UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2018
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number: 000-55074
ProBility Media Corporation | ||
(Exact name of registrant as specified in its charter) | ||
Nevada | 33-1221758 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1517 San Jacinto Street, Houston, TX 77002 | ||
(Address of principal executive offices) | ||
(713) 652-3937 | ||
(Registrant's telephone number, including area code) | ||
(Former name, former address and former fiscal year, if changed since last report) |
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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer [_] | Accelerated filer [_] | |
Non-accelerated filer [_] | Smaller reporting company [X] | |
Emerging growth company [_] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of June 19, 2018, there were 56,099,370 shares of the issuer's common stock, par value $0.001, outstanding.
ProBility Media Corporation
FORM 10-Q
TABLE OF CONTENTS
PAGE | |||
PART I – FINANCIAL INFORMATION | |||
ITEM 1. | FINANCIAL STATEMENTS | 3 | |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 24 | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29 | |
ITEM 4. | CONTROLS AND PROCEDURES | 29 | |
ITEM 1. | LEGAL PROCEEDINGS | 30 | |
ITEM 1A. | RISK FACTORS | 30 | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 30 | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 30 | |
ITEM 4. | MINE SAFETY DISCLOSURES | 30 | |
ITEM 5. | OTHER INFORMATION | 30 | |
ITEM 6. | EXHIBITS | 31 | |
SIGNATURES | 34 |
2 |
PART I – FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Company's Form 10-K, filed with the SEC on April 16, 2018. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year ended October 31, 2018.
ProBility Media Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |
Consolidated Balance Sheets | 4 |
Consolidated Statements of Operations | 5 |
Consolidated Statements of Cash Flows | 6 |
Notes to Consolidated Financial Statements | 7 |
3 |
ProBility Media Corporation
April 30, | October 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 244,251 | $ | 388,085 | ||||
Accounts receivable, net | 1,398,210 | 908,163 | ||||||
Inventory | 1,470,593 | 771,149 | ||||||
Other current assets | 86,129 | 6,500 | ||||||
Total current assets | 3,199,183 | 2,073,897 | ||||||
Property, plant, and equipment, net | 1,355,240 | 159,641 | ||||||
Intangible assets, net | 695,695 | 806,346 | ||||||
Security deposit | 7,500 | 7,500 | ||||||
Goodwill | 2,537,550 | 967,015 | ||||||
Other assets | 157,900 | – | ||||||
Total Assets | $ | 7,953,068 | $ | 4,014,399 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Current portion of acquisition notes payable | $ | 553,564 | $ | 131,926 | ||||
Current portion - lease payable | 26,710 | 13,837 | ||||||
Accounts payable and accrued expenses | 2,897,039 | 1,855,324 | ||||||
Accrued expenses – related parties | 712,507 | 416,972 | ||||||
Deferred revenue | 50,833 | _ | ||||||
Current portion of convertible notes payable, net of discount of $727,882 and $213,077, respectively | 1,505,554 | 640,123 | ||||||
Current portion of notes payable, net of discount of $526,150 and $281,589, respectively | 2,983,868 | 1,526,615 | ||||||
Total current liabilities | 8,730,075 | 4,584,797 | ||||||
Long-term liabilities: | ||||||||
Security deposit | 133,175 | 7,000 | ||||||
Lease payable | 32,214 | 51,697 | ||||||
Shareholder advance | 92,550 | 93,050 | ||||||
Convertible notes payable, net of discount of $1,527,437 and $114,937, respectively | 245,000 | 107,863 | ||||||
Notes payable, net of discount of $0 and $0, respectively | 881,196 | _ | ||||||
Derivative liabilities | 3,369,603 | |||||||
Acquisition notes payable, net of current portion | 137,736 | 368,540 | ||||||
Contingent liability | 863,080 | 493,080 | ||||||
Total long-term liabilities | 5,754,554 | 1,121,230 | ||||||
Total liabilities | 14,484,629 | 5,706,027 | ||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding | – | – | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 56,099,370 and 52,764,720 issued and outstanding as of April 30, 2018 and October 31, 2017, respectively | 56,100 | 52,765 | ||||||
Additional paid in capital | 6,371,251 | 5,160,319 | ||||||
Accumulated deficit | (12,958,910 | ) | (6,904,712 | ) | ||||
Total stockholders' deficit | (6,531,559 | ) | (1,691,628 | ) | ||||
Total Liabilities and Stockholders' Deficit | $ | 7,953,068 | $ | 4,014,399 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
ProBility Media Corporation
Consolidated Statements of Operations
For the Three and Six Months Ended April 30, 2018 and 2017
(Unaudited)
Three months ended April 30, | Six months ended April 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 4,017,599 | $ | 1,840,647 | $ | 7,753,140 | $ | 2,928,827 | ||||||||
Cost of sales | 2,367,421 | 1,150,280 | 4,634,867 | 2,012,627 | ||||||||||||
Gross profit | 1,650,178 | 690,367 | 3,118,273 | 916,200 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | 2,890,931 | 1,319,079 | 5,337,640 | 2,816,156 | ||||||||||||
Total operating expenses | 2,890,931 | 1,319,079 | 5,337,640 | 2,816,156 | ||||||||||||
Operating loss | (1,240,753 | ) | (628,712 | ) | (2,219,367 | ) | (1,899,956 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Discount amortization | (336,075 | ) | (4,474 | ) | (472,185 | ) | (25,265 | ) | ||||||||
Interest expense | (1,276,039 | ) | (59,105 | ) | (3,446,632 | ) | (113,271 | ) | ||||||||
Other income | 39,855 | – | 98,529 | – | ||||||||||||
Other expenses | (26,836 | ) | – | (61,846 | ) | – | ||||||||||
Gain or (loss) on debt extinguishment | – | 69,542 | (49,720 | ) | 82,240 | |||||||||||
Change in derivative liability | (1,523,612 | ) | 117,045 | 97,023 | (113,853 | ) | ||||||||||
Total other income (expenses) | (3,122,707 | ) | 123,008 | (3,834,831 | ) | (170,149 | ) | |||||||||
Loss before income taxes | (4,363,460 | ) | (505,704 | ) | (6,054,198 | ) | (2,070,105 | ) | ||||||||
Income tax expense (benefit) | – | – | – | – | ||||||||||||
Net loss | $ | (4,363,460 | ) | $ | (505,704 | ) | $ | (6,054,198 | ) | $ | (2,070,105 | ) | ||||
Net loss per common share, basic and diluted | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
Weighted average number of common shares outstanding, basic and diluted | 55,783,687 | 45,143,289 | 54,573,059 | 43,662,799 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
Probility Media Corporation
Consolidated Statements of Cash Flows
For the Six Months Ended April 30, 2018 and 2017
(Unaudited)
2018 | 2017 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (6,054,198 | ) | (2,070,105 | ) | |||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation and amortization | 193,003 | 91,369 | ||||||
Bad debt expense | 98,378 | 31,819 | ||||||
Share-based compensation | 311,765 | 1,029,500 | ||||||
Amortization of debt discount | 472,185 | 25,265 | ||||||
Impairment expense | – | 111,361 | ||||||
Interest expense relating to the initial valuation of derivative liability | 1,602,442 | – | ||||||
Change in derivative liability | (97,023 | ) | 113,853 | |||||
Gain on debt extinguishment | – | (82,240 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (28,575 | ) | (170,839 | ) | ||||
Inventory | (522,027 | ) | 27,530 | |||||
Other assets | 175,946 | (1,201 | ) | |||||
Accounts payable and accrued expenses | 788,585 | 349,797 | ||||||
Accounts payable – related parties | 103,988 | 173,016 | ||||||
Other assets | (157,900 | ) | – | |||||
Deferred revenue | 50,833 | – | ||||||
Net cash used in operating activities | (3,062,598 | ) | (370,875 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Net cash paid for business acquisitions | (437,203 | ) | (35,768 | ) | ||||
Advances to cost method investee – related parties | – | (65,394 | ) | |||||
PP&E purchases | (75,856 | ) | (4,084 | ) | ||||
Net cash used in investing activities | (513,059 | ) | (105,246 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Payments on convertible notes payable | (371,299 | ) | (60,000 | ) | ||||
Proceeds from convertible note payable | 3,065,945 | 50,000 | ||||||
Payments on lease payable | (19,485 | ) | (4,832 | ) | ||||
Proceeds from sale of common stock | – | 441,500 | ||||||
Payments on debt issuance costs | (97,750 | ) | – | |||||
Payments on acquisition notes payable | (59,166 | ) | (12,920 | ) | ||||
Proceeds from notes payable | 3,836,643 | 1,268,983 | ||||||
Payments on notes payable | (2,923,065 | ) | (1,197,767 | ) | ||||
Net cash provided by financing activities | 3,431,823 | 484,964 | ||||||
Net change in cash | (143,834 | ) | 8,843 | |||||
Cash at beginning of period | 388,085 | 68,369 | ||||||
Cash at end of period | $ | 244,251 | $ | 77,212 | ||||
Supplemental Cash Flow Disclosure: | ||||||||
Interest paid | $ | 266,823 | – | |||||
Taxes paid | $ | – | – | |||||
Common stock issued for stock payable | $ | – | – | |||||
Common stock issued upon conversion of convertible notes payable | $ | – | – | |||||
Common stock issued and issuable for business acquisitions | $ | 380,612 | – | |||||
Common stock issued for training materials | $ | 100,000 | – | |||||
Debt discount from derivative liability | $ | 1,864,184 | – | |||||
Warrants issued as debt issuance cost on convertible notes | $ | 213,921 | – | |||||
Common stock issued as debt issuance cost | $ | 140,895 | – | |||||
Original issue discount on convertible notes | $ | 400,050 | – |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
Probility Media Corporation
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Business Activity
Probility Media Corporation (the “Company” or “ProBility”) was incorporated in the State of Nevada on July 11, 2011. The Company was originally incorporated as New Era Filing Services Inc., and changed its name to Probility Media Corporation on February 1, 2017.
ProBility is a global provider of compliance solutions including technical codes and standards and training materials, and e-Learning solutions.
ProBility operates 20 different e-commerce websites, geared towards vocational trades and training. The Company operates a bookstore in Houston, Texas which sells compliance materials for the skilled trades, such as codes and standards, practice aids and study materials. The Company provides technical professionals with the information required to more effectively design products and construct and complete engineering projects. The Company’s product offerings include content on millions of engineering and technical standards, codes, specifications, handbooks, reference books, journals, and other scientific and technical documents. The Company’s e-Learning division offers courses that provide 2D, 3D and virtual reality based course offerings.
