898,856

 

 

$

 

 

$ 898,856

 

 

The Company’s derivative liabilities were classified as Level 2 within the fair value hierarchy because they were valued using significant other observable inputs. At each reporting period, the Company calculates the derivative liability using the Black-Scholes pricing model taking into account variables such as expected life, risk free interest rate, expected volatility, the fair market value of the Company's common stock and the conversion price.

 

 
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5. Asset Acquisitions and Disposition

 

Acquisitions

 

On April 24, 2015, the Company, entered into an Asset Purchase Agreement with Lux Digital Pictures GmbH Partners ("Lux") pursuant to which, the Company issued 800 shares of Series C Convertible Preferred Stock for the rights to various domains, source codes, etc related to Lux's Sports Alert and Amped Fantasy Sports products. The Company determined the price of the Series C issued to be $120,000 based upon the conversion value of $150 worth of common stock for each share of Series C. The Company recorded the value of the asset as software within property and equipment on the accompanying balance sheet. The Company capitalized the value of the Series C as the products received were near completion and need limited modification prior to the Company placing into production. The expected life of the asset acquired was estimate to be 36 months.

 

Disposition

 

On February 19, 2016, the Company, entered into and closed an Asset Purchase Agreement with Electric Lightwave, LLC ("Electric Lightwave"), a wholly owned subsidiary of Integra Telecom Holdings, Inc. pursuant to which, Electric Lightwave purchased from the Company certain assets related to the Company's data center located in Santa Barbara, including equipment and inventory, for a purchase price of $150,000. As of the date of the sale all the assets were fully depreciated. In connection with the transaction, the Company recorded a gain of $146,012, as rent deposit of $3,988 was transferred as part of the sale, which is recorded within gain on sale of co-location and domain on the accompanying consolidated statement of operations.

 

On February 2, 2016, the Company sold the watchthis.com domain name for $30,000, which is recorded within gain on sale of co-location and domain on the accompanying consolidated statement of operations.

 

 
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6. Commitments and Contingencies 

 

ASC Recap LLC Settlement

 

On October 23, 2013, the Superior Court in the Judicial District of Danbury, Connecticut entered an order approving the stipulation of the parties (the "Stipulation") in the matter of ASC Recap LLC ("ASC") v. StreamTrack, Inc.. Under the Stipulation, the Company agreed to issue, as settlement of liabilities owed by the Company to ASC in the aggregate amount of $766,288 (the "Claim Amount"), shares of common stock (the "Settlement Shares") as follows:

 

(a) In one or more tranches as necessary, 4,675 shares of common stock (the "Initial Issuance") and an additional 250 shares of common stock as a settlement fee.

 

(b) Through the Initial Issuance and any required additional issuances, that number of shares of common stock with an aggregate value equal to (A) the sum of

 

(i) the Claim Amount and (ii) reasonable attorney fees and trade execution fees in the amount of $75,000, divided by (B) the Purchase Price (defined under the Stipulation as the market price (defined as the lowest closing bid price of the Company's common stock during the valuation period set forth in the Stipulation) less the product of the Discount (equal to 25%) and the market price. The parties reasonably estimated that the fair market value of the Settlement Shares and all other amounts to be received by ASC is equal to approximately $1,100,000.

 

(c) If at any time during the valuation period the closing bid price of the Company's common stock is below 90% of the closing bid price on the day before an issuance date, the Company will immediately cause to be issued to ASC such additional shares as may be required to effect the purposes of the Stipulation.

 

(d) Notwithstanding anything to the contrary in the Stipulation, the number of shares beneficially owned by ASC will not exceed 9.99% of the Company's outstanding common stock.

 

In connection with the Settlement Shares, the Company relied on the exemption from registration provided by Section 3(a)(10) under the Securities Act.

 

The Company cannot reasonably estimate the amount of proceeds ASC expects to receive from the sale of these shares which be used to satisfy the liabilities. Thus, the Company accounts for the transaction as the shares are sold and the liabilities are settled. All amounts are included within accounts payable. Shares in which are held by ASC at each reporting period are accounted for as issued but not outstanding.

 

In connection with the settlement, during the year ended August 31, 2015 the Company issued 421,241 shares of common stock to ASC in which gross proceeds of $231,725 were generated from the sale of the common shares. In connection with the transaction, ASC received fees of $59,311 and providing payments of $172,414 to settle outstanding vendor payables. The remaining amount on the settlement of liabilities owed by the Company to ASC is in the aggregate amount of $151,290 as of August 31, 2015.

 

There were no conversions during the year ended August 31, 2016 and thus, the remaining amount on the settlement of liabilities owed by the Company to ASC was $151,290.

 

Leases

 

The Company conducts its operations using leased office in Goleta, California.

 

The Company is currently identifying a new location for its principal offices and is not currently under a property lease. The Company recognizes rent expense on a straight-line basis over the lease term including expected renewal periods. The difference between rent expenses and rent payments is recorded as deferred rent in current and long-term liabilities. No deferred rent existed as of August 31, 2016 and 2015. Rent expenses for the years ended August 31, 2016 and 2015 totaled $89,264 and $150,125, respectively.

 

 
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Indemnification Agreements

 

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company plans to enter into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

 

While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

 

Legal Proceedings

 

The Company is potentially subject to various legal proceedings and claims arising in the ordinary course of its business. On June 17, 2016, a lawsuit was filed against StreamTrack Media, Inc. by AllDigital, Inc. for $33,580 plus attorney fees for breach of contract, goods and services rendered, and quantum meruit. The Company is reviewing the case and plans to respond accordingly.

 

7. Income Taxes 

 

The provision for income tax expense (benefit) consists of the following:

 

 

 

Fiscal Years Ended August 31,

 

 

 

2016

 

 

2015

 

Current

 

 

 

 

 

 

Federal

 

$

 

 

$

 

State and local

 

 

 

 

 

 

Total current income tax expense

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

Federal

 

$ (274,831 )

 

$ (389,634 )

State and local

 

 

(84,563 )

 

 

(119,887

 

Valuation allowance

 

 

359,394

 

 

 

509,521

 

Total deferred income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income tax expense

 

$

 

 

$

 

 

 
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The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented.

 

 

 

Fiscal Year Ended

August 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

U.S. federal taxes at statutory rate

 

 

34 %

 

 

34 %

State taxes, net of federal benefit

 

 

6

 

 

 

6

 

Permanent differences

 

 

(8 )

 

 

(19 )

Change in valuation allowance

 

 

(32 )

 

 

(21 )

Change in rate

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

-

 

 

-

  

As of August 31, 2016, the Company had federal net operating loss carryforwards of approximately $3.5 million. The federal net operating losses and tax credits expire in years beginning in 2021. As of August 31, 2016, the Company had state net operating loss carryforwards of approximately $3.5 that expire in years beginning in 2021. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Company has previously experienced “ownership changes” under section 382 of the Code and comparable state tax laws. The Company estimates that none of the federal and state pre-change net operating losses will be limited under Section 382 of the Code.

