NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND BASIS OF PRESENTATION
History
and Organization
VNUE,
Inc. (formerly Tierra Grande Resources, Inc.) (“VNUE”, “TGRI”, or the “Company”) was incorporated
under the laws of the State of Nevada on April 4, 2006.
On
May 29, 2015, VNUE, Inc. entered into a merger agreement with VNUE Washington, Inc. Pursuant to the terms of the Merger Agreement,
all of the outstanding shares of any class or series of VNUE Washington were exchanged for an aggregate of 50,762,987 shares of TGRI
common stock. As a result of the Merger, VNUE Washington became a wholly-owned subsidiary of the Company, and the transaction was accounted
for as a reverse merger with VNUE Washington deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer.
The
Company is developing technology-driven solutions for Artists, Venues, and Festivals to automate the capturing, publishing, and monetization
of their content, as well as protection of their rights.
On
February 13, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with VNUE Acquisition
Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“MergerCo”), Stage It Corp., a Delaware corporation
(“Stage It”), and the stockholders’ representative for Stage It, pursuant to which the Company will acquire Stage It
for up to $10 million (the “Merger Consideration”), by merging MergerCo with and into Stage It, with Stage It continuing
as the surviving entity and wholly-owned subsidiary of the Company (the “Merger”).
Pursuant
to the Merger Agreement, and subject to the terms and conditions set forth therein, at the closing of the Merger (the “Closing”),
each of Stage It’s outstanding shares (including common and preferred shares) will be converted into the right to receive the applicable
portion of the Merger Consideration. A portion of the Merger Consideration will be paid in cash and take the form of satisfying certain
outstanding debt obligations of Stage It, as outlined in a Closing Payment Certificate of the Merger Agreement, and the other portion
will be paid in shares of the Company’s common stock or preferred stock, with the actual number of such shares to be issued reduced
by the cash component outlaid in the transaction. A portion of the Merger Consideration, $1 million, will be held back for the purposes
of satisfying certain contingent obligations of Stage It.
The
Merger Agreement also allows for the issuance of earn-out shares, not to exceed the overall Merger Consideration, provided that certain
EBIDTA requirements are met over the course of 18 months. See Note 5. for additional information
NOTE
2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial
statements as of September 30, 2022, the Company had $112,193 in cash on hand, had negative working capital of $14,528,526 and had an
accumulated deficit of $31,917,445. Additionally for the nine months ended September 30, 2022, the Company used $749,643 in cash from
operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one
year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent
upon the Company’s ability to raise additional funds and implement its business plan. The Company does not have any commitments
for additional capital. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s
September 30, 2022, consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as
a going concern.
The
continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue
operations until it begins generating positive cash flow. Historically, the Company has been able to fund its operations from the proceeds
of notes payable and convertible notes. No assurance can be given that any future financing will be available or, if available, that
it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, it may contain undue restrictions
on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
NOTE
3 – SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES AND PRACTICES
Basis
of Consolidation
The
accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”)
“FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in
conformity with generally accepted accounting principles (“GAAP”) in the United States.
The
Company consolidates its results with its wholly-owned subsidiary, Stage It Corp.
Revenue
Recognition
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes
(1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement,
(3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Stage
It receives revenue through a percentage of ticket sales and tipping. This show-based revenue creates a pool that is shared with the
performing artist. Once a show is completed the revenue that has been created through tickets and tips is allocated. Typically, Stage
It retains 20% of the revenue as an agent and the artist receives 80% of the revenue as the performer, however, there are occasions when
the profit split has different ratios. Revenue is recognized once a show is complete and the performance obligation to the consumer has
been met. Since Stage It acts as an agent, revenue is recorded on a net basis only on the 20% portion, less direct expenses such as broadcast
costs, merchant processing fees, bank services charges, license fees and the cost of production.
The
Company also recognizes revenue on the sale of CDs and USB drives that contain the recording of live concerts and are made available
to concert attendees immediately after the show and online. Revenue is recognized on the sale of a product when our performance obligation
is completed which is when the risk of loss transfers to our customers and the collection of the receivable is reasonably assured, which
generally occurs when the product is purchased.