The Company is an independent provider of print and electronic codes and standards used by engineers and tradesmen to ensure that they are following the national and local building and industrial codes as they perform their jobs. The Company sells individual print and electronic versions of individual codes and subscriptions to sets of codes. Brown also sells aids and guides that assist engineers and tradesmen in the performance of their jobs. Brown publishes its own content and resells the content of independent third parties. In September 2016, Brown established an eLearning division that is involved in producing and distributing online training courses aimed at its target market.
The Company operates under the brand names of the Company’s subsidiaries, Brown, Brown Technical, One Exam Prep, NEWP, W Marketing, Disco, and North American Crane Bureau.
On January 19, 2017, the Company acquired 100% of the membership units of Premier Purchasing and Marketing Alliance LLC, a New York limited liability company, also known as National Electrical Wholesale Providers (“NEWP”). The acquisition of NEWP was effective January 1, 2017.
On January 26, 2017, the Company acquired 100% of the membership units of One Exam Prep, LLC, (“One Exam”) a Florida limited liability company. The acquisition of One Exam was effective January 1, 2017.
On June 22, 2017, the Company acquired 100% of the outstanding shares of W Marketing Inc. (“W Marketing”) a New York corporation. The acquisition of W Marketing was effective May 1, 2017.
On July 31, 2017, the Company acquired 100% of the outstanding shares of Cranbury Associates, LLC (“Cranbury”) a Vermont limited liability company. The acquisition of Cranbury was effective May 1, 2017.
On January 30, 2018, the Company acquired 100% of the outstanding shares of North American Crane Bureau Group, Inc. (“NACB”). The acquisition of NACB Group was effective November 1, 2017.
On January 30, 2018, the Company acquired 100% of the outstanding shares of Disco Learning Media Inc. (“Disco”). The acquisition of Disco was effective January 1, 2018.
7 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the three months ended April 30, 2018 are not necessarily indicative of the final results that may be expected for the year ended October 31, 2018. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended October 31, 2017 included in the Company’s Form 10-K filed with the SEC. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio along with specifically-identified customer risks. The Company has an allowance for doubtful accounts of $159,752 and $68,990 as of April 30, 2018 and October 31, 2017, respectively.
Inventory
Inventory, which consists of finished goods, is valued at the lower of cost or net realizable value. Cost is determined using a weighted-average cost method. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has no reserve as of April 30, 2018 and October 31, 2017.
Advertising Costs
The Company expenses advertising costs as incurred and recorded $205,320 and $130,174 during the three months ended April 30, 2018 and 2017, respectively and $430,905 and $206,874 for the six months ended April 30, 2018 and 2017, respectively.
Fair Value of Financial Instruments
The Company believes that the fair value of its financial instruments comprising cash, accounts payable, and convertible notes approximate their carrying amounts. As of April 30, 2018 and October 31, 2017, the Company had no Level 1 or Level 2 financial assets or liabilities, and Level 3 financial liabilities consisted of the Company’s derivative liability as of April 30, 2018.
The following table presents the fair value measurement information for the Company as of April 30, 2018:
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative liability | $ | 3,369,603 | $ | – | $ | – | $ | 3,369,603 |
The following table presents the fair value measurement information for the Company as of October 31, 2017:
Carrying Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative liability | $ | – | $ | – | $ | – | $ | – |
8 |
Business Combinations
The Company allocates the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on its estimated fair values at the time of acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The most subjective areas include determining the fair value of the following:
- | Intangible assets, including the valuation methodology, estimations of future cash flows, discount rates, market segment growth rates, our assumed market segment share, as well as the estimated useful life of intangible assets; |
- | Inventory; property, plant and equipment; pre-existing liabilities or legal claims; deferred revenue; and contingent consideration, each as may be applicable; and |
- | Goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. |
The Company’s assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. The Company allocates goodwill to the reporting units of the business that are expected to benefit from the business combination.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized, but instead assessed for impairment. Intangible assets with estimable useful lives are amortized on a straight-line basis over their respective estimated lives to the estimated residual values, and reviewed for impairment.
The Company performs a qualitative assessment for each of its reporting units to determine if the two-step process for impairment testing is required. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would then evaluate the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the fair value for the reporting unit is compared to its book value including goodwill. In the case that the fair value of the reporting unit is less than book value, a second step is performed which compares the implied fair value of the reporting unit's goodwill to the book value of the goodwill. The fair value for the goodwill is determined based on the difference between the fair values of the reporting unit and the net fair values of the identifiable assets and liabilities of such reporting unit. If the implied fair value of the goodwill is less than the book value, the difference is recognized as impairment.
Loss per Share
Basic loss per common share equals net loss divided by weighted average common shares outstanding during the period. Diluted loss per share includes the impact on dilution from all contingently issuable shares, including warrants and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method. The Company incurred net losses for the three and six months ended April 30, 2018 and 2017, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent shares would be antidilutive. For the six months ended April 30, 2018, the Company had 33,000 common stock warrants outstanding, at an exercise price of $6.00 per share, expiring on August 31, 2020, 2,032,526 common stock warrants outstanding, at an exercise price of $0.45 per share, expiring on November 3, 2020, 3,733,500 common stock warrants outstanding, at an exercise price of $0.175 per share, expiring on January 19, 2018, and 38,954,280 shares related to convertible notes payable that were excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive. For the six months ended April 30, 2017 the Company had 33,000 common stock warrants outstanding, at an exercise price of $6.00 per share, expiring on August 31, 2020.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Certain operating expenses were previously separated on the statement of operations and are now included as part of General and Administrative Expense on the Statement of Operations.
9 |
Recent Accounting Pronouncements
Deferred Taxes - Classification: In November 2015, the FASB issued an accounting standard update which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in the balance sheet. As a result, each separate tax jurisdiction will have one net tax position, either a noncurrent deferred tax asset or a noncurrent deferred tax liability. The standard is effective for the Company on November 1, 2017. The adoption of this standard did not have a material impact on the Company’s financial statements.
Revenue Recognition: In May 2014, the FASB issued an accounting standard update which provides for new revenue recognition guidance, superseding nearly all existing revenue recognition guidance. The core principle of the new guidance is to recognize revenue when promised goods or services are transferred to customers, in an amount that reflects the consideration to which the vendor expects to receive for those goods or services. The new standard is expected to require significantly more judgment and estimation within the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to separate performance obligations. The new standard is also expected to significantly increase the financial statement disclosure related to revenue recognition. This standard is currently effective for the Company on November 1, 2018 (the first quarter of the Company’s fiscal year ending October 31, 2019) using one of two methods of adoption, subject to the election of certain practical expedients: (i) retrospective to each prior reporting period presented, with the option to elect certain practical expedients as defined within the standard; or (ii) modified retrospective with the cumulative effect of initially applying the standard recognized at the date of initial application inclusive of certain additional disclosures.
The Company is continuing to evaluate the expected impact of this standard on the Company’s financial statements and currently plans to adopt the standard using the modified retrospective method. The Company has not assessed the impact of this standard on its financial statements.
Leases: In February 2016, the FASB issued an accounting standard update which requires balance sheet recognition of a lease liability and a corresponding right-of-use asset for all leases with terms longer than twelve months. The pattern of recognition of lease related revenue and expenses will be dependent on its classification. The updated standard requires additional disclosures to enable users of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This standard is effective for the Company on November 1, 2020 with early adoption permitted; adoption is on a modified retrospective basis. The Company is still evaluating the anticipated impact of this standard on its financial statements.
Share-Based Compensation: In March 2016, the FASB issued an accounting standard update intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact of excess tax benefits and tax deficiencies, accounting for forfeitures, statutory tax withholding requirements and the presentation of excess tax benefits in the statement of cash flows. This standard is effective for the Company on November 1, 2017. The adoption of this standard did not have a material impact on the Company’s financial statements.
Statement of Cash Flows: In August and November of 2016, the FASB issued updates to the accounting standard which addresses the classification and presentation of certain cash receipts, cash payments and restricted cash in the statement of cash flows. The standard is effective for the Company on November 1, 2019 and requires a retrospective approach. The Company is currently evaluating the anticipated impact of this standard on its financial statements.
Business Combinations: In January 2017, the FASB issued an accounting standard update to clarify the definition of a business and to provide guidance on determining whether an integrated set of assets and activities constitutes a business. The standard is effective for the Company November 1, 2019, on a prospective basis. The Company does not currently believe that the adoption of this standard will have a material impact on its financial statements.
NOTE 3 – GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a cumulative net loss since inception of $12,958,911, negative working capital of $5,530,891 and has required additional capital raises, debt issuances and credit card advances to support its operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern for at least the next twelve months. The Company’s continuation as a going concern is dependent upon its ability to create positive cash flows from operations and its ability to continue receiving capital from shareholders and other related parties and obtain financing from third parties. No assurance can be given that the Company will be successful in these efforts.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
10 |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment consists of the following:
April 30, | October 31, | |||||||
2018 | 2017 | |||||||
Equipment | $ | 160,523 | $ | 68,182 | ||||
Web sites | 190,697 | 60,343 | ||||||
Leasehold improvements | 30,230 | 19,002 | ||||||
Office equipment | 64,005 | 98,213 | ||||||
Software | 141,746 | 41,661 | ||||||
Vehicles | 52,413 | – | ||||||
Land | 200,000 | – | ||||||
Building | 684,694 | – | ||||||
Property and equipment | 1,524,308 | 287,401 | ||||||
Less: accumulated depreciation | (169,068 | ) | (127,760 | ) | ||||
Property and equipment, net | $ | 1,355,240 | $ | 159,641 |
Depreciation expense for the six months ended April 30, 2018 and 2017, is $80,547 and $12,376, respectively.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following as of April 30, 2018, and October 31, 2017:
April 30, 2018 | ||||||||||||||
Asset | Useful life (yr) | Cost | Accumulated Amortization | Carrying Value | ||||||||||
Customer Relationships | 3-5 | $ | 482,875 | $ | 130,086 | $ | 352,789 | |||||||
Copyrights | 5 | 73,000 | 18,788 | 54,212 | ||||||||||
Trade Names | 4 | 327,000 | 93,181 | 233,819 | ||||||||||
Non-Compete | 5 | 75,000 | 20,125 | 54,875 | ||||||||||
Totals | $ | 957,875 | $ | 262,180 | $ | 695,695 | ||||||||
October 31, 2017 | ||||||||||||||
Asset | Useful life (yr) | Cost | Accumulated Amortization | Carrying Value | ||||||||||
Customer Relationships | 3-5 | $ | 480,000 | $ | 72,235 | $ | 407,765 | |||||||
Copyrights | 5 | 73,000 | 11,488 | 61,512 | ||||||||||
Trade Names | 4 | 327,000 | 52,306 | 274,694 | ||||||||||
Non-Compete | 5 | 75,000 | 12,625 | 62,375 | ||||||||||
Totals | $ | 955,000 | $ | 148,654 | $ | 806,346 |
Amortization expense for the six months ended April 30, 2018 and 2017 is $110,651 and $78,993, respectively.