 

As of August 31, 2016 and 2015, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a full valuation allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

 

The Company files income tax returns in the United States and California. The 2013 - 2016 tax years remain subject to examination for U.S. federal and state purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state purposes. The Company is not currently under examination in federal or state jurisdictions.

 

8. Capital Lease – in Default 

 

The Company periodically leases computer servers and related hardware under capital lease agreements. The lease terms are typically from three to five years, depending on the type of equipment. The leased equipment typically has a bargain purchase price, and qualifies for treatment as a capital lease. For book purposes, the assets are amortized over their estimated useful lives. As of August 31, 2016 and 2015, all assets under capital leases were fully depreciated.

 

On March 22, 2013, the Company reached a settlement and release agreement with IBM Credit, LLC, (“IBM”) the lessor associated with the Company’s computer servers and software classified under capital lease. The balance owed to IBM as of March 22, 2013 was agreed to be $108,704. The Company agreed to make payments of $9,000 per month, with a final payment of $9,704 on March 1, 2014 to satisfy this balance. As of August 31, 2016 and 2015, the Company was in default of this agreement and the amount outstanding of $54,704 and $54,704, respectively, is reflected as a current liability on the accompanying consolidated balance sheets.

 

 
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9. Related Party Transactions 

 

The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. (the “Executives”) use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

 

The related party payable as of August 31, 2016 and 2015 consists of unpaid compensation and non-interest bearing cash advances and charges on personal credit lines made on behalf of the Company by the Executives. The balances owed to the Executives are not secured and are due on demand. Interest will be charged on these balances. In addition, the Executives agreed to a temporary reduction in their annual salary from $240,000 to $50,000 per annum for the period from December 1, 2014 to May 31, 2015, which has been subsequently extended to December 31, 2016. As of August 31, 2016 and 2015, amounts due to these Executive related to accrued compensation and advances were $281,291 and $159,660, respectively.

 

RL entered into several convertible promissory notes with its founders, officers and high-level executives since its inception on December 1, 2011, see Note 10 for additional information.

  

10. Debt Instruments 

 

Asset-Based Debt Financing

 

On April 11, 2013, the Company executed a non-dilutive asset-based debt financing (the “Lender Financing”) with a third party (the “Lender”). The Lender Financing consists of a $250,000 line of credit, subsequently increased to $520,000, secured by all of the Company’s assets. The Company’s management also executed limited recourse guarantees with the Lender. Interest is payable monthly based on a floating interest rate determined based on a formula outlined in detail within the financing agreement. The Company anticipates the effective monthly interest rate charged on the outstanding balance owed to the third party will be between 3.2% and 1.1%.

 

On September 15, 2014, the Company executed an extension to this agreement whereby the maturity date has been extended to December 31, 2015. The Lender financing is currently capped at $520,000 which begins decreasing to $500,000 on December 31, 2014; $450,000 on March 31, 2015; $400,000 on June 30, 2015 and $300,000 by September 30, 2015.

 

On March 31, 2015, the Company executed an extension to this agreement whereby the maturity date has been extended to December 31, 2015. The Lender financing is currently capped at $545,692 which begins decreasing to $500,000 on April 30, 2015; $450,000 on June 30, 2015; and $300,000 on September 30, 2015 and the remainder on December 31, 2015. In the event the that any reduction in the Facility Amount, is not achieved, before the dates provided or the interest for any month is not paid due the next sequential month the interest rate will be increased by 1.5% above the current rate for the remainder of the Loan and Security Agreement. In the event that any reduction in the Facility Amount is achieved 15 or more days prior to the dates provided, the interest rate will be decreased by 3% for the remainder of the Loan and Security Agreement. As of August 31, 2015, the Company hasn't achieved the reductions per the agreement.

 

On September 6, 2016, the Company executed an addendum to this agreement whereby the maturity date has been extended to November 16, 2017. The line of credit was also increased to $1,055,000.

 

Vendor Convertible Note

 

On November 1, 2012, the Company issued a convertible note for $140,000 (the “Vendor Note”) to a former Vendor ("Vendor"). The Vendor Note was executed on November 1, 2012 and was immediately convertible into the Company’s common stock at a 50% discount to the lowest bid price for the five days prior to the conversion date. During the year ended August 31, 2015, the Company issued 202,812 shares of common stock in settlement of $35,300 in principal. As of August 31, 2015, the Vendor Note was fully satisfied.

 

 
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Creditor #2 Convertible Promissory Notes

 

In April 2014, the Creditor entered into an exchange agreement with another lender (the “Creditor #2”) whereby the Creditor transferred the Creditor's notes and accrued interest to Creditor #2. In April, the Company entered into i) a note agreement for $284,560 representing amounts transferred from the Creditor of $145,644; ii) two $125,000 notes in which the proceeds were received on the same date (collectively referred to as the “Creditor #2 Notes”) with Creditor #2. The Creditor #2 Notes bear interest per annum at 10.0%, payable six months after the issuance date and are convertible on the date of issuance based upon based upon a 45% discount to lowest trading price, for the 15 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #2 converts the Creditor #2 Notes, the more common shares the Creditor #2 will receive. The table below details the transactions with the Creditor #2 during the years ended August 31, 2016 and 2015.

 

Creditor #2 Notes, principal balance as of August 31, 2014

 

$ 464,470

 

Conversion of Creditor #2 Notes to common stock (643,077 common shares issued)

 

 

(73,228

)

Creditor #2 Notes, principal balance as of August 31, 2015

 

 

391,242

 

No transactions

 

 

-

 

Creditor #2 Notes, principal balance as of August 31, 2016

 

$ 391,242

 

 

To the extent the Creditor #2 converts the Creditor #2 Notes and then sells its common stock, the market price of the common stock may decrease due to the additional shares in the market. This could allow the Creditor #2 to receive greater amounts of common stock upon conversion. The sale of each share of common stock could further depress the stock price. Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Creditor #2 would be issued upon conversion. The shares issuable upon conversion of the Creditor #2 Notes may result in substantial dilution to the interests of the Company’s other shareholders. In this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way, the investor could sell more than the 9.99% limit while never holding more than the limit.

 

Due to the significant change in terms and amounts payable between the Creditor Notes and Creditor #2 Notes, the Company accounted for the transaction as an extinguishment of the Creditor Note on the date of the exchange. In connection with this extinguishment, the Company recorded a loss on extinguishment of $1,439,044 as the derivatively liability associated with the Creditor #2 Notes was significantly greater in value than that of the Creditor Notes. See below for valuation methods used to determine the fair value of the Company's derivative liabilities.