As
of September 30, 2022 and December 31, 2021 deferred revenue amounted to $856,250 and $74,225, respectively.
Management’s
Representation of Interim Financial Statements
The
accompanying unaudited financial statements have been prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements
prepared in accordance with GAAP have been or omitted as allowed by such rules and regulations, and management believes that the disclosures
are adequate to make the information presented not misleading. These financial statements include all of the adjustments, which in the
opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are
of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. Significant
estimates include the assumptions used for the determination of goodwill and intangible assets, the valuation allowance for the deferred
tax asset and the accruals for potential liabilities. Actual results could differ from these estimates.
Stock
Purchase Warrants
The
Company accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities
from Equity.
Fair
Value of Financial Instruments
The
Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the
use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs,
of which the first two are considered observable and the last unobservable, to measure fair value:
| |
● |
Level
1 — Quoted prices in active markets for identical assets or liabilities. |
| |
|
|
| |
● |
Level
2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. |
| |
|
|
| |
● |
Level
3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. |
The
carrying amounts of financial instruments such as cash, and accounts payable and accrued liabilities, approximate the related fair values
due to the short-term maturities of these instruments. The carrying values of our notes payable approximate their fair values because
interest rates on these obligations are based on prevailing market interest rates.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements
of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or
as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as
current or non-current based on whether or not the net-cash settlement of the derivative instrument could be required within twelve months
of the balance sheet date. There were no derivative liabilities outstanding as of September 30, 2022 and December 31, 2021
Income
(Loss) per Common Share
Basic
net income (loss) per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed giving effect to all dilutive potential shares of Common Stock that were outstanding during the
period. Diluted income (loss) per share reflects the potential dilution, using the treasury stock method, that could occur if securities
or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that
is then shared in the income (loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance
date, if later. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants
are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants
may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds
the exercise price of the options and warrants. Dilutive potential shares of Common Stock consist of incremental shares of Common Stock
issuable upon exercise of stock options. No dilutive potential shares of Common Stock were included in the computation of diluted net
loss per share on September 30, 2022, because their impact was anti-dilutive. As of September 30, 2022, the Company had 264,550,794 outstanding
warrants and 10,325,196 shares related to convertible notes payables respectively, which were excluded from the computation of net loss
per share.
Property
and Equipment
Property
and equipment are stated at cost or fair value if acquired as part of a business combination. Depreciation is computed by the straight-line
method and is charged to operations over the estimated useful lives of the assets. The threshold for depreciating office equipment is
$200, and $1,000 for furniture and fixtures maintenance and repairs are charged to expense as incurred. The carrying amount and accumulated
depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included
in the results of operations. The estimated useful lives of property and equipment are as follows:
| Schedule of Property Plant Equipment Estimated Useful Lives | |
| | |
| Computers,
software, and office equipment | |
| 3
years | |
| Furniture
and fixtures | |
| 7
years | |
As
of September 30, 2022, the Company’s property, which consisted solely of computers, amounted to $18,097 and -$-0- respectively.
Depreciation expense for the nine months ended September 30, 2022, and 2021, amounted to $19,725 and $-0- respectively.
Goodwill
and Intangible Assets
Goodwill
represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized.
The goodwill arising from the Company’s acquisition is attributable to the value of the potential expanded market opportunity with
new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives
are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible
assets consist primarily of customer relationships, trademarks, and product formulations. The useful life of these customer relationships
is estimated to be three years.
Goodwill
is not amortized but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs
an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in
circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing compares the
fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income
approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances
surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of
the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows.
For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free
interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s
size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value,
growth rates, future capital expenditures, and changes in future working capital requirements. The market approaches use key multiples
from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than
its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then an impairment
loss is recognized in an amount equal to the excess.
Recently
Issued Accounting Pronouncements
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic
326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be
required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The
adoption of Topic 326 is not expected to have a material effect on the Company’s financial statements and financial statement disclosures.