11 |
NOTE 6 – RELATED PARTY TRANSACTIONS
As of April 30, 2018 and October 31, 2017, total advances from certain officers, directors and shareholders of the Company were $92,550 and $93,050, respectively, which was used for payment of general operating expenses. The related parties advances have no conversion provisions into equity, are due on demand and do not incur interest.
On January 30, 2017, the Company borrowed $70,000 from a trust related to Richard Corbin, the Vice Chairman of the Board. The loan was originally due on February 10, 2017, at which time the Company was to repay the loan and $1,000 of interest. The loan has been amended and the maturity date was extended to June 2020. As of April 30, 2018 and October 31, 2017, the outstanding balance was $45,000.
The Company uses credit cards of related parties to pay for certain operational expenses. The Company has agreed to pay the credit card balances, including related interest. As of April 30, 2018 and October 31, 2017, the Company has outstanding balances on these credit cards of $712,507 and $416,972, respectively.
NOTE 7 – NOTES PAYABLE
Notes payable consists of the following unsecured notes:
April 30, | October 31, | |||||||
2018 | 2017 | |||||||
Note payable dated September 9, 2016, bearing interest at 14.9% per annum, due April 2018, at which time it was paid in full. | $ | – | $ | 160,912 | ||||
Note payable dated May 14, 2015 bearing interest at 18% per annum, due September 2018, guaranteed by the officers of the Company. | 89,847 | 72,104 | ||||||
Note payable dated October 23, 2014, bearing interest at 10% per annum and due in August 2017. This note was renewed at maturity and the due date was extended to January 2018, at which time it was paid in full. | – | 9,019 | ||||||
Note payable dated March 16, 2015 bearing interest at 9%, due June 30, 2017. The note is in default at July 31, 2017 which had no impact on the interest rate. | 51,000 | 51,000 | ||||||
Note payable dated January 1, 2017 bearing interest at 8%, due September 30, 2017. The note is secured by the membership interest of Premier Purchasing and Marketing Alliance, LLC held by the Company. The note is in default; however no notice of default received at the date of filing. | 50,000 | 50,000 | ||||||
Note payable dated January 1, 2017 bearing interest at 0.0%, due in three installments ending March 31, 2017. The note is in default; however no notice of default received at the date of filing. | 50,000 | 50,000 | ||||||
Non-interest bearing note payable dated January 1, 2017, due on March 1, 2017. The note is secured by the membership interest of Premier Purchasing and Marketing Alliance, LLC held by the Company, which have a net book value of $210,388. The note is in default; however no notice of default received at the date of filing. | 36,830 | 36,830 | ||||||
Note payable dated January 17, 2017 bearing interest at 7%, due January 17, 2018 and guaranteed by the officers of the Company. This note was paid in full at maturity. | – | 95,695 | ||||||
Note payable dated March 14, 2017 bearing interest at 9%, due March 14, 2018, at which time it was paid in full. | – | 44,212 | ||||||
Note payable dated July 26, 2017 bearing interest at 16.216%, due on July 26, 2018. | – | 158,266 |
12 |
Note payable dated October 2, 2017 with an original principal of $498,750 requiring daily payments of $1,979. The payments are subject to adjustments based on future revenue. A discount of $142,500 was recorded with this issuance of the debt and is being amortized over the life of the note. | – | 465,107 | ||||||
Note payable dated October 2, 2017 with an original principal of $498,750 requiring daily payments of $1,979. The payments are subject to adjustments based on future revenue. A discount of $142,500 was recorded with this issuance of the debt and is being amortized over the life of the note. | – | 469,065 | ||||||
Line of credit with a maximum value of $125,000 dated January 4, 2008 bearing interest at the prime rate plus 2%. | 28,850 | 44,269 | ||||||
Note payable dated October 11, 2017 with an original principal of $108,025 requiring daily payments of $450. The payments are subject to adjustments based on future revenue. A discount of $33,525 was recorded with this issuance of the debt and is being amortized over the life of the note. | 46,361 | 101,725 | ||||||
Note payable dated January 22, 2018, with an original principal of $97,000, bearing interest at 30%, due on January 22, 2019. | 42,273 | – | ||||||
Note payable dated January 5, 2018, with an original principal of $32,000, bearing interest at 30%, due on Jan 5, 2019. | 2,768 | – | ||||||
Acquired with NACB. Four secured notes payable to acquire vehicles by NACB prior to the acquisition. Interest rates range from 0% to 4.99%. Note mature from December 2018 to June 2021. | 19,121 | – | ||||||
Acquired with NACB. Note payable due to a former shareholder dated February 2, 2015, maturing January 2021 and bearing interest at 1%. | 97,611 | – | ||||||
Acquired with NACB. Note payable dated July 28, 2008 secured by the land and building of NACB. The note accrues interest at 8.56% and matures August 31, 2018. | 506,972 | – | ||||||
Acquired with NACB. Note payable dated December 17, 2008 secured by the land and building of NACB. The note accrues interest at 6.30% and matures February 1, 2028. | 343,834 | – | ||||||
Acquired with NACB. Line of credit dated March 27, 2015. The note accrues interest at 5.75% and is due upon demand. | 121,725 | – | ||||||
Revolving note payable dated April 23, 2018 with an original principal of $184,050 bearing an effect interest rate of 8% due on May 22, 2018. A discount of $1,233 was recorded with this issuance of the debt and is being amortized over the life of the note. This note is paid in full each month and the Company receives a new advance the day after it is paid in full. | 124,472 | – | ||||||
Note payable dated February 7, 2018 with an original principal of $220,600 bearing an effect interest rate of 8% due on May 14, 2021. A discount of $51,900 was recorded with this issuance of the debt and is being amortized over the life of the note. | 158,391 | – | ||||||
Note payable dated March 23, 2018 with an original principal of $291,800 requiring daily payments of $2,918, due September 7, 2018. The payments are subject to adjustments based on future revenue. A discount of $91,800 was recorded with this issuance of the debt and is being amortized over the life of the note. | 218,850 | – | ||||||
Note payable dated February 8, 2018 with an original principal of $750,000 requiring weekly payments of $19,950 due on February 8, 2019. The payments are subject to adjustments based on future revenue. A discount of $247,500 was recorded with this issuance of the debt and is being amortized over the life of the note. | 798,000 | – |
13 |
Note payable dated February 8, 2018 with an original principal of $750,000 requiring weekly payments of $19,950 due on February 8, 2019. The payments are subject to adjustments based on future revenue. A discount of $247,500 was recorded with this issuance of the debt and is being amortized over the life of the note. | 798,000 | – | ||||||
Note payable dated April 15, 2018 with an original principal amount of $55,000 and an original issue discount of $5,000. The note is due on May 5, 2018. If the note is not repaid at maturity, interest will accrue at the rate of 20% per annum. This note was not repaid on May 5, 2018 and is therefore accruing interest at 20%. | 55,000 | – | ||||||
Note payable dated April 5, 2018 with an original issue discount of $20,000. This note is due on May 5, 2018. If the note is not repaid at maturity, interest will accrue at the rate of 20% per annum. On May 14, 2018, the note was rolled into a subsequent financing. | 220,000 | – | ||||||
Note payable dated April 27, 2018 with an original principal of $218,850 requiring daily payments of $2,432, due on August 31, 2018. The payments are subject to adjustments based on future revenue. A discount of $68,850 was recorded with this issuance of the debt and is being amortized over the life of the note. | 216,418 | – | ||||||
Note payable dated March 8, 2018 with an original principal of $168,950 requiring daily payments of $854 due on March 9, 2019. The payments are subject to adjustments based on future revenue. A discount of $13,950 was recorded with this issuance of the debt and is being amortized over the life of the note. | 149,299 | – | ||||||
Note payable dated April 2, 2018 with an original principal of $72,000 bearing an effect interest rate of 8% due on April 2, 2019. A discount of $5,760 was recorded with this issuance of the debt and is being amortized over the life of the note. | 70,658 | – | ||||||
Note payable dated March 7, 2018 with an original principal of $100,000 requiring daily payments of $1,499, due on July 20, 2018. The payments are subject to adjustments based on future revenue. A discount of $45,900 was recorded with this issuance of the debt and is being amortized over the life of the note. | 94,934 | – | ||||||
Total notes payable | 4,391,214 | 1,808,204 | ||||||
Less: net discount on notes payable | (526,150 | ) | (281,589 | ) | ||||
Less, current portion | (2,983,868 | ) | (1,526,615 | ) | ||||
Long term portion of notes payable | $ | 881,196 | $ | – |
NOTE 8 – ACQUISITION NOTES PAYABLE
Notes payable related to certain acquisitions consists of the following:
April 30, | October 31, | |||||||
2018 | 2017 | |||||||
Note payable dated June 22, 2017 bearing interest at 8% per annum, due August 22, 2018 with monthly principal and interest payments totaling $3,306 beginning August 22, 2017. The notes are to the former owners of W Marketing. | $ | 12,686 | $ | 56,250 | ||||
Note payable dated July 31, 2017, bearing interest at 6% per annum and due November 30, 2019 with monthly principal and interest payments totaling $4,153 beginning November 1, 2017. The notes are to the former owner of Cranbury. | 83,037 | 100,000 | ||||||
Notes payable dated January 31, 2014 bearing interest at 8%, due February 1, 2019 with monthly principal and interest payments totaling $4,629. The notes are due to the former owners of Brown Book Store. | 345,577 | 344,216 | ||||||
Notes payable dated January 30, 2018 bearing interest at 1.68%, due in two equal installments on the first and second anniversary. The note is due to the former owners of NACB. | 250,000 | – | ||||||
Total acquisition notes payable | 691,300 | 500,466 | ||||||
Less, acquisition notes payable current portion | (553,564 | ) | (131,926 | ) | ||||
Long term portion of acquisition notes payable | $ | 137,736 | $ | 368,540 |
14 |
NOTE 9 – CONVERTIBLE NOTES PAYABLE
April 30, | October 31, | |||||||
Description | 2018 | 2017 | ||||||
On August 20, 2015, the Company executed a convertible note payable to Typenex Co-Investment, L.LC. in the original principal amount of $247,000 for net proceeds of $220,000, payable on March 31, 2018 bearing interest at 10% per annum. This note is convertible into the Company’s common stock at $7.50 per share unless the market capitalization of the Company falls below $15,000,000, at which point the conversion price will equal the market price of the Company’s common stock on the date of conversion. On October 29, 2015, the market capitalization of the Company fell below $15,000,000 and the variable conversion feature became permanent. The note is unsecured. On May 12, 2017 the note holder sold this note to an unrelated third party. The note was paid in full during the first quarter of 2018. | $ | – | $ | 125,000 | ||||
During the year ended October 31, 2016, the Company sold convertible promissory notes in aggregate amount of $87,000 to three investors. During the six months ending April 30, 2017, the Company sold an additional note with a face value of $50,000. The notes bear interest at 10% per annum and may be converted into the common stock of the Company upon the completion of a capital raise of $500,000 by December 31, 2016 (a “Qualified Raise”). The notes may be converted into common stock at 75% of the price of the capital raised in the Qualified Raise. On December 31, 2016, notes with a principal and accrued interest balance of $88,626 were converted into 709,008 shares of the Company’s common stock. The remaining note is due on December 31, 2017 and is in default. | 50,000 | 50,000 | ||||||