 

In addition, the Company recorded a derivative liability in connection with the $250,000 in proceeds received from the Creditor #2. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $1,469,891 as of the date of issuance. As a result of the valuation of the derivative liability being in excess of the value of the proceeds of the Creditor #2 Note by $1,219,891, the amount was expensed to derivative expense. The Company recorded a full discount to these notes which is being amortized over the term of the Creditor #2 Notes using the straight line method. During the year ended August 31, 2015, $62,500 was amortized to interest expense with no discount remaining as of August 31, 2015. Subsequent to August 31, 2016, the note was in technical default due to the Company's failure to timely file the annual report. The Company is still determining the impact of this default which may include an increase in principal and the interest rate. Total accrued interest related to the notes payable above as of August 31, 2016 and 2015 was $108,596 and $62,676, respectively.

  

 
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Creditor #3 Convertible Promissory Note

 

In December 2014, a convertible promissory note holder ("Holder") entered into an exchange agreement with another lender (the “Creditor #3”) whereby the Holder transferred the Holder’s notes and accrued interest to Creditor #3. In December 2014, the Company entered into i) a note agreement for $150,000 representing the principal amount transferred from the Holder. The Creditor #3 Note bears interest per annum at 10.0%, due on August 22, 2015 and is convertible on the date of issuance based upon based upon a 25% discount to lowest trading price, for the 5 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #3 converts the Creditor #3 Notes, the more common shares the Creditor #3 will receive. The table below details the transactions with the Creditor #3 during the years ended August 31, 2016 and 2015.

 

Creditor #3 Notes, principal balance as of August 31, 2014

 

$ -

 

Transfer from 3rd party

 

 

150,000

 

Conversion of Creditor #2 Notes to common stock (421,166 common shares issued)

 

 

(56,650 )

Creditor #3 Notes, principal balance as of August 31, 2015

 

 

93,350

 

No transactions

 

 

-

 

Creditor #3 Notes, principal balance as of August 31, 2016

 

$ 93,350

 

 

To the extent the Creditor #3 converts the Creditor #3 Note and then sells its common stock, the market price of the common stock may decrease due to the additional shares in the market. This could allow the Creditor #3 to receive greater amounts of common stock upon conversion. The sale of each share of common stock could further depress the stock price. Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Creditor #3 would be issued upon conversion. The shares issuable upon conversion of the Creditor #3 Note may result in substantial dilution to the interests of the Company’s other shareholders. In this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way, the investor could sell more than the 9.99% limit while never holding more than the limit.

 

During the year ended August 31, 2015, the Company recorded a discount of $150,000 due to the derivative liability, as discussed below, having a fair market value in excess of the principal amount of the convertible note. During the year ended August 31, 2015, the Company amortized $150,000 of the discount to interest expense and thus no discount remained. Subsequent to August 31, 2016, the Creditor #3 note and accrued interest was purchased by the Company for $25,000. The Company is still determining the impact of this transaction. Total accrued interest related to the note payable above as of August 31, 2016 and 2015 was $27,059 and $22,359, respectively.

 

Convertible Promissory Notes

 

As of August 31, 2016, the Company has outstanding 31 convertible promissory notes issued between December 2011 and September 2015. The convertible promissory notes bear interest at either 4% or 8% per annum and are due in full, including principal and interest, two-three years from the issuance date ranging from August 2014 to February 2018. The convertible promissory notes also include a conversion option whereby the holders may elect at any time to convert any portion or the entire balance into the Company’s common stock at conversion prices ranging from $0.08 to $1,000. The table below details the transactions associated with the convertible promissory notes during the years ended August 31, 2016 and 2015.

 

 
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Convertible Promissory Notes, principal balance as of August 31, 2014

 

$ 745,134

 

Proceeds received from additional Convertible Promissory Notes - Related Party

 

 

402,250

 

Conversion of accrued salaries and advances to Convertible Promissory Notes - Related Party

 

 

626,864

 

Proceeds received from additional Convertible Promissory Notes

 

 

181,459

 

Accounts payable converted into a Convertible Promissory Note

 

 

32,891

 

Accrued interest converted into Convertible Promissory Note

 

 

7,022

 

Convertible Promissory Note converted into 125,000 common stock

 

 

(10,000 )

Related party notes converted into 1,625,125 common stock

 

 

(131,000 )

Note transferred to Creditor #3

 

 

(150,000 )

Payments on Convertible Promissory Notes - Related Party

 

 

(89,500 )

Convertible Promissory Notes, principal balance as of August 31, 2015

 

 

1,615,120

 

Reclass from accrued interest to convertible note for correction of classification error

 

 

4,775

 

Proceeds received from additional Convertible Promissory Notes - Related Party

 

 

85,000

 

Convertible Promissory Notes, principal balance as of August 31, 2016

 

$ 1,704,895

 

 

As of August 31, 2016 and 2015, of the convertible promissory notes outstanding, $1,103,964 and $1,068,964 are held by related parties, respectively. These related parties consist of the Company's officers, former officers, significant shareholders or entities controlled by these individuals. As of August 31, 2016 and 2015, $1,028,964 and $197,013 of these notes were included within the current portion of convertible promissory notes on the accompanying consolidated balance sheets as the notes were due within one year of the balance sheet date, respectively. Subsequent to August 31, 2016, some of the notes were in technical default due to the Company's failure to timely file the annual report. The Company is still determining the impact of these defaults which may include an increase in principal and the interest rate. In addition, during the year ended August 31, 2016, convertible notes totaling $50,000 were reclassified from related party notes to convertible notes payable as the individual was no longer considered a related party. As of December 31, 2016 and 2015, accrued interest on these notes was approximately $167,000 and $99,000, respectively.

 

For some of the convertible promissory notes, the conversion feature associated with the convertible promissory notes provide for a rate of conversion that is below market value. This conversion feature is accounted for as a beneficial conversion feature. A beneficial conversion feature was recorded and classified as a debt discount on the balance sheet at the time of issuance of each convertible promissory note with a corresponding credit to additional paid-in capital.

 

In addition, six of the convertible promissory note purchasers were issued warrants to purchase shares of the Company's common stock. The valuation of the stock warrants and the beneficial conversion feature associated with the issuance of convertible promissory notes utilized valuation inputs and related figures provided by a professional and independent valuation firm. The Company allocated a portion of the proceeds received from the convertible promissory notes to the warrants using the relative fair value resulting in a debt discount to each convertible promissory note.