NOTE
4 – PREPAID EXPENSE
As
of September 30, 2022 and December 31, 2021, the balances in prepaid expenses was $100,000 and $464,336.
$100,000
of the prepaid expense in both periods relates to a January 9, 2020 agreement entered into by the Company with recording and performance
artist, Matchbox Twenty “MT Agreement”), to record its 2020 tour and sell limited edition double CD sets, download cards,
and digital downloads. As part of the deal, the Company agreed to pay an advance of $100,000 against sales, to MT and its affiliated
companies, which was paid in full in installments, with the last installment of $40,000 paid on March 4, 2020. This tour which has
been delayed due to Covid-19 is expected to commence in January 2023.
NOTE
5 – RELATED PARTY TRANSACTIONS
DiscLive
Network
On
July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive”
or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company
with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier
terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce
platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live”
recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license.
In
exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of
the products and services. DiscLive is controlled by our Chief Executive Officer. Revenues of $9,579 and $9,295 for the periods ended
September 30, 2022, and 2021, respectively, were recorded using the assets licensed under this agreement. For the periods ended September
30, 2022, and 2021 the fees would have amounted to $479 and $465, respectively. The Company’s Chief Executive Officer agreed to
waive the right to receive these license fees for both years and has never taken any fees pursuant to this agreement.
Accrued
Payroll to Officers
Accrued
payroll to two officers was $259,250 and $233,750 respectively, as of September 30, 2022, and December 31, 2021, respectively. The
Chief Executive Officer’s compensation is $170,000 per year.
Advances
from Officers/Stockholders
From
time to time, officers/stockholders of the Company advance funds to the Company for working capital purposes. During the year ended December 31,
2021, the Company’s CEO advanced $10,000 to the Company on an interest-free basis. That amount remained outstanding as of September
30, 2022.
NOTE
6 – BUSINESS ACQUISITION
On
February 13, 2022, VNUE, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with VNUE Acquisition Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“MergerCo”), Stage It Corp.,
a Delaware corporation (“Stage It”), and the stockholders’ representative for Stage It, pursuant to which the Company
will acquire Stage It for up to $10 million (the “Merger Consideration”), by merging MergerCo with and into Stage It, with
Stage It continuing as the surviving entity and wholly owned subsidiary of the Company (the “Merger”).
Pursuant
to the Merger Agreement, and subject to the terms and conditions set forth therein, at the closing of the Merger (the “Closing”),
each of Stage It’s outstanding shares (including common and preferred shares) will be converted into the right to receive the applicable
portion of the Merger Consideration. A portion of the Merger Consideration will be paid in cash and take the form of satisfying certain
outstanding debt obligations of Stage It, as outlined in a Closing Payment Certificate of the Merger Agreement, and the other portion
will be paid in shares of the Company’s common stock or preferred stock, with the actual number of such shares to be issued reduced
by the cash component outlaid in the transaction. A portion of the Merger Consideration, $1 million, will be held back to satisfy certain
contingent obligations of Stage It.
The
Merger Agreement also allows for the issuance of earn-out shares, not to exceed the overall Merger Consideration, provided that certain
EBIDTA requirements are met over the course of 18 months.
On
February 13, 2022, the Company, Stage It and the shareholders of Stage It entered into a voting agreement concerning the Merger.
On
February 14, 2022, the Company completed the acquisition of Stage It. As a result of the Closing, Stage It became a wholly-owned
subsidiary of the Company. For the acquisition, the Company will issue the initial 135,000,000 shares and pay certain amounts as detailed
under Merger Consideration in the Merger Agreement. The price to be paid in cash and stock for the Earnout Shares and Holdback Shares
are set forth in the Merger Agreement.