On January 20, 2017, the Company executed a non-interest-bearing convertible note in the original principal amount of $300,000, payable on January 20, 2018. The note is convertible into the Company’s common stock at $0.50 per share, no earlier than one year from the date of the note. The note is secured by the membership units of One Exam Prep, LLC held by the Company, which have a net book value of $399,118. The holder has not yet requested a conversion. | 300,000 | 300,000 | ||||||
In June 2017, the Company sold convertible notes payable of $356,000 to 8 investors. The notes bear interest at 15%, are due in one year and are convertible at $0.15 per share. In connection with the issuance, the company recorded a discount of $356,000 from the beneficial conversion feature that will be amortized over the life of the note. As of the date of this filing, one note in the amount of $20,000 has been converted, notes with a principal balance of $311,000 are due as of this filing and the remaining note, with a balance of $25,000, is due June 20, 2018. | 356,000 | 356,000 | ||||||
In June 2017, the Company sold a convertible note payable of $200,000 to an investor. The note bears interest at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest payments of $2,000 per month to the note holder. In connection with the issuance, the company recorded a discount of $184,000 from the beneficial conversion feature that will be amortized over the life of the note. | 200,000 | 200,000 | ||||||
On June 18, 2017, the Vice Chairman of the Board, who holds a $45,000 note dated January 30, 2017, with the Company agreed to convert the principal balance on his note into a convertible note that bears interest at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest payments of $500 per month to the note holder. | 45,000 | 45,000 | ||||||
On November 3, 2017, along with several institutional accredited investors, the Company completed a first closing of its promissory notes. Additional details are below. | 1,700,177 | – | ||||||
On January 29, 2018, along with several institutional accredited investors, the Company completed a second closing of its promissory notes. Additional details are below. | 1,354,696 | – | ||||||
Total convertible notes payable, net | 4,005,873 | 1,076,000 | ||||||
Less: net discount on convertible notes payable, current portion | (727,882 | ) | (213,077 | ) | ||||
Less, current portion, net of discounts | (1,505,554 | ) | (640,123 | ) | ||||
Less: net discount on convertible notes payable, long term portion | (1,527,437 | ) | (114,937 | ) | ||||
Long term portion of convertible notes payable | $ | 245,000 | $ | 107,863 |
15 |
First Closing of Amortizable Promissory Note and Warrant Private Placement
On November 3, 2017, pursuant to a Securities Purchase Agreement, dated as of November 3, 2017, with several institutional accredited investors, the Company originally completed a private placement of its original issue discount amortizable promissory notes (referred to as the notes) in the aggregate principal amount of $3,383,325 for a purchase price of $2,900,000. The transaction was structured in two tranches. The investors funded notes with a face value of $1,633,325 and net proceeds of $1,400,000 at the first closing of the private placement on November 6, 2017, and agreed to fund the remaining notes with a face value of up to $1,750,000 and net proceeds of up to $1,500,000 at a second closing to occur 45 to 90 days after the first closing, subject to the satisfaction of certain closing conditions including the execution of definitive documents to effect the consummation of a contemplated acquisition transaction. Subsequently, the Securities Purchase Agreement was amended such that the face value of the notes at the second closing was $1,166,725, and the net proceeds were $1,000,000. See below. Each note was issued at a price equal to 85% of its principal amount, or $3,000,000 in aggregate purchase price. The notes mature on July 3, 2019 (18 months after the date of their issuance) and do not bear regularly scheduled interest. The Company also agreed to issue 227,250 shares of its common stock, having a fair market value of $140,895 as a debt discount and will be amortized over the life of the note, to the investors and to issue warrants to purchase up to 3,888,886 shares of the Company’s common stock at a price of $0.45 per share (See Note 12). The warrants have a five-year term. Warrants to purchase up to 1,814,749 shares of the Company’s common stock were issued in connection with the first closing. The fair value of the warrants of $1,125,094 was recorded as a debt discount and will be amortized over the life of the notes.
Beginning on February 4, 2018 (90 days after the issuance date), the Company is required to make monthly amortization payments, consisting of 1/18th of the outstanding aggregate principal amount, until the notes are no longer outstanding. The investors may elect to receive each monthly payment in cash, or in shares of the Company’s common stock (in-kind) if certain equity conditions are satisfied. The equity conditions require that the Company’s total trading volume in common stock over the 30 days prior to a monthly payment be equal to or greater than ten times the amount of shares derived in the in-kind payment price of the monthly payment. If the equity conditions are satisfied, and the investor elects to receive a monthly payment in common stock, then the shares of common stock to be delivered will be calculated as the amount of the monthly payment divided by the in-kind payment price. The in-kind payment price will be equal to 75% of the lowest three trade prices of the common stock during the 20 trading days immediately preceding the monthly payment date. If an event of default under the notes is in effect, the investors have the right to receive common stock at 65% of the lowest trade price of the common stock during the 20 trading days immediately preceding the monthly payment date.
The notes are not redeemable or subject to voluntary prepayment by the Company prior to maturity without the consent of the note holders. The notes are identical for all of the investors except for principal amount.
Pickwick Capital Partners LLC (Pickwick) acted as the placement agent for the private placement. At the first closing, the Company paid a cash placement fee of $98,000 to Pickwick for acting in this capacity and issued a warrant to Pickwick to purchase 217,777 shares of ProBility common stock on the same terms given to the investors. The fair value of the warrants of $126,018 was recorded as a debt discount and will be amortized over the life of the note.
These notes require timely filing of the Company’s periodic reports with the SEC. The Company was in default on these notes when it did not file its Form 10-K on the due date of February 13, 2018. A default notice related to the Company’s filing had not been received and the default will be cured upon filing the delinquent reports. In the event of a default, the interest rate on the note becomes 24% per annum, and the note and all accrued interest become due and payable at 110% of the outstanding principal balance plus accrued interest. In May 2018, the Company received a notice of default, and on May 17, 2018 the Company and the investors entered into an agreement to waive the default in exchange for a 20% increase in the outstanding balance of the notes. This penalty interest of $267,777 was recorded as of April 30, 2018.
Second Closing and Amendment to Securities Purchase Agreement
On January 29, 2018, pursuant to the Securities Purchase Agreement, dated as of November 3, 2017, as amended on January 29, 2018, with several institutional accredited investors, the Company completed the second closing of its private placement of original issue discount amortizable promissory notes (referred to as the notes) in the aggregate principal amount of $1,166,725, and net proceeds of $1,000,000, upon the satisfaction of certain closing conditions including the entry into definitive documents to effect the consummation of the NACB Group and Disco Learning acquisition transactions.
As part of the second closing, the Company, the original investors and one new investor entered into Amendment No. 1 to the Securities Purchase Agreement, dated as of January 19, 2018, to provide for the addition of a new investor, clarify the use of proceeds from the second closing, increase the number of “commitment shares” to be issued at the second closing and decrease the exercise price of the warrants to be issued at the second closing, as discussed below.
16 |
The Company issued to the investors at the second closing three-year common stock purchase warrants (referred to as the warrants) to purchase up to 3,333,500 shares of ProBility common stock at an exercise price of $0.175 per share (compared to a warrant exercise price of $0.45 per share at the first closing), having a fair market value of $732,561, and issued 941,851 shares of ProBility common stock to the investors at the second closing as “commitment shares” in consideration for entering into the private placement, having a fair market value of $164,824, as required by Amendment No. 1 to the Securities Purchase Agreement. The shares were issued in February 2018. The fair value of the common stock and common stock purchase warrants was recorded as a debt discount and will be amortized over the life of the note. The commitment shares were issued in February 2018. The Company used the net proceeds from the second closing of the private placement to fund the closing of the NACB Group and Disco Learning acquisition transactions.
Pickwick acted as the placement agent for the private placement. At the second closing, the Company paid a cash placement fee of $70,000 to Pickwick for acting in this capacity and issued a warrant to Pickwick to purchase 400,000 shares of ProBility common stock on the same terms given to the investors. The fair value of the warrants of $87,903 was recorded as a debt discount and will be amortized over the life of the note.
These notes require timely filing of the Company’s periodic reports with the SEC. The Company was in default on these notes when it did not file its Form 10-K on the due date of February 13, 2018 (see Note 15 – Subsequent Events). A default notice related to the Company’s filing had not been received and the default will be cured upon filing the delinquent reports. In the event of a default, the interest rate on the note becomes 24% per annum, and the note and all accrued interest become due and payable at 110% of the outstanding principal balance plus accrued interest. In May 2018, the Company received a notice of default, and on May 17, 2018 the Company and the investors entered into a settlement agreement to waive the default in exchange for a 20% increase in the outstanding balance of the notes, the terms of which are discussed above. This penalty interest of $233,345 was recorded as of April 30, 2018.
NOTE 10 – CAPITALIZED LEASES
The Company has an obligation under a capitalized lease for certain equipment with a lease term of five years, expiring through May 2021. The capital lease obligation totaled $77,755 as of April 30, 2018 and require monthly payments of $2,044. Interest is imputed at an average rate of approximately 18.00%. At April 30, 2018, the cost of rental equipment under capital leases amounted to $76,410 and related accumulated depreciation amounted to $34,243. The rental equipment may be repurchased at favorable prices by the Company upon expiration of the lease term (generally at the fair market value of the equipment at the expiration of the lease). The liability under each lease is secured by the underlying equipment on the lease.