 

The discounts are amortized over the term of the convertible promissory note using the straight line method. The amortized value for each period is recorded as an offset against the debt discount on the consolidated balance sheet, classified as interest expense - accretion in the statement of operations and as accretion of debt discount within the statement of cash flows.

 

Of the increase in convertible notes payable during the year ended August 31, 2016, $20,000 related to proceeds received from the Company's Chief Executive Officer and $65,000 in proceeds from the Chief Executive Officer of StreamTrack Media, Inc.

 

During the year ended August 31, 2015, the Company recorded a discount related to the recognition of a beneficial conversion feature or allocation of the proceeds to a derivative liability of $1,202,963 in connection with the issuance of $1,243,704 in convertible notes. Of the increase in convertible notes payable during the year ended August 31, 2015, $235,750 related to proceeds received from the Company's Chief Executive Officer, $166,500 in proceeds from the Chief Executive Officer of StreamTrack Media, Inc., $181,459 in proceeds from third parties, $32,891 in conversions of amounts payable to a third party to a note; $316,758 in salary and advances due to our Chief Executive Officer converted to a convertible note payable and $310,106 in salary and advances due to StreamTrack Media, Inc.'s Chief Executive Officer converted to a convertible note payable.

 

 
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During the years ended August 31, 2016 and 2015, $493,950 and $761,356 of the discounts were amortized to interest expense, respectively. As of August 31, 2016, $123,838 discounts remained, which will be expensed in fiscal 2017 and 2018.

 

On December 24, 2014 and included within the disclosures above, the Company entered into a convertible note agreement for $114,350 with a third party. Under the terms of the agreement the third party was to provide the Company with $81,459 in cash and relief of $48,333 in accrued consulting fees due to the third party. In addition, the Company agreed to issue 12,500 share of common stock and 500 shares of Series C Preferred Stock. The convertible note incurs interest at a rate of 4% per annum, is due December 24, 2016 and is convertible into shares of the Company's common stock on the date of issuance based upon based upon a 10% discount to lowest trading price, for the 15 trading days prior to conversion. Total proceeds of $81,459 had been received.

 

The Company recorded the difference between the convertible note less proceeds received and accrued consulting fees plus the fair market value of the common stock of $7,000 and Series C Preferred Stock of $75,000 as a loss on extinguishment of $66,537. The common stock valued using the closing market price of the Company's common stock on the date of the transaction. The Series C Preferred Stock was valued based upon each share of Series C Preferred Stock being convertible into $150 in fair market value of the Company’s common stock.

 

On April 28, 2015 and included within the disclosures above, the Company entered into an amended convertible note agreement for $56,806 with a third party. The convertible note agreement included the original $50,000 in principal and $6,806 in accrued interest. In addition, the Company agreed to issue 150 shares of Series C Preferred Stock. The convertible note incurs interest at a rate of 8% per annum, is due April 28, 2017 and is convertible into shares of the Company's common stock on the date of issuance based upon based upon a 15% discount to lowest trading price, for the 5 trading days prior to conversion.

 

The Company recorded the difference between the convertible note and the fair market value of the Series C Preferred Stock of $22,500 plus the fair market value of the derivative liability of $66,831 for a loss on extinguishment of $35,025. The Series C Preferred Stock was valued based upon each share of Series C Preferred Stock being convertible into $150 in fair market value of the Company’s common stock.

 

Future Maturities

 

As of August 31, 2016, future maturities of notes payable is as follows for the years ending August 31; $2,039,487 current; and $150,000 2018. Included within those amounts due to related parties are: $1,028,964 current and $75,000 for 2018.

 

Derivative Liabilities

 

Creditor #2 Note

 

The Creditor #2 Notes were executed on April 15, 2014 and were immediately convertible into the Company’s common stock at a 45% discount to the lowest trading price for the 15 days prior to the conversion date. As a result of the fact that the number of shares the Creditor #2 Notes was convertible into was indeterminable, the Company determined a derivative liability was embedded within the Creditor #2 Notes. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $3,158,190 as of April 15, 2014 of which $1,219,891 was included within “change in fair value of derivatives” due to a portion of the derivative liability being in excess of the $250,000 in proceeds received and $1,481,723, which included offset of $206,576 from relief of the derivative liability related to the Creditor Notes, within “Loss on extinguishment” due to extinguishment accounting on the Creditor Note transferred to Creditor #2. On August 31, 2016 and 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $427,334 and $606,698, respectively.

 

 

 

August 31,

2016

 

 

August 31,

2015

 

 

 

 

 

 

 

 

Expected life (in years)

 

 

0.50

 

 

 

0.50

 

Balance of note and accrued interest outstanding

 

$ 499,839

 

 

$ 391,242

 

Stock price

 

$ 0.08

 

 

$ 0.08

 

Effective conversion price

 

$ 0.04

 

 

$ 0.04

 

Shares issuable upon conversion

 

 

11,359,977

 

 

 

8,891,864

 

Risk-free interest rate

 

 

0.50 %

 

 

0.50 %

Expected volatility

 

 

69.20 %

 

 

361.00 %

Expected dividend yield

 

 

-

 

 

 

-

 

 

 
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Creditor #3 Note

 

The Creditor #3 Notes were executed on December 24, 2014 and were immediately convertible into the Company’s common stock at a and is convertible on the date of issuance based upon based upon a 25% discount to lowest trading price, for the 5 trading days prior to conversion. As a result of the fact that the number of shares the Creditor #2 Notes was convertible into was indeterminable, the Company determined a derivative liability was embedded within the Creditor #2 Notes. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $200,000 as of December 24, 2014. As a result of the valuation of the derivative liability being in excess of the value of the carrying value of Creditor #3 by $50,000, a loss on derivative liability of $50,000 was recorded by the Company. On August 31, 2016 and 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $52,203 and $102,809, respectively.

 

 

 

August 31,

2016

 

 

August 31,

2015

 

 

 

 

 

 

 

 

Expected life (in years)

 

 

0.50

 

 

 

0.50

 

Balance of note and accrued interest outstanding

 

$ 120,409

 

 

$ 93,350

 

Stock price

 

$ 0.08

 

 

$ 0.08

 

Effective conversion price

 

$ 0.06

 

 

$ 0.06

 

Shares issuable upon conversion

 

 

2,006,817

 

 

 

1,555,833

 

Risk-free interest rate

 

 

0.50 %

 

 

0.50 %

Expected volatility

 

 

69.20 %

 

 

361.00 %

Expected dividend yield

 

 

-

 

 

 

-

 

 

Other Notes with Adjustable Conversion Features

 

As discussed above, on December 24, 2014 the Company issued a $72,890 promissory note to a third party. The convertible promissory note was immediately convertible into the Company's common stock at a 10% discount to the lowest traded price for the five days prior to the conversion date. As a result of the fact that the number of shares the promissory note is convertible into is indeterminable, the Company determined a derivative liability was embedded within the promissory note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $94,487 as of December 24, 2014. As a result of the valuation of the derivative liability being in excess of the value of the carrying value of convertible promissory note by $21,597, a loss on derivative liability of $21,597 was recorded by the Company. In addition, on March 17, 2015 the Company received an additional $41,459 in proceeds under the promissory note. On March 17, 2015, the Company recorded an additional derivative liability of $69,098, resulting in a loss on derivative liability of $27,639. On August 31, 2016 and 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $50,695 and $123,566, respectively.