The
Merger Agreement has been included to provide investors with information regarding its terms. The representations, warranties, and covenants
contained in the Merger Agreement were made only for the purposes of the Merger Agreement, were made as of specific dates, were made
solely for the benefit of the parties to the Merger Agreement, and may not have been intended to be statements of fact, but rather as
a method of allocating risk and governing the contractual rights and relationships among the parties to the Merger Agreement. In addition,
such representations, warranties, and covenants may have been qualified by certain disclosures not reflected in the text of the Merger
Agreement and may apply standards of materiality and other qualifications and limitations in a way that is different from what may be
viewed as material by the Company’s shareholders. None of the Company’s shareholders or any other third party should rely
on the representations, warranties, and covenants, or any descriptions thereof, as characterizations of the actual state of facts or
conditions of the Company, the Company, Merger Sub, or any of their respective subsidiaries or affiliates
For
the acquisition of Stage It the following table summarizes the acquisition date fair value of the consideration paid, identifiable assets
acquired and liabilities assumed:
Consideration
paid
| Schedule of fair value of consideration | |
| | |
| Common
stock issued, 41,476,963 shares of the Company’s restricted common stock valued at $0.0101 per share | |
$ | 418,917 | |
| Common
stock issuable, 93,523,037 shares of the Company’s restricted common stock valued at $0.0101 per share | |
| 944,583 | |
| Net
liabilities assumed | |
| 2,871,066 | |
| Earnout
liability | |
| 7,679,984 | |
| Cash
paid | |
| 1,085,450 | |
| Fair
value of total consideration paid | |
$ | 13,000,000 | |
Net
assets acquired and liabilities assumed
| Schedule of net asset acquired and liabilities assumed | |
| | |
| Cash
and cash equivalents | |
$ | 107,689 | |
| Property | |
| 36,882 | |
| Total
assets | |
| 144,571 | |
| | |
| | |
| Accounts
payable and accrued liabilities | |
| 1,711,349 | |
| Notes
payable | |
| 526,385 | |
| Deferred
revenue | |
| 777,903 | |
| Total
liabilities | |
$ | 3,015,637 | |
| | |
| | |
| Net
liabilities assumed | |
$ | 2,871,066 | |
The
Company has allocated the fair value of the total consideration paid of $10,400,000 to goodwill and $2,600,000 to intangible assets with
a life of three years. The value of goodwill represents Stage It’s ability to generate profitable operations going forward. Management
estimated the provisional fair values of the intangible assets and goodwill on March 31, 2022. The Company’s accounting for
the acquisition of Stage It is incomplete. Management is performing a valuation study to calculate the fair value of the acquired intangible
assets, which it plans to complete within the one-year measurement period.
NOTE
7 – INTANGIBLE ASSETS
As
of September 30, 2022, the balance of intangible assets was $2,058,333. During the year the three-month period ended September 30, 2022,
the Company recorded $541,577 in amortization expense. As discussed in Note 6, the intangible assets have been valued based on provisional
estimates of fair value and are subject to change as the Company completes its valuation assessment by the completion of the one-year
measurement period. Remaining amortization as of September 30, 2022 for the following fiscal years is: 2022 - $216,668; 2023 - $866,666;
and 2024 - $866,666, 2025 -$108,333.
NOTE
8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payables are recognized initially at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration
expected to be paid. Accrued expenses are recognized based on the expected amount required to settle the obligation or liability.
The
following table sets forth the components of the Company’s accrued liabilities on September 30, 2022, and December 31, 2021:
| Schedule of accrued liabilities | |
| | | |
| | |
| | |
September 30,
2022
| | |
December 31,
2021
| |
| Accounts
payable and accrued expense | |
$ | 2,417,266 | | |
$ | 588,275 | |
| Accrued
interest | |
| 292,790 | | |
| 189,527 | |
| Soundstr
Obligation | |
| 145,529 | | |
| 145,259 | |
| Total
accounts payable and accrued liabilities | |
$ | 2,855,585 | | |
$ | 923,061 | |
NOTE
9 – PURCHASE LIABILITY
The
balance of the company’s Purchase Liability at September 30, 2022, and December 31, 2021 was $7,979,984 and $300,000, respectively.