At April 30, 2018, future minimum lease payments by year and the present value of future minimum capital lease payments are as follows:
Years ending April 30, | Amount | |||
2019 | $ | 24,528 | ||
2020 | 24,528 | |||
2021 | 24,528 | |||
2022 | 4,171 | |||
Total minimum payments | 77,755 | |||
Less amount representing interest | (18,831 | ) | ||
Present value of minimum lease payments | 58,924 | |||
Less: current portion | (26,710 | ) | ||
Total long-term portion | $ | 32,214 |
17 |
NOTE 11 – DERIVATIVE LIABILITIES
On November 3, 2017 and January 29, 2018, the Company issued convertible note agreements with a variable conversion feature that gave rise to an embedded derivative instrument (See Note 9). The derivative feature has been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company’s business plan and management assumptions and expected volatility from the Company’s stock. Increases or decreases in the Company’s share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impact the value of the derivative instrument. The Company re-values the derivative instrument at the end of each reporting period and any changes are reflected as changes in derivative liabilities in the consolidated statements of operations. The assumptions used during the three months ending April 30, 2018 are as follows:
April 30, 2018 | ||||
Market value of common stock on measurement date (1) | $0.17 - $0.62 | |||
Adjusted conversion price (2) | $0.0806 – $0.24125 | |||
Risk free interest rate (3) | 1.49% - 2.24% | |||
Life of the note in months | 18 - 21 months | |||
Expected volatility (4) | 247% - 316% | |||
Expected dividend yield (5) | – |
(1) | The market value of common stock is based on closing market price as of initial valuation date and the period end re-measurement. |
(2) | The adjusted conversion price is calculated based on conversion terms described in the note agreement. |
(3) | The risk-free interest rate was determined by management using the 2-year Treasury Bill as of the respective Offering or measurement date. |
(4) | The volatility factor was estimated by management using the historical volatilities of the Company’s stock. |
(5) | Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future. |
The following table sets forth the components of changes in the ProBility’s outstanding notes payable and warrants which were deemed derivative financial instruments and the associated liability balance for the periods indicated:
The following table sets forth the change in fair value of the derivative liability:
Date | Description | Derivative Instrument Liability (in thousands) |
||||
10/31/17 | Balance | - | ||||
11/3/17 | Value of derivative liability | 2,174 | ||||
1/19/18 | Value of derivative liability | 1,292 | ||||
1/31/18 | Change in fair value during the three months ended January 31, 2018 | (1,620 | ) | |||
1/31/18 | Balance of derivative financial instruments liability | 1,846 | ||||
4/30/2018 | Change in fair value during the 3 months ended April 30, 2018 | 1,524 | ||||
4/30/18 | Balance | $ | 3,370 |
The initial valuation of the derivative valuation was $3,466,626, which $1,864,184 was recorded as a debt discount as interest expense and the remaining balance of $1,602,442 was expensed as interest on the statement of operations. The valuation of the derivative liability was $3,369,603 and $0 on April 30, 2018 and October 31, 2017, respectively. During the six months and three months ended April 30, 2018, the Company recognized a gain of approximately $97,000 and a loss of $1,523,612, respectively related to the change in fair value of the derivative.
18 |
NOTE 12 – STOCKHOLDERS’ EQUITY
Common stock
In February 2018, the Company issued 941,851 shares of the Company’s common stock, having a fair market value of $164,824, to investors in accordance with the Securities Purchase Agreement dated November 3, 2017 and amended on January 29, 2018 (see Note 9).
In March 2018, the Company issued 486,587 shares of the Company’s common stock to three consultants for services rendered, having a fair market value of $126,512 on the date of issuance.
In April 2018, the Company issued 75,000 shares of the Company’s common stock to a consultant for services rendered, having a fair market value of $14,213 on the date of issuance.
Stock Option Plan
On December 11, 2017 the shareholders of the Company approved the 2017 Incentive Compensation Plan. Under the 2017 Plan, the total number of shares of Common Stock that may be subject to the granting of awards under the 2017 Plan (“Awards”) at any time during the term of the Plan shall be equal to up to 18% of the Company’s authorized shares of Common Stock (initially, 10,000,000 shares before proposed reverse stock split). The foregoing limit shall be increased by the number of shares with respect to which Awards previously granted under the 2017 Plan that are forfeited, expire or otherwise terminate without issuance of shares, or that are settled for cash or otherwise do not result in the issuance of shares, and the number of shares that are tendered (either actually or by attestation) or withheld upon exercise of an Award, or any award under the Prior Plan that is outstanding on the Effective Date, to pay the exercise price or any tax withholding requirements. Awards issued in substitution for awards previously granted by a company acquired by the Company or a Related Entity, or with which the Company or any Related Entity combines, do not reduce the limit on grants of Awards under the Plan. Also, shares acquired by the Company on the open market with the proceeds received by the Company for the exercise price of an option awarded under the 2017 Plan, and the tax savings derived by the Company as a result of the exercise of options awarded under the 2017 Plan, are available for Awards under the 2017 Plan.
The 2017 Plan imposes individual limitations on the amount of certain Awards in part to comply with Code Section 162(m). Under these limitations, during any fiscal year of the Company during any part of which the Plan is in effect, no Participant may be granted (i) options or stock appreciation rights with respect to more than 2,000,000 shares, or (ii) shares of restricted stock, shares of deferred stock, performance shares and other stock based-awards with respect to more than 2,000,000 shares, subject to adjustment in certain circumstances. The maximum amount that may be paid out as performance units in any 12-month period is $3,000,000 multiplied by the number of full years in the performance period.
Currently, no stock options have been issued in favor of any director, officer, consultant or employee of the Company.
Common stock warrants
In connection with the first closing of the promissory note on November 3, 2017 the Company issued 2,032,526 warrants to purchase shares of common stock at an exercise price of $0.45 per share. The warrants have a term of 4 years.
In connection with the second closing of the promissory note on January 19, 2018 the Company issued 3,733,500 warrants to purchase shares of common stock at an exercise price of $0.175 per share. The warrants have a term of 4 years.
All warrants are exercisable as of April 30, 2018 and have a weighted average remaining term of 2.65 years. The following table summarizes all stock warrant activity for the six months ending April 30, 2018:
Warrants | Weighted - Average Exercise Price Per Share | |||||||
Outstanding, October 31, 2017 | 33,000 | $ | 6.00 | |||||
Granted | 5,766,026 | 0.27 | ||||||
Exercised | – | – | ||||||
Forfeited | – | – | ||||||
Expired | – | – | ||||||
Outstanding, April 30, 2018 | 5,799,026 | $ | 0.30 |
19 |
NOTE 13 – ACQUISITIONS
Acquisition of North American Crane Bureau Group Inc.
On January 30, 2018, the Company completed the purchase of all of the outstanding shares of common stock of North American Crane Bureau Group, Inc., a provider of crane operator training, certification and inspection (“NACB Group”), pursuant to the terms of a Stock Purchase Agreement, dated as of January 18, 2018 (effective as of November 1, 2017), by and among ProBility Media, NACB Group and the stockholders of NACB Group (the “NACB Stock Purchase Agreement”).
The aggregate consideration at closing for the acquisition of NACB Group consisted of (a) a cash payment of $500,000 and (b) the issuance of a promissory note in the principal amount of $250,000, payable in two equal installments of $125,000 on the first and second anniversaries of the closing date. The note bears interest at the rate of 1.68% per year, is not convertible into ProBility shares and is secured by a pledge of the NACB shares acquired by the Company in the transaction. Payments under the note may be withheld to satisfy indemnifiable claims made by the Company with respect to any misrepresentations or breaches of warranty under the NACB Stock Purchase Agreement by NACB Group or the stockholders of NACB Group within two years after the closing of the acquisition. As part of the acquisition, the Company also assumed NACB Group’s loan from BankUnited, N.A. in the approximate amount of $120,000 and note to a former stockholder of NACB Group in the approximate amount of $110,000.
At the closing of the acquisition, the Company entered into a three-year Consulting Agreement with Ted L. Blanton Sr., the former principal owner and Chief Executive Officer of NACB Group. Mr. Blanton will continue to be the President of the NACB Group subsidiary of the Company. Under the terms of the Consulting Agreement, ProBility agreed to pay Mr. Blanton a consulting fee of $100,000 per year and issue him 1,500,000 shares of ProBility common stock, payable in three equal installments of 500,000 shares on the closing date, 18 months after the closing date and 36 months after the closing date. The first tranche of 500,000 shares were issued on January 18, 2018. The shares issuable to Mr. Blanton are valued at $329,850 and are accounted for as part of the consideration of NACB Group. The1,500,000 shares of ProBility common stock issued and issuable to Mr. Blanton are subject to a lock-up agreement pursuant to which he may not sell or otherwise transfer the shares for one year following the respective share issuance date and is limited during the second year to a monthly sale amount equal to 10% of the daily volume from the prior month. The Consulting Agreement also contains covenants restricting Mr. Blanton from engaging in any activities competitive with the Company or NACB Group during the term of such agreement and prohibiting him from disclosure of confidential information regarding either company at any time.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date. The Company is still evaluating what identifiable intangible assets were acquired and the fair value of each:
Amount | ||||
Cash and cash equivalents | $ | 237,179 | ||
Accounts receivable | 559,851 | |||
Inventory | 177,418 | |||
Prepaid expenses | 39,517 | |||
Property and equipment | 1,098,662 | |||
Other assets | 86,195 | |||
Goodwill | 798,441 | |||
Total identifiable assets | 2,997,263 | |||
Less: liabilities assumed | (1,917,413 | ) | ||
Total purchase price | $ | 1,079,850 | ||
Cash | $ | 500,000 | ||
Notes payable | 250,000 | |||
Equity issued | 109,950 | |||
Equity payable | 219,900 | |||
Total purchase price | $ | 1,079,850 |
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Acquisition of Disco Learning Media, Inc.
On January 30, 2018, the Company completed the purchase of all of the outstanding shares of common stock of Disco Learning Media, Inc., a technology company offering immersive technologies, digital learning and compliance solutions for the education and training markets (“Disco Learning”), pursuant to the terms of a Stock Purchase Agreement, dated as of January 18, 2018 (effective as of January 1, 2018), by and among the Company, Disco Learning and the stockholders of Disco Learning (the “Disco Stock Purchase Agreement”).
The aggregate consideration for the acquisition of Disco Learning consisted of (a) a cash payment of $100,000 at closing, and (b) the issuance of $350,000 in the form of shares of ProBility common stock in two tranches of $50,000 in shares at closing and $300,000 in shares on the date that is six months following the closing date, in each case valuing the shares based on the three trading day average closing price per share prior to the applicable payment date (but not at a price of more than $0.50 per share). On January 18, 2018, 230,841 shares were issued in satisfaction of the first tranche of shares due under the Disco Stock Purchase Agreement.