 

 

 

August 31,

2016

 

 

August 31,

2015

 

 

 

 

 

 

 

 

Expected life (in years)

 

 

0.50

 

 

 

1.40

 

Balance of note and accrued interest outstanding

 

$ 114,350

 

 

$ 114,350

 

Stock price

 

$ 0.08

 

 

$ 0.08

 

Effective conversion price

 

$ 0.07

 

 

$ 0.07

 

Shares issuable upon conversion

 

 

1,588,194

 

 

 

1,588,194

 

Risk-free interest rate

 

 

0.62 %

 

 

0.50 %

Expected volatility

 

 

134.29 %

 

 

369.00 %

Expected dividend yield

 

 

-

 

 

 

-

 

 

 
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As discussed above, on April 28, 2015 the Company issued a $56,806 promissory note to a third party. The convertible promissory note was immediately convertible into the Company's common stock at a 15% discount to the lowest traded price for the five days prior to the conversion date. As a result of the fact that the number of shares the promissory note is convertible into is indeterminable, the Company determined a derivative liability was embedded within the promissory note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $66,831 as of April 28, 2015. On August 31, 2016 and 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $31,143 and $65,783, respectively.

 

 

 

August 31,

2016

 

 

August 31,

2015

 

 

 

 

 

 

 

 

Expected life (in years)

 

 

0.67

 

 

 

2.00

 

Balance of note and accrued interest outstanding

 

$ 56,806

 

 

$ 56,806

 

Stock price

 

$ 0.08

 

 

$ 0.08

 

Effective conversion price

 

$ 0.07

 

 

$ 0.07

 

Shares issuable upon conversion

 

 

835,382

 

 

 

835,382

 

Risk-free interest rate

 

 

0.62 %

 

 

0.50 %

Expected volatility

 

 

134.29 %

 

 

369.00 %

Expected dividend yield

 

 

-

 

 

 

-

 

  

11. Stockholders’ Equity

 

Series A Preferred Stock

 

Each share of Series A Preferred Stock has voting rights equal to the voting equivalent of the common stock into which it is convertible at the time of the vote. All outstanding shares of Series A Preferred Stock will automatically convert into common stock on the first business day after the closing date of the acquisition by the Company of 100% of the total issued and outstanding capital stock of RadioLoyalty, Inc., a California corporation. The holders of the Series A Preferred Stock are not entitled to dividends. The Series A Preferred Stock has no preferential rights to the Company’s common stock and will share in any liquidation proceeds with the common stock on an as converted basis.

 

Series B Preferred Stock

 

On October 25, 2013, the Company filed a Certificate of Designation of Series B Preferred Stock (the "Series B Certificate of Designation") with the Secretary of State of Wyoming. Pursuant to the Series B Certificate of Designation, the Company designated 200,000 shares of its blank check preferred stock as Series B Preferred Stock. The Series B Preferred Stock will rank senior to the common stock, Series A Preferred Stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series B Preferred Stock (the "Junior Stock"). The Series B Preferred Stock will not be entitled to dividends. In the event of a liquidation, the Series B Preferred Stock will be entitled to a payment of the Stated Value of $1.00 per share prior to any payments being made in respect of the Junior Stock. Each share of Series B Preferred Stock will entitle the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series B Preferred Stock will entitle the holder to cast such number of votes equal to 0.000255% of the total number of votes entitled to be cast. Effective upon the closing of a Qualified Financing, all issued and outstanding shares of Series B Preferred Stock will automatically convert into common stock in an amount determined by dividing the product of the number of shares being converted and the Stated Value by the Conversion Price. The Conversion Price will be equal to the price per share of the common stock sold under the Qualified Financing (or, if the Qualified Financing involves the sale of securities convertible into common stock, by the conversion price of such convertible securities). A "Qualified Financing" is defined as the sale by the Company in a single offering of common stock or securities convertible into common stock for gross proceeds of at least $5,000,000.

 

 
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On October 31, 2013, the Company entered into amendment, waiver and exchange agreements (the "Exchange Agreements") with Michael Hill (the Company's chief executive officer and director) and Aaron Gravitz (the Company's director). Under each Exchange Agreement, the Company issued to each of Mr. Hill and Mr. Gravitz 100,000 shares of Series B Preferred Stock in exchange for $100,000 in unpaid compensation. In connection with the Exchange Agreements, the Company relied on the exemptions from registration provided by Section 3(a)(9) and 4(a)(2) under the Securities Act of 1933, as amended (the "Securities Act").

 

Series C Preferred Stock

 

Effective December 29, 2014, the Company filed a Certificate of Designation of Series C Convertible Preferred Stock (the “Series C”) with the Secretary of State of Wyoming. Pursuant to the Series C, the Company designated 20,000 shares of its blank check preferred stock as Series C Preferred Stock. Each share of Series C is convertible into $150 in fair market value of the Company’s common stock, which fair market value will be equal to the average closing price of the common stock on the over-the-counter market during the 10 trading days immediately prior to the delivery to the Company of a conversion notice. The Series C will share in any liquidation proceeds with the common stock on an as-converted basis, will not have voting rights prior to being converted to common stock, and in the event of any payment of dividends by the Company, will be entitled to dividends on an as-converted basis with the common stock. The Company has presented the Series C outside of stockholders' equity due to the variable conversion price.

 

On April 24, 2015, the Company entered into an Exchange Agreement with Lux pursuant to which the Company issued 10,000 shares of its Series C in exchange for 1,869 shares of Company common stock tendered by Lux to the Company for cancellation. The Lux common stock was originally issued to Lux by the Company on March 12, 2013. In connection with the transaction, the Company recorded a loss on settlement of $1,499,850, which represented the difference in the fair market value of the Series C issued of $1.5 million and the common stock received of $150. See Note 4 for additional transaction with Lux.