Under
the terms of the business acquisition of Stage It described in Note 6, during the three months ended September 30, 2022 the Company had
a contingent Earnout Liability of $7,679,984 due to the shareholders of Stage It if Stage It operations achieve certain operating milestones.
This liability will be subject to quarterly analysis.
On
October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc. (the “Seller”), whereby the Company acquired
the digital live music distribution platform “Set.fm” from PledgeMusic. The purchase price for the acquisition was comprised
of $50,000 paid in cash, and a purchase liability of $300,000.
The
purchase liability was payable on the net revenues derived from VNUE’s live recording and content business and must be paid in
full to the Seller no later than the three (3) year anniversary of the date of the agreement, or October 16, 2020. If the Company
fails to pay the Seller the purchase liability on time, the Seller may request at any time within one hundred eighty days (180) days
following the (3) year anniversary of the asset purchase agreement, that the Company immediately forfeit, convey, assign, and transfer
to the Seller all or any of the Purchased Assets so requested by the Seller for no additional consideration. The Company has had no correspondence
regarding this liability with Pledge Music who declared bankruptcy in 2019.
NOTE
10 – SHARES TO BE ISSUED
As
of September 30, 2022 and December 31, 2021 the balances of shares to be issued were $1,020,571 and $247,707. The balance as of September
30, 2022 is comprised of the following
| |
● |
As of December 31,
2021 the Company had not yet issued 5,204,352 shares of common stock with a value of $247,707 for past services provided and for
an acquisition in previous years. |
| |
● |
During the nine months
ended September 30, 2022, pursuant to the acquisition of Stage It described throughout this Report, an additional 76,521,235 shares
remain issuable to Stage It shareholders valued at $772,864. |
NOTE
11 – NOTES PAYABLE
The
balance of the Notes Payable outstanding as of September 30, 2022, and December 31, 2021, was $1,143,262
and $869,157,
respectively. The balances as of December 31, 2021 were comprised of two notes amounting to $12,000
and an 8%
note for $857,157
due to Ylimit payable on September 30, 2022.
On September 24, 2022 the maturity date of this Note was extended to September 30, 2023 on the same terms and conditions.
The two notes for $12,000 are past due an continue to accrue interest.
During
the nine months ended September 30, 2022, the Company added $273,385 in note liabilities pursuant to the Stage It acquisition. These
notes currently are not accruing interest.
NOTE
12 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable consist of the following:
| Schedule of Convertible notes payable | |
| | | |
| | |
| | |
September 30,
2022 | | |
December 31,
2021 | |
| Various
Convertible Notes | |
$ | 43,500 | | |
| 43,500 | |
| Golock
Capital, LLC Convertible Notes (a) | |
| 339,011 | | |
| 339,011 | |
| Other
Convertible Notes (b) | |
| 88,203 | | |
| 253,203 | |
| Total
Convertible Notes | |
$ | 470,714 | | |
| 635,714 | |
| (a) | On
February 2, 2018, the Company issued a convertible note to Golock Capital, LLC (“Lender”)
in the principal amount of $40,000 with an interest rate at 10% per annum and a maturity
date of November 2, 2018. The note included an original issue discount of $5,000. The
note is convertible into shares of the Company’s common stock at $0.015 per share.
As additional consideration for the Lender to enter into this agreement with the Company,
the Company issued warrants to the Lender to acquire in the aggregate 2,500,000 shares of
the Company’s common stock at an exercise price of $0.015 per share that expire three
years from the date of grant. The relative fair value of the warrants, the original issue
discount, and the beneficial conversion feature totaling $40,000 was recorded as a debt discount
and will be amortized to interest expense over the term of the note. On November 5,
2018, the Company amended the notes above by changing the conversion feature for the aggregate
notes to be convertible into shares of common stock of the Company at the lower of (i) $0.015
per share or, (ii) 58% of the lowest closing bid price in the 20 trading days prior to the
day that the Lender requests conversion. This feature gave rise to a derivative liability
of $553,000 at the date of issuance as discussed below. The amendment also increased the
principal face amount of notes to include accrued interest, and an additional $43,250 was
added to principal, which was recorded to financing costs. The aggregate balance of the notes
outstanding, and the related debt discount was $302,067 and $0, respectively, as of December 31,
2018. |
On
April 29, 2019, Golock entered into an amendment with the Company to extend the maturity of the Notes until July 31, 2019.