Additionally, the Company agreed to make three contingent earn-out payments to the stockholders of Disco Learning, subject to the continued employment of at least one of the principal stockholders. For the year ending December 31, 2018, for achieving stand-alone Disco Learning revenue in excess of $900,000, the Company agreed to deliver to the stockholders an amount equal to $350,000, payable all in the form of shares of ProBility Media common stock. For the year ending December 31, 2018, for achieving (A) stand-alone Disco Learning revenue in excess of $900,000, the Company agreed to deliver to the stockholders an amount equal to $100,000, or (B) Disco Learning revenue in excess of $1,200,000, the Company agreed to deliver to the stockholders an amount equal to $200,000, in each case payable 25% of such amount in the form of cash and the remaining 75% of such amount in the form of shares of ProBility common stock. For the year ending December 31, 2019, for achieving (A) stand-alone Disco Learning revenue in excess of $1,800,000, the Company agreed to deliver to the stockholders an amount equal to $100,000, or (B) Disco Learning revenue in excess of $2,400,000, the Company agreed to deliver to the stockholders an amount equal to $200,000, in each case payable 25% of such amount in the form of cash and the remaining 75% of such amount in the form of shares of ProBility common stock. Payment in the form of shares of ProBility common stock will be based on the three trading day average closing price per share of the ProBility common stock prior to the applicable payment date, as reported by the OTCQB Venture Market or the primary stock market on which the ProBility common stock is then traded.
At the closing of the acquisition, the Company entered into an Employment Agreement with each of Juan Garcia and Coleman Tharpe, former executive officers and principal stockholders of Disco Learning, for a three-year term commencing as of January 30, 2018. Pursuant to the Employment Agreements, Messrs. Garcia and Harris have agreed to devote their time to the business of the Company as the President and the Director of Digital Training and Development of the Disco Learning subsidiary, respectively. The Employment Agreements provide that Messrs. Garcia and Tharpe are entitled to receive a salary of $125,550 and $100,200, respectively. The Employment Agreements provide for termination by ProBility Media upon death or disability (as defined therein) or for Cause (as defined therein). The Employment Agreements contain covenants (i) restricting the executive from engaging in any activities competitive with the business of the Company or Disco Learning during the term of the agreement and for a period of one year thereafter, and from soliciting the Company’s or Disco Learning’s employees, customers and prospective customers for a period of one year after the termination of the agreement, and (ii) prohibiting the executive from disclosing confidential information regarding the Company or Disco Learning.
In March 2018, the Company issued 486,587 shares of its common stock, having a fair market value of $107,000, to Pickwick Capital Partners, LLC and its assignees as an investment banking success based fee for this transaction, which is accounted for as transaction costs related to the Disco acquisition.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date. The Company is still evaluating what identifiable intangible assets were acquired and the fair value of each:
Amount | ||||
Cash and cash equivalents | $ | 45,618 | ||
Prepaid expenses | 4,893 | |||
Property and equipment | 1,629 | |||
Other assets | 600 | |||
Goodwill | 772,094 | |||
Total identifiable assets | 824,834 | |||
Less: liabilities assumed | (4,072 | ) | ||
Total purchase price | $ | 820,762 | ||
Cash | $ | 100,000 | ||
Common shares | 50,762 | |||
Deferred consideration payable in shares | 300,000 | |||
Contingent consideration | 370,000 | |||
Total purchase price | $ | 820,762 |
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Combined Information
On January 19, 2017, the Company acquired 100% of the membership units of Premier Purchasing and Marketing Alliance LLC, a New York limited liability company, also known as National Electrical Wholesale Providers (“NEWP”). The acquisition of NEWP was effective January 1, 2017.
On January 26, 2017, the Company acquired 100% of the membership units of One Exam Prep, LLC, (“One Exam”) a Florida limited liability company. The acquisition of One Exam was effective January 1, 2017.
On June 22, 2017, the Company acquired 100% of the outstanding shares of W Marketing Inc. (“W Marketing”) a New York corporation. The acquisition of W Marketing was effective May 1, 2017.
On July 31, 2017, the Company acquired 100% of the outstanding shares of Cranbury Associates, LLC (“Cranbury”) a Vermont limited liability company. The acquisition of Cranbury was effective May 1, 2017.
On January 30, 2018, the Company acquired 100% of the outstanding shares of North American Crane Bureau Group, Inc. (“NACB”). The acquisition of NACB Group was effective November 1, 2017.
On January 30, 2018, the Company acquired 100% of the outstanding shares of Disco Learning Media Inc. (“Disco”). The acquisition of NACB Group was effective January 1, 2018.
The following schedule contains pro-forma consolidated results of operations for the six months ended April 30, 2018 and 2017 as if the acquisitions occurred on November 1, 2016. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on November 1, 2016, or of results that may occur in the future.
2018 | 2017 | |||||||||||||||
As Reported | Pro Forma | As Reported | Pro Forma | |||||||||||||
Revenue | $ | 7,753,140 | $ | 7,753,385 | $ | 2,928,827 | $ | 6,742,784 | ||||||||
Operating loss | (2,219,366 | ) | (2,282,084 | ) | (1,899,956 | ) | (2,203,471 | ) | ||||||||
Net loss | (6,054,197 | ) | (6,116,915 | ) | (2,070,105 | ) | (2,307,849 | ) | ||||||||
Loss per common share-Basic | (0.11 | ) | (0.11 | ) | (0.05 | ) | (0.045 | ) | ||||||||
Loss per common share-Diluted | (0.11 | ) | (0.11 | ) | (0.05 | ) | (0.05 | ) |
NOTE 14 – LEASE COMMITMENTS
The Company is obligated under a long-term lease for office space that generally provides for annual rent of $90,072 per year. The Company sub-leases a portion of this space to third parties and collects $51,468 per year on the sub leases. For the six months ended April 30, 2018 and 2017, net rent expense under these lease arrangements was $88,809 and $71,173, respectively.
In addition, the Company leases a suite in a strip center in Florida related to One Exam Prep. The lease expires on July 14, 2025 and has a monthly rent of $6,908 for years one and two. Thereafter, monthly rent increases 3% per year for years three through seven.
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NOTE 15 - SUBSEQUENT EVENTS
Financing
On May 17, 2018, pursuant to a Securities Purchase Agreement, dated as of May 17, 2018, with several institutional investors, the Company completed a private placement of the Company’s 10% original issue discount senior secured convertible promissory notes (referred to as the convertible notes), receiving gross and net proceeds of $972,222 and $875,000, respectively. Each convertible note was issued at a purchase price equal to 90% of its principal amount. The convertible notes mature six months after the date of their issuance and bear interest at 5% per annum. Investors may convert their convertible notes into shares of the Company’s common stock at any time and from time to time on and after the maturity date at a conversion price of $0.14 per share. In the event of a default under the convertible notes, the conversion price may be reduced to a price equal to 60% of the lowest closing price of the Company’s common stock during the prior 20 trading days.
The convertible notes are secured obligations of the Company, and rank senior to general liabilities. The convertible notes are not redeemable. Prior to maturity, the Company may prepay the convertible notes at any time in an amount equal to 110% of the outstanding principal amount for the first 90 days after the issuance date and 120% of the outstanding principal amount from 91 to 181 days after the issuance date, upon ten trading days’ written notice to the investors. The convertible notes are identical for all of the investors except for principal amount.
As part of the financing, the Company agreed to grant the investors a right of participation in any offering of securities or conventional debt issued by the Company for a period of 18 months following the closing date, other than in connection with strategic investments and other permitted exceptions.
The Company also issued to the investors five-year common stock purchase warrants to purchase up to 5,555,557 shares of the Company’s common stock at an exercise price of $0.175 per share. The warrants may be exercised on a cashless basis at any time if the underlying shares have not been fully registered for resale with the SEC. The warrants are not callable.
The warrants and the convertible notes each contain a provision for a “full ratchet” anti-dilution adjustment in the event of a subsequent equity financing at a price less than the respective warrant exercise price or convertible note conversion price.
As a result of this private placement of the Company’s convertible notes, in consideration for the waiver of any and all defaults under the Prior Notes, (i) the Company agreed to increase by 20% the principal amount of the Prior Notes held by those investors participating in this private placement, (ii) the Company agreed to fix the conversion price of the Prior Notes at $0.14 per share, and (iii) the Company granted the holders of the Prior Notes a one-time option to convert all of their Prior Notes into shares of the Company’s common stock at $0.10 per share. The principal of the prior notes was increased by $501,122, effective April 30, 2018.
Commitment
In January 2017, in conjunction with the acquisition of One Exam Prep, LLC (“OEP”) the Company entered into a compensation agreement with the former owner of OEP, Rob Estell, that called for bonus compensation. The Company has recorded a contingent liability of $343,080 as of April 30, 2018, as a result of this agreement. In June 2018, the Company agreed to issue Mr. Estell 754,862 shares of the Company’s common stock earned under the agreement and an additional 245,138 as a bonus. The shares had a fair market value of $151,700 on the date of grant. The shares have not yet been issued.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition, or state other “forward-looking ” information. The words “believe, ” “intend, ” “plan, ” “expect, ” “anticipate, ” “estimate, ” “project, ” “goal ” and similar expressions identify such a statement was made, although not all forward-looking statements contain such identifying words. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the risks discussed in this and our other SEC filings. We do not promise to or take any responsibility to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements except as required by law. Future events and actual results could differ materially from those expressed in, contemplated by, or underlying such forward-looking statements.
All forward-looking statements speak only at the date of the filing of this Quarterly Report. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “ Risk Factors ” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and elsewhere in this Quarterly Report and our Annual Report on Form 10-K filed with the SEC on April 16, 2018. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.
The following is management’s discussion and analysis of the significant factors that affected the Company’s financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. You should read this in conjunction with the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2017, as amended, and the unaudited consolidated financial statements included in this quarterly report.
Certain capitalized terms used below but not otherwise defined, are defined in, and shall be read along with the meanings given to such terms in, the notes to the unaudited financial statements of the Company for the six months ended April 30, 2018, above.