 

On April 24, 2015, the Company entered into an Exchange Agreement with Mark J. Richardson ("MJR") pursuant to which the Company issued 500 shares of its Series C in exchange for 19 shares of Company common stock tendered by MJR to the Company for cancellation. The MJR common stock was originally issued to MJR by the Company on March 13, 2013. In connection with the transaction, the Company recorded a loss on settlement of $74,998, which represented the difference in the fair market value of the Series C issued of $75,000 and the common stock received of $2.

 

See below and Note 10 for discussion related to additional issuances of Series C.

 

Common Stock

 

Each share of common stock has the right to one vote per share. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company, whenever funds are legally available. These rights are subordinate to the dividend rights of holders of all classes of stock outstanding at the time.

 

Effective February 17, 2015, the Company filed Articles of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Wyoming to (i) increase the Company’s authorized shares of common stock from 1,000,000,000 to an unlimited number; and (ii) allow for shareholders to take actions by the written consent of the holders of outstanding shares having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted.

 

On October 26, 2015, the Company filed a 14C with the Securities and Exchange Commission indicating their intent to amendment the Articles of Incorporation to: (i) change the Company's name from StreamTrack, Inc. to Total Sports Media, Inc., (ii) effect a 1-for 800 reverse split of the Company's common stock and (iii) decrease the authorized number of shares of common stock from an unlimited number to 40,000,000. The Company received approval to these actions on December 6, 2016 and will reflect under the new ticker TSMI, after 20 days. The 1-for 800 reverse split has been retroactively reflected within these consolidated financial statements.

 

 
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During the year ended August 31, 2015, the Company authorized up to 375,000 shares to be issued under the StreamTrack, 2015 Incentive Stock Plan.

 

During the years ended August 31, 2016 and 2015, 530 and 50 shares of Series C with a value of $79,500 and $22,500 were converted into 993,750 and 281,250 shares of common stock, respectively.

 

See Notes 5, 6, 10 and 12 for discussion regarding the issuance of common stock.

 

Detachable Stock Warrants

 

On April 27, 2015, the Company entered into an Investment Agreement with RTV Media Corp. (“RTV”) pursuant to which RTV initially invested $75,000 into the Company in consideration for $75,000 of worth of warrants at an exercise price of $0.08 to purchase the common stock of the Company. Upon exercise, RTV has up to five years to exercise the warrants. In addition, RTV agreed to invest up to an additional $425,000 of capital into the Company in consideration for which additional warrants will be granted upon investment. The Company has accounted for the warrants as common stock to be issued as there are no provisions within the agreement in which will require the Company to return the capital provided.

 

On December 3, 2015, the Company issued RTV Media Corp. (“RTV”) warrants in consideration of $12,500. The exercise price shall be equal to the higher of (i) $0.001 or (ii) 85% of the average closing price of the Company’s common stock as quoted on the public securities trading market for the ten (10) consecutive trading days immediately prior to the Holder’s exercise of this warrant.

 

In connection with the acquisition of RL on August 31, 2012, the Company assumed a total of 453 detachable stock warrants from RL (the “RL Warrants”). The RL Warrants have a three-year term and are convertible into the Company’s common stock at an exercise price of $328.00 per share. The RL Warrants had been previously convertible into RL common stock at a price of $400.00 per share. The exercise price of the RL Warrants, that became exercisable for issuance of the Company’s common stock as of August 31, 2012, was adjusted to $328.00 upon the closing of the August 31, 2012 acquisition. The warrant expired without exercise on August 31, 2015.

 

12. Subsequent Events 

 

See Note 10 for amendment to the Lender Financing agreement and discussion regarding the satisfaction of Creditor #3 note payable.

 

See Note 11 for discussion regarding amendment to the articles of incorporation and a reverse stock split.

 

On January 20, 2017, a lawsuit was filed against StreamTrack Media, Inc. by Prodedge, LLC for $80,500 plus attorney fees for breach of contract, covenant of good faith and fair dealing. The Company is reviewing the case and plans to respond accordingly.

 

In accordance with ASC 855-10, we have analyzed our operations subsequent to August 31, 2016 to the date these consolidated financial statements were issued, and have determined that we do not have any material subsequent events to disclose in these consolidated financial statements, other than those disclosed above.

 

 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

 

As of August 31, 2016, our management, including our principal executive officer and principal financial officer, had evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) under the Exchange Act. Based upon and as of the date of the evaluation, our principal executive officer and principal financial officer concluded that information required to be disclosed is recorded, processed, summarized, and reported within the specified periods and is accumulated and communicated to management, including our principal executive officer and principal financial officer , to allow for timely decisions regarding required disclosure of material information required to be included in our periodic SEC reports. Based on the foregoing, our management determined that our disclosure controls and procedures were effective as of August 31, 2016.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer of the effectiveness of our internal controls over financial reporting as of August 31, 2016. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on this assessment, management believes that, as of August 31, 2016, our internal control over financial reporting was effective based on those criteria. There have been no changes in internal control over financial reporting since August 31, 2016, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

 
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No Attestation Report by Independent Registered Accountant

 

The effectiveness of our internal control over financial reporting as of August 31, 2016 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

The Company’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

ITEM 9B. OTHER INFORMATION

 

None.

 
 
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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table lists the executive officers and directors of the Company and its subsidiaries as of August 31, 2016:

 

Name

 

Age

 

Position

 

Michael Hill

 

40

 

Chief Executive Officer, President, Chief Financial Officer, Corporate Secretary, and Chairman of the Board of Directors of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chief Financial Officer, Corporate Secretary, and Chairman of the Board of Directors of StreamTrack Media, Inc.

 

Aaron Gravitz

 

36

 

Director of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chief Executive Officer of StreamTrack Media, Inc.

  

Michael Hill, age 40, has been the Chairman of the Board of Directors, Chief Executive Officer, President, Chief Financial Officer, and Corporate Secretary of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). since May 2012. He is also the co-founder of RadioLoyalty, Inc., a digital media and streaming solutions provider with innovative technology focused on the internet, mobile, radio and television broadcasting industries which was acquired by StreamTrack’s wholly owned subsidiary, StreamTrack Media, Inc., a California corporation (“STMI”), in August 2012. Mr. Hill has been the Chief Financial Officer, Corporate Secretary, and Chairman of the Board of Directors of STMI since its inception and was the Chief Executive Officer and President of STMI from its inception to September 2012. Mr. Hill is a seasoned media executive with over 11 years of experience building digital businesses. Prior to launching RadioLoyalty in 2011, Mr. Hill was the Chief Strategy Officer of Lenco Mobile, Inc., a global mobile technology services and marketing company. His primary responsibilities were to oversee the development, deployment and launch of international offices in United Kingdom, Mexico, Colombia, Singapore, New Zealand, China, South Korea and Australia. Simultaneously, Mr. Hill was responsible for the technology design, development, launch and implementation of its MMS Messaging Platform with the world’s largest wireless carriers. Before joining Lenco Mobile, Mr. Hill founded AdMax Media in 2008, an advertising technology company where he developed an advertising network software, Admaximizer.com. From 2004 until 2008, Mr. Hill served as the Chairman and Chief Executive Officer of Commerce Planet. In 2008, both businesses were sold to a public company, Lenco Mobile Inc., which purchased all assets and liabilities, establishing the AdMax Media operation. A veteran of online advertising, Mr. Hill has founded multiple other private technology and media companies. Mr. Hill has designed and developed many proprietary technology platforms, including but not limited to UniversalPlayer TM , RadioLoyalty TM, Admaximizer TM, WatchThis TM, Jupiter MMS TM, and Build.mobi. Prior to this work, Mr. Hill served in the United States Navy, receiving the honor of Enlisted Surface Warfare Specialist.