Unless the context requires otherwise, references to the “Company, ” “ we, ” “ us, ” “ our, ” “ Probility ” and “ Probility Media ” refer specifically to Probility Media Corporation and its wholly and majority owned subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this report only:
· | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
· | “SEC ” or the “Commission” refers to the United States Securities and Exchange Commission; and |
· | “Securities Act” refers to the Securities Act of 1933, as amended. |
Our unaudited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
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Results of Operations
For the Three Months Ended April 30, | Increase | |||||||||||
Statement of Operations Data: | 2018 | 2017 | (Decrease) | |||||||||
Revenue | $ | 4,017,599 | $ | 1,840,647 | $ | 2,176,952 | ||||||
Cost of sales | 2,367,421 | 1,150,280 | 1,217,141 | |||||||||
Total operating expenses | 2,890,931 | 1,319,079 | 1,571,852 | |||||||||
Other income (expense) | (3,122,707 | ) | 123,008 | (3,245,715 | ) | |||||||
Net income (loss) | $ | (4,363,460 | ) | $ | (505,704 | ) | $ | (3,857,756 | ) |
For the Six Months Ended April 30, | Increase | |||||||||||
Statement of Operations Data: | 2018 | 2017 | (Decrease) | |||||||||
Revenue | $ | 7,753,140 | $ | 2,928,827 | $ | 4,824,313 | ||||||
Cost of sales | 4,634,867 | 2,012,627 | 2,622,240 | |||||||||
Total operating expenses | 5,337,640 | 2,816,156 | 2,521,484 | |||||||||
Other (expense) | (3,834,831 | ) | (170,149 | ) | 3,664,682 | |||||||
Net income (loss) | $ | (6,054,198 | ) | $ | (2,070,105 | ) | $ | (3,984,093 | ) |
The following summary of our results of operations, for the three and six months ended April 30, 2018 and 2017 are as follows:
For the three months ended April 30, 2018 compared to the three months ended April 30, 2017
Revenue
Revenue increased $2,176,952 from $1,840,647 for the three months ended April 30, 2017 to $4,017,599 for the three months ended April 30, 2018. The increase was due to sales from companies that were acquired since January 31, 2017, which realized an increase in sales of $460,000, during the three months ended April 30, 2018, and sales from companies that were acquired since January 31, 2018, which recognized sales of $1,700,000 during the quarter.
Cost of sales
Cost of sales increased $1,217,141, from $1,150,280 for the three months ended April 30, 2017 to $2,367,421 for the three months ended April 30, 2018. Cost of sales are variable with sales. The increase was due to cost of sales from companies that were acquired since January 31, 2017, which realized an increase in cost of sales of $770,000, during the three months ended April 30, 2018, and an increase in cost of sales from our operations that existed at April 30, 2017 of $230,000 during the period. Our costs as a percentage of sales decreased during this period as we shifted our product focus from printed materials to higher margin training and eLearning products.
Gross profit
Gross profit increased $959,811, from $690,367 for the three months ended April 30, 2017 to $1,650,178 for the three months ended April 30, 2018. The increase in gross profit was due to increased gross profit generated from the net sales and cost of goods sold of products of the companies acquired since January 31, 2017 of $240,000, and $1,175,000 from operations purchased since January 1, 2018, and a decrease in gross margins of $200,000 from our operations that existed prior to January 1, 2017. We continue to shift our sales to online products and eLearning products.
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General and administrative expenses
General and administrative expenses increased $1,571,852 from $1,319,079 for the three months ended April 30, 2017 to $2,890,931 for the three months ended April 30, 2018. The increase was due to increases in the following categories: advertising of $89,000 as the result of increased efforts to attract customers to our web sites, salaries of $612,000 as the result of the acquisitions completed during the prior quarter which added 20 employees, bad debt expense of $58,000 due to the higher volume of sales, commissions of $164,000, credit card processing fees of $57,000, rent of $79,000 as the result of the acquisitions completed during the prior quarter which added additional rented office locations, dues and subscriptions of $38,000 due to the higher volume of trade groups with which we interact and maintain memberships, insurance expense of $62,000, utilities of $31,000, travel and entertainment of $72,000 due to additional travel incurred as we expanded operations around the United States and Caribbean Ocean through our Cranbury subsidiary, repairs of $23,000 due to increased costs as we added office locations, automobile expense of $13,000 due the vehicles operated by our acquisitions during the first six months of the year, legal, accounting and professional fees of $148,000 due to the cost of maintaining our public company status, the costs incurred in retaining new auditors and the increased cost of audit related costs as a result of the acquisitions completed since our fiscal year October 31, 2017 ended, an increase in share based compensation of $59,000 due to the amount of consulting fees paid with the Company’s common stock, and depreciation and amortization of $29,000.
Other income and expense
Interest expense increased $1,216,934, from $59,105 for the three months ended April 30, 2017 to $1,276,039 for the three months ended April 30, 2018, due to a $500,000 interest penalty incurred as a result of the default on our November 2017 and January 2018 financing agreements and higher levels of borrowing during the three months ended April 30, 2018 compared to the same period in the prior year. Gain on debt extinguishment decreased $70,000 due to the effect of repayments on convertible debt on the derivative liability related to the November 2017 and January 2018 financings. The change relating to the mark to market for the derivative liability increased by $1,640,657 due to the price volatility of the Company’s common stock. Amortization of note discount increased $331,601 due to the amortization of original issued discounts associated with borrowings made during the three months ended April 30, 2018.
Net income or loss
Net loss for the year increased $3,857,756, from a net loss of $505,704 for the three months ended April 30, 2017, to a net loss of $4,363,460 for the three months ended April 30, 2018 primarily due to increased other expense of $3,250,000.
For the six months ended April 30, 2018 compared to the six months ended April 30, 2017
Revenue
Revenue increased $4,824,313 from $2,928,827 for the six months ended April 30, 2017 to $7,753,140 for the three months ended April 30, 2018. The increase was due to sales of $960,000 from companies that were acquired since January 31, 2017, and sales of $3,670,000 from companies that were acquired since January 31, 2018.
Cost of sales
Cost of sales increased $2,622,240, from $2,012,627 for the six months ended April 30, 2017 to $4,634,867 for the six months ended April 30, 2018. Cost of sales are variable with sales. The increase was due to cost of sales of $1,626,000 from companies that were acquired since January 1, 2018, during the six months ended April 30, 2018, and an increase in cost of sales of $300,000 from our operations that existed at January 31, 2017. Our costs as a percentage of sales decreased during this period as we shifted our product focus from printed materials to higher margin training and eLearning products.
Gross profit
Gross profit increased $2,202,073, from $916,200 for the six months ended April 30, 2017 to $3,118,273 for the six months ended April 30, 2018. The increase in gross profit was due to increased sales generated from the net sales and cost of goods sold of products of the companies acquired since January 31, 2017 of $600,000 and an increase of $2,000,000 in gross profit from companies we acquired since January 1, 2018.
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General and administrative expenses
General and administrative expenses increased $2,521,484 from $2,816,156 for the six months ended April 30, 2017 to $5,337,640 for the six months ended April 30, 2018. The increase was due to increases in the following categories: advertising of $256,000 as the result of increased efforts to attract customers to our web sites, credit card processing costs of $109,000 due to higher sales volume and credit card transaction volume, commission of $164,000, bad debt expense of $86,000 due to the higher volume of sales, dues and subscriptions of $61,000, insurance expense of $134,000 as a result of adding health insurance for our employees, payroll of $1,443,000 primarily due to the cost of employees associated with the companies we have acquired since January 1, 2018 and employees added through organic growth of our businesses, rent of $158,000 and utilities of $66,000 as the result of the acquisitions completed during the quarter which added additional rented office locations, travel and entertainment of $145,000 due to additional travel incurred as we expanded operations around the United States and Caribbean Ocean through our Cranbury subsidiary, repairs of $47,000 due to increased costs as we added office locations, automobile expenses of $21,000, other expenses of $43,000, accounting fees of $163,000, legal fees of $138,000, consulting fees of $118,000, professional fees of $46,000, due to costs of SEC compliance and legal fees incurred in connection with acquisitions, and depreciation and amortization of $102,000 related to intangibles acquired as a result of acquisitions; and decreases of $718,000 in share based compensation due to the granting of fewer share grants to consultants and employees, and $111,000 in impairment expense related to patents owned that no longer hold value to the Company.
Other income and expense
Interest expense increased $3,333,361, from $113,271 for the six months ended April 30, 2017 to $3,446,632 for the six months ended April 30, 2018, due to due to a $500,000 interest penalty incurred because of the default on our November 2017 and January 2018 financing agreements, interest expense relating to the initial valuation of derivative liability of $1,602,442, and higher levels of borrowing during the six months ended April 30, 2018 compared to the same period in the prior year. Gain on debt extinguishment decreased $131,960 because of repayments on convertible debt on the derivative liability related to that debt. The change relating to the mark to market for the derivative liability increased by $210,876, from a loss of $113,853 during the six months ended April 30, 2017 to a gain of $97,023 during the six months ended April 30, 2018 due to the price volatility of the Company’s common stock. Amortization of note discount increased $446,920, from $25,265 for the six months ended April 30, 2017 to $472,185 for the six months ended April 30, 2018 due to the amortization of original issued discounts associated with borrowings made during the six months ended April 30, 2018.
Net income or loss
Net loss for the year increased $3,984,093, from a net loss of $2,070,105 for the six months ended April 30, 2017, to a net loss of $6,054,198 for the six months ended April 30, 2018 primarily due to increased other expense of $3,700,000.
Plan of Operations
The Company is a developer and reseller of eLearning products and an online aggregator of standards and codes for professional industries. The Company is considering adding additional divisions in different trades in order to grow into a global eLearning company for the skilled trades.
Moving forward the Company intends to grow the Company into one of the leading eLearning companies through both organic growth and strategic acquisitions. Organic growth is expected through efforts of:
· | increasing the online footprint, |
· | increasing eLearning offerings, |
· | improving efficiencies in staffing, process, inventory management and margins, |
· | publishing original content, and |
· | private labeling additional content. |
Management is currently pursuing acquisitions, strategic partnerships, new dedicated synergistic web site launches, new titles and content, new training opportunities and new online services. Management is also actively seeking a financial partner to continue the development of Transferrin Doxorubicin.
We are a public entity, subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses for annual reports and proxy statements. We estimate that these accounting, legal and other professional costs to be a minimum of $300,000 in the next year and will be higher, in the following years, if our business volume and activity increases. Increased business activity could greatly increase our professional fees for reporting requirements, and this could have a significant impact on future operating costs. The difference between having the ability to sustain our cash flow requirements over the next twelve months and the need for additional outside funding will be dependent upon whether we can sustain and/or increase our sales revenue and raise the appropriate amount of capital.
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Liquidity and Capital Resources and Going Concern
The Company had total assets of $7,953,068 as of April 30, 2018, including $3,200,000 of current assets, $3,233,000 of goodwill and intangible assets, net, relating to acquisitions (as defined and described in Note 5 to the unaudited financial statements included in “Part I – Financial Information” - “Item 1. Financial Statements”), $1,355,000 of net property and equipment and $158,000 in other assets.
Our decrease in cash of $140,000 can be attributed to the timing of working capital needs. Our total liabilities increased $8,780,000 primarily due to the issuance of notes payable, the assumption of $1,440,000 in notes payable related to the acquisition of NACB, an increase in contingent liability of $370,000 that arose from the acquisition of One Exam Prep, LLC, increase in derivative liability of $3,400,000, and accrued expenses related party of $225,000.