 

Mr. Hill’s qualifications:

 

·

Leadership experience – Mr. Hill has been our Chairman, Chief Executive Officer, President, Chief Financial Officer, and Corporate Secretary since May 2012. He also currently serves as the Chairman, Chief Financial Officer, and Corporate Secretary of STMI.

·

Finance experience – Mr. Hill currently serves as Chief Financial Officer of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and has been supervising the financial management of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). since May 2012.

·

Industry experience – Mr. Hill has built numerous successful digital media businesses for the past 12 years.

 

 
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Aaron Gravitz. Mr. Gravitz, age 36, co-founded RadioLoyalty Inc. in 2011. He has been a director of the Company since September 2012 and the Chief Executive Officer of STMI since September 2012. He has over 16 years experience in the online advertising space. Prior to co-founding RadioLoyalty, Inc., he was the Chief Operating Officer of Lenco Media Inc. from January 2011 to September 2012 and the Chief Operating officer of AdMax Media Inc. from January 2010 to January 2011. Mr. Gravitz joined Commerce Planet in 2004, serving in various roles, and ultimately as Chief Operating Officer. Mr. Gravitz has significant experience in operating an advertising network, bringing products to market, and managing the entire media buying and selling process. His track record includes founding multiple companies that grew to over 50 million dollars in combined sales, with several leading to acquisition. Mr. Gravitz’s current responsibilities at the Company include, but are not limited to, directing operations, overseeing media buying and sales, product development, managing strategic relationships, directing customer relations, and broadcaster development. Mr. Gravitz received a bachelor’s degree in public policy and ethics from the University of California Santa Barbara in 2004.

 

Mr. Gravitz’s qualifications:

 

·

Leadership Experience – Mr. Gravitz has held various leadership and executive positions including Chief Executive Officer of STMI and COO of RadioLoyalty Inc.

·

Industry Experience – Mr. Gravitz has built numerous successful digital media businesses for the past 12 years.

 

No director is required to make any specific amount or percentage of his business time available to us. Our officer intends to devote such amount of his time to our affairs as is required or deemed appropriate by us.

 

Limitation of Liability and Indemnification of Officers and Directors

 

Under the Wyoming General Corporation Law and the Company’s Articles of Incorporation, as amended, the Company’s directors will have no personal liability to the Company or its stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care”. This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

 

 
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

 

Board Committees

 

Our Board of Directors does not have an audit committee and our full Board of Directors is presently performing the functions of an audit committee. Our Board of Directors does not have a compensation committee so all decisions with respect to management compensation are made by the whole board. Our Board of Directors does not have a nominating committee. Therefore, the selection of persons or election to the board of directors was neither independently made nor negotiated at arm’s length.

 

Auditor Independence

 

Our Board of Directors has considered whether the provisions of non-audit services are compatible with maintaining our auditors’ independence.

 

Report of the Audit Committee

 

Our Board of Directors does not have an audit committee. Accordingly, we have not received any reports from an audit committee during the fiscal year ended August 31, 2016. Our full Board of Directors is presently performing the functions of an audit committee until an audit committee is formed in the future.

 

Code of Conduct

 

We not yet adopted a Code of Conduct to apply to our directors, officers and employees.

 

Compliance with Section 16(A) of Exchange Act

 

Section 16(a) of the Exchange Act requires our officers and directors, and certain persons who own more than 10% of a registered class of our equity securities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and Exchange Commission (the “SEC”). Reporting Persons are required by the SEC to furnish the Company with copies of all Section 16 Reports they file.

 

Based solely on its review of the copies of such Section 16 Reports received by it, or written representations received from certain Reporting Persons, all Section 16(a) filing requirements applicable to the Company’s Reporting Persons during and with respect to the fiscal year ended August 31, 2016 have been complied with on a timely basis.

 

 
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ITEM 11. EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our board of directors makes all decisions for the total direct compensation of our executive officers, including the Named Executive Officers. We do not have a compensation committee, so all decisions with respect to management compensation are made by the whole board.

 

Compensation Program Objectives and Rewards

 

Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay with performance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensation packages consisting of a combination of competitive base salary and incentive compensation.

 

To date, we have not applied a formal compensation program to determine the compensation of the Named Executives Officers. In the future, as we and our management team expand, our board of directors expects to add independent members, form a compensation committee comprised of independent directors, and apply the compensation philosophy and policies described in this section of the 10K.

 

The primary purpose of the compensation and benefits described below is to attract, retain, and motivate highly talented individuals when we do hire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executive compensation structure.

 

·

Base salary and benefits are designed to attract and retain employees over time.

·

Incentive compensation awards are designed to focus employees on the business objectives for a particular year.

·

Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements.

·

Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talented employees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our Name Executive Officers.

 

 
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Benchmarking

 

We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies based on scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.

 

Benefits and Prerequisites

 

At this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits that are generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We may adopt retirement plans and confer other fringe benefits for our executive officers in the future if our business grows sufficiently to enable us to afford them.

 

Separation and Change in Control Arrangements

 

We do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of the Company. None of them are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.

 

Executive Officer Compensation

 

The following summary compensation table sets forth certain information concerning compensation paid to the Company’s Chief Executive Officer and its most highly paid executive officers (the “Named Executive Officers”) whose total annual salary and bonus for services rendered in all capacities for the year ended August 31, 2016 was $100,000 or more.