The Company had total liabilities of $14,484,628 as of April 30, 2018, which included $8,730,000 of current liabilities. Included in current liabilities was $712,000 owed to related parties and $4,500,000 owed in notes payable, net. The amount owed to related parties consists of costs for the reimbursements for the purchase of inventory and providing working capital that were paid for with the personal credit cards of one of the shareholders. Notes payable are discussed in greater detail under Notes 7, 8, and 9 of our unaudited financial statements included herein under “Part I – Financial Information” - “Item 1. Financial Statements”.
The Company has negative working capital of $5,530,000 as of April 30, 2018 and had net cash used in operations of $3,063,000 for the six months ended April 30, 2018.
The Company has funded operations through the issuance of convertible notes payable, short term credit card debt and advances against future credit card receipts. In May 2018, we closed on a private placement of convertible notes payable with gross and net proceeds of $972,222 and $875,000, respectively. We plan to raise additional capital by the end of calendar year 2018 to fund ongoing operations and planned acquisitions. We intend to fund acquisitions primarily through the sale of our common stock and other convertible securities.
Our unaudited consolidated financial statements as of April 30, 2018 were prepared under the assumption that we will continue as a going concern for the next twelve months. We have experienced a significant working capital deficiency, significant losses from operations and need to raise additional funds to meet obligations and sustain our operations. These conditions raise substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash flows
The Company had $3,062,598 of net cash used in operating activities for the six months ended April 30, 2018, which mainly included net loss of $6,054,198, share based compensation of $311,765, change in derivative liability of $(97,023), interest expense relating to the initial valuation of derivative liability of $1,602,442, depreciation and amortization of $193,003, bad debt expense of $98,378, amortization of debt discount of $472,185, an increase in accounts payable and accrued expenses of $892,573, increases in accounts receivable of $28,575 and inventory of $522,027, a decrease in other current assets of $157,900, and an increase of $50,833 in deferred revenue.
The Company had $513,059 of net cash used in investing activities for the six months ended April 30, 2018, which was due to net cash of $437,203 paid for the acquisitions of NACB and Disco (as described in greater detail in Note 13 to the unaudited financial statements included herein), and purchases of property and equipment of $75,856.
The Company had $3,431,823 of net cash provided by financing activities for the six months ended April 30, 2018, which was mainly due to $3,065,945 of proceeds from the sales of convertible notes payable, $3,836,643 of proceeds from notes payable, $371,299 of repayments of convertible notes, $19,485 of payments on capitalized leases, $97,750 of payments on debt issuance costs, $59,160 of payments on acquisition notes payable, and $2,923,065 of repayments of notes payable.
Working Capital
April 30, 2018 | October 31, 2017 | Increase (Decrease) | ||||||||||
Current assets | $ | 3,199,183 | $ | 2,073,897 | $ | 1,125,286 | ||||||
Current liabilities | 8,730,075 | 4,584,797 | 4,145,278 | |||||||||
Working capital (deficit) | $ | (5,530,892 | ) | $ | (2,510,900 | ) | $ | (3,019,992 | ) |
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Equity
In February 2018, the Company issued 941,851 shares of the Company’s common stock, having a fair market value of $164,824, to investors in accordance with the Securities Purchase Agreement dated November 3, 2017 and amended on January 29, 2018 (see Note 9).
In March 2018, the Company issued 486,587 shares of the Company’s common stock to three consultants for services rendered, having a fair market value of $126,512 on the date of issuance.
In April 2018, the Company issued 75,000 shares of the Company’s common stock to a consultant for services rendered, having a fair market value of $14,213 on the date of issuance.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Recent Accounting Pronouncements
The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of April 30, 2018, management assessed the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, they concluded that, during the period covered by this report, such disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(d) and 15d-15(f)) during the three months ended April 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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We know of no material, existing or pending legal proceedings against our company. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended October 31, 2017, filed with the SEC on April 16, 2018, under the heading “Risk Factors”, except as discussed below, and investors should review the risks provided in the Form 10-K and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K, under “Risk Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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Exhibit | |||
Number | Description of Exhibit | Filing | |
2.1+ | Share Exchange Agreement by and among the Company, Brown Technical Media Corporation and the shareholders of Brown Technical Media Corporation dated November 8, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
2.2+ | Share Exchange Agreement by and among the Company, Premier Purchasing and Marketing Alliance LLC and the sole member of Premier Purchasing and Marketing Alliance LLC, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
2.3+ | Share Exchange Agreement by and among the Company, One Exam Prep LLC and the sole member of One Exam Prep LLC dated January 24, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
3.1 | Articles of Incorporation and Amendments | Filed with the SEC on February 6, 2013, as part of our Registration Statement on Form S-1, and incorporated herein by reference | |
3.2 | Filed with the SEC on February 10, 2017, as part of our Current Report on Form 8- K filed on the same date, and incorporated herein by reference | ||
3.3 | Certificate of Correction to Certificate of Amendment, Filed with the Secretary of State of Nevada on January 20, 2017 | Filed with the SEC on February 10, 2017, as part of our Current Report on Form 8- K filed on the same date, and incorporated herein by reference | |
3.3 | Bylaws | Filed with the SEC on February 6, 2013, as part of our Registration Statement on Form S-1, and incorporated herein by reference | |
10.1 | Form of Stock Subscription Agreement (September, October and November 2016 sales of common stock) | Filed with the SEC on November 15, 2016, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.2 | Form of Convertible Note Payable (relating to notes sold in August and October 2016) | Filed with the SEC on November 15, 2016, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.3 | Employment agreement of Plumb dated April 8, 2013 | Filed with the SEC on November 15, 2016, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.4 | Employment agreement of Davis dated February 1, 2014 | Filed with the SEC on November 15, 2016, as Exhibit 10.4 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.5 | Amendment No. 1 to employment agreement of Plumb dated July 9, 2013 | Filed with the SEC on November 15, 2016, as Exhibit 10.5 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.6 | Amendment No. 2 to employment agreement of Plumb dated February 1, 2014 | Filed with the SEC on November 15, 2016, as Exhibit 10.6 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.7 | Amendment No. 3 to employment agreement of Plumb dated May 1, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.7 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.8 | Amendment No. 1 to employment agreement of Davis dated May 1, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.8 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.9 | Consulting agreement with Levine dated September 30, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.9 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference |
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10.10 | Form of Note Payable issued in conjunction with the purchase of Brown Book Shop, Inc. | Filed with the SEC on November 15, 2016, as Exhibit 10.10 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.11 | Form of subscription agreement for May, June and July 2016 sales of common stock. | Filed with the SEC on January 23, 2017, as Exhibit 10.11 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.12 | Asset Purchase Agreement between Faulk Pharmaceuticals, Inc. and the Company dated April 6, 2015 | Incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2014 dated June 15, 2015 |
10.13 | Loan agreement with Delta S Ventures, LLP dated March 16, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.13 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.14 | Loan agreement with Business Financial Services, Inc., DBA BFS Capital, dated November 12, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.14 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference. | |
10.15 | Loan agreement with Business Financial Services, Inc., DBA BFS Capital, dated June 14, 2016 | Filed with the SEC on January 23, 2017, as Exhibit 10.15 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.16 | Loan agreement with American Express Bank, FSB, dated July 14, 2014 | Filed with the SEC on January 23, 2017, as Exhibit 10.16 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.17 | Loan agreement with Celtic Bank, dated May 14, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.17 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.18 | Loan agreement with Amazon Capital Services, Inc., dated September 17, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.18 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.19 | Form of Copyright License Agreement | Filed with the SEC on January 23, 2017, as Exhibit 10.19 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.20 | Reseller agreement with IHS Markit dated July 2, 2014 | Filed with the SEC on January 23, 2017, as Exhibit 10.20 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.21 | Amendment No. 1 to IHS Reseller Agreement, dated March 1, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.21 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.22 | First Promissory Note in the amount of $50,000, owed by the Company to Scott Schwartz, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.23 | Second Promissory Note in the amount of $50,000, owed by the Company to Scott Schwartz, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.24 | Hill Promissory Note in the amount of $36,830.20, owed by the Company to Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.25 | Security Agreement by the Company in favor of Scott Schwartz and Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.4 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference |
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10.26 | Novation Agreement between the Company, Scott Schwartz, Premier Purchasing and Marketing Alliance LLC and Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.5 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.27 | Non-Recourse Secured Convertible Promissory Note in the amount of $300,000, owed by the Company to Rob Estell, dated January 20, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.28 | Security and Pledge Agreement by the Company in favor of Rob Estell, dated January 20, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.29 | Consulting Agreement with Rob Estell, dated January 24, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.30 | Form of Lock-Up Agreement | Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 25, 2017 | |
10.31 | Securities Purchase Agreement, dated as of May 17, 2018, between ProBility Media Corporation and each purchaser identified on the signature pages thereto (the “Purchasers”). | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 23, 2018 | |
10.32 | Form of 10% Original Issue Discount 5% Senior Convertible Note issued by ProBility Media Corporation to each of the Purchasers. | Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 23, 2018 | |
10.33 | Form of Common Stock Purchase Warrant issued by ProBility Media Corporation to each of the Purchasers. | Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 23, 2018 | |
10.34 | Form of Security Agreement | Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 23, 2018 | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer | Filed herewith. | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer | Filed herewith. | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer | Filed herewith. | |
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer | Filed herewith. | |
101.INS |
XBRL Instance Document |
Filed herewith. | |
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 |
+ Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that Panther Biotechnology Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.
33 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROBILITY MEDIA CORPORATION | |
Dated: June 19, 2018 | |
/s/ Evan Levine | |
Evan Levine, | |
President and Chief Executive Officer | |
(Principal Executive Officer) | |
34 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Evan Levine, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ProBility Media Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 19, 2018
By /s/ Evan Levine | |
Evan Levine | |
Chief Executive Officer | |
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Steven M. Plumb, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ProBility Media Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 19, 2018
By /s/ Steven M. Plumb, CPA | |
Steven M. Plumb | |
Chief Financial Officer | |
(Principal Financial/Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Evan Levine, Chief Executive Officer, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ProBility Media Corporation Form 10-Q for the period ended April 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities & Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents in all material respects the financial condition and results of operations of ProBility Media Corp. at the dates and the periods indicated.
Date: June 19, 2018
By /s/ Evan Levine | |
Evan Levine | |
Chief Executive Officer | |
(Principal Executive Officer) | |
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Steven M. Plumb, Chief Financial Officer, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ProBility Media Corporation on Form 10-Q for the period ended April 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities & Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents in all material respects the financial condition and results of operations of ProBility Media Corporation at the dates and the periods indicated.
Date: June 19, 2018
/s/ Steven M. Plumb | |
Steven M. Plumb, CPA | |
Chief Financial Officer | |
(Principal Financial/Accounting Officer) |