 

 
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Summary Compensation Table

 

Name and Principal Position

 

Fiscal

Year

 

Salary

 

 

Bonus

 

 

Restricted

Stock Awards

 

 

All Other

Compensation

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Hill (1)

 

2015

 

$ 117,336

 

 

 

-0-

 

 

$ -0-

 

 

 

-0-

 

 

$ 117,336

 

Chairman, Chief Executive Officer, President, Chief Financial Officer, and Corporate Secretary of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chairman, Chief Financial Officer, and Corporate Secretary of STMI

 

2014

 

$ 240,000

 

 

 

-0-

 

 

$ -0-

 

 

 

-0-

 

 

$ 240,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aaron Gravitz (2)

 

2015

 

$ 97,336

 

 

 

-0-

 

 

$ -0-

 

 

 

-0-

 

 

$ 97,336

 

Director of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chief Executive Officer of STMI

 

2014

 

$ 240,000

 

 

 

-0-

 

 

$ -0-

 

 

 

-0-

 

 

$ 240,000

 

_____________

(1)

Mr. Hill has been Chairman of the Board of Directors, Chief Executive Officer, President, Chief Financial Officer, and Corporate Secretary of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.) since May 2012 and Chairman, Chief Financial Officer, and Corporate Secretary of STMI since August 2012. Current year salary amounts presented above include accrual of $4,667 for the period from September 2015 to August 2016. As of August 31, 2016, total amounts included within related party payables on the accompanying balance sheet for the officer's services during the 2016 fiscal year was approximately $50,000.

 

(2)

Mr. Gravtiz has been a director of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.) since September 2012 and the Chief Executive Officer of STMI since September 2012. Current year salary amounts presented above include accrual of $4,667 for the period from September 2015 to August 2016. As of August 31, 2016, total amounts included within related party payables on the accompanying balance sheet for the officer's services during the 2016 fiscal year were $50,000.

 

Employment Agreements

 

We have not entered into consulting agreements with our executive officers.

 

 
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Employee Benefit Plans

 

We have not yet, and have no plans to, establish a management stock option plan pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.).

 

Director Compensation

 

None of our directors received any compensation for their respective services rendered to us as directors during the years ended August 31, 2016 and 2015.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  

The following table sets forth the names of our executive officers and directors and all persons known by us to beneficially own 5% or more of the issued and outstanding common stock of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.) at August 31, 2016. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of August 31, 2016 are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The percentage ownership of each beneficial owner is based on 5,237,569 outstanding shares of common stock. Except as otherwise listed below, the address of each person is c/o Total Sports Media, Inc. (formerly known as StreamTrack, Inc.)., 5662 Calle Real #231, Goleta, CA 93117. Except as indicated, each person listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name.

 

Name, Title and Address

 

Number of

Shares

Beneficially

Owned (1)

 

 

Percentage Ownership

 

 

 

 

 

 

 

 

Michael Hill

 

 

 

 

 

 

Chairman, Chief Executive Officer, President, Chief

Financial Officer, and Corporate Secretary of

Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chairman, Chief Financial Officer, and

Corporate Secretary of STMI

 

 

957,915

 

 

 

18.3 %

 

 

 

 

 

 

 

 

 

Aaron Gravitz

 

 

 

 

 

 

 

 

Director of Total Sports Media, Inc. (formerly known as StreamTrack, Inc.). and Chief Executive Officer of STMI

 

 

695,225

 

 

 

13.3 %

 

 

 

 

 

 

 

 

 

All current Executive Officers as a Group

 

 

1,653,140

 

 

 

31.6 %

________________

* Indicates beneficial ownership of less than 1%.

 

 
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Financing

 

The related party payable as of August 31, 2016 consists of unpaid compensation and non-interest bearing cash advances and charges on personal credit lines made on behalf of the Company by the Company’s Chief Executive Officer and an executive of the Company’s subsidiary. The balances owed to the executives are not secured and are due on demand. Interest will be charged on these balances. However, no formal agreement has been executed to quantify the interest. The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. Once the Company’s track record is more established and results of operations are profitable, then external sources of capital should become more readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

 

RL entered into several convertible promissory notes with its founders, officers and high-level executives since its inception on December 1, 2011. See Note 9 and Note 10 for additional information.

 

 
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The aggregate fees billed for the most recently completed fiscal year ended August 31, 2016 and for fiscal year ended August 31, 2015 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 

Audit Fees

 

An aggregate of $29,000 was billed by our auditors for the following professional services: audit of our annual financial statement for the fiscal year ended August 31, 2016, and review of the interim financial statements included in quarterly reports on Form 10-Q for the periods ended November 30, 2015, February 29, 2016, and May 31, 2016.

 

An aggregate of $33,000 was billed by our auditors for the following professional services: audit of our annual financial statement for the fiscal year ended August 31, 2015, and review of the interim financial statements included in quarterly reports on Form 10-Q for the periods ended November 30, 2014, February 28, 2015, and May 31, 2015.

 

Audit Related Fees

 

Our auditors billed us $0 for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding section during the fiscal years ended August 31, 2016 and 2015.

 

Tax Fees

 

Our auditors billed us $0 for tax preparation services during the fiscal years ended August 31, 2016 and 2015.

 

All Other Fees

 

The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in the preceding sections was $0 during the fiscal years ended August 31, 2016 and 2015.

 

 
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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) Exhibits

 

Exhibit

 

Description

 

 

 

21.1

 

List of Subsidiaries

 

31.1

 

Section 302 Certification of Principal Executive Officer

 

31.2

 

Section 302 Certification of Principal Financial/Accounting Officer

 

32.1

 

Section 906 Certification of Principal Executive Officer

 

32.2

 

Section 906 Certification of Principal Financial/Accounting Officer

 

101.INS **

 

XBRL Instance Document

 

101.SCH **

 

XBRL Taxonomy Extension Schema Document

 

101.CAL **

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF **

 

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB **

 

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE **

 

XBRL Taxonomy Extension Presentation Linkbase Document

__________ 

(1)

Incorporated by reference from the exhibits included with our Form S-1 Registration Statement filed with the Securities and Exchange Commission, SEC file 0001442376-09-000021 and our Form S-8 Registration Statement filed with the Securities and Exchange Commission SEC file 333-177311. Such exhibits are incorporated herein by reference pursuant to Rule 12b-32.

 

(2)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2012.

 

(3)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2012.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TOTAL SPORTS MEDIA, INC.

(FORMERLY KNOWN AS STREAMTRACK, INC.).

 

Dated: March 7, 2017

By:

/s/ Michael Hill

 

Michael Hill,

 

Chief Executive Officer, President,

 

 

 

Chief Financial Officer, and Corporate Secretary

 

 

 

(Principal Executive Officer and Principal Financial/Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Dated: March 7, 2017

 

Dated: March 7, 2017

 

/s/ Michael Hill

 

/s/ Aaron Gravitz

 

Michael Hill,

 

Aaron Gravitz,

 

Chief Executive Officer, President,

 

Director

 

Chief Financial Officer, and Corporate Secretary

 

(Principal Executive Officer and Principal Financial/Accounting Officer)

 

 

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