In return, Golock received several concessions. They received (a) a warrant to purchase 12,833,333 shares of the Company’s common
stock for 48 months exercisable at a strike price of $.00475. The Company recorded a financing charge of $28,227 related to these warrants
and (b) the conversion noted above was changed from 58% to 50% of the lowest closing bid price in the 20 trading days prior to that day
that the Lender requested conversion. During the year ending December 31, 2019, the Company issued new notes payable of $53,331
and $23,102 of notes and accrued interest were converted into 100,000,000 shares of common stock. The balance of the notes outstanding
on December 31, 2019, was $339,010. As of December 31, 2019, $285,679 of these notes were past due. As of September 30, 2022
all of the Golock notes amounting to $339,011 were past due.
As
a result Golock has assessed the Company additional penalties and interest of $1,172,782. The Company disagrees with the accrued interest
and penalties due to Golock. Initially, the Company recorded this amount as a liability on its balance during the period ended 2021.
Subsequent during the three month period ended September 30, 2021, the Company obtained a legal opinion supporting its position
that these charges were egregious, and reversed the liability on its balance sheet The Company intends to litigate this amount as well
as the validity of the principal and interest outstanding, if a settlement on a vastly reduced amount, cannot be reached.
| (b) | During
the year ended December 31, 2021, GHS Investments funded an 8%, $165,000 convertible
promissory note maturing on November 16, 2021. This note was converted to equity during
the three months ended June 30, 2022. As of September 30, 2022, $73,204 of these notes due
to one lender are past due. This lender is associated with Golock and the Company is disputing
the validity of this note. |
Summary
The
Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment
to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within
the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that
the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence
of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features
of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features
as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded
conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs
in the Consolidated Statement of Operations.
NOTE
13 – STOCKHOLDERS’ DEFICIT
Common
stock
The
Company has authorized 2,000,000,000 shares of $0.0001 par value common stock. As of September 30, 2022, and December 31, 2021,
there were 1,525,709,549 and 1,411,799,497 shares of common stock issued and outstanding respectively.
Preferred
Stock Series A
On
July 2, 2019, the Company filed a Certificate of Amendment (the “Charter Amendment”) to the Company’s Articles
of Incorporation (as amended to date, the “Articles of Incorporation”) with the Secretary of State of the State of Nevada.
The Charter Amendment increased the Company’s capitalization to 2,000,000,000 shares of Common Stock and 20,000,000 shares of Preferred
Stock, of which, 5,000,000 were designated as Series A Convertible Preferred Stock.
As
of September 30, 2022 and 2021 the Company had 20,000,000 shares of $0.0001 par value preferred stock authorized and there were 4,250,579
shares of Series A Preferred Stock issued and outstanding.
On
May 22, 2019, the Company authorized and designated a class of Series A Convertible Preferred Stock (“Series A Preferred Stock”),
in accordance with a Certificate of Designation filed with the State of Nevada (the “Series A Designation”). It subsequently
issued 4,126,776 restricted shares of Series A Preferred Stock to various employees and service providers to compensate and reward them
for services and to incentivize them to provide continued service to the Company. The Series A Preferred Stock receives relative rights
and preferences under terms and conditions set forth in the Certificate of Designation of the Preferred Stock.
Pursuant
to the Series A Designation, each share of Series A Preferred Stock may be converted into 50 shares of common stock of the Company. The
Series A Preferred Stockholders shall be entitled to share among dividends with the common stock shareholders of the Company on an as-converted
basis. The Series A Preferred Stockholders shall vote with the common stock as a single class, on a 100 to 1 basis, such that for every
share of Series A Preferred Stock held, such shares shall entitle the holder to cast 100 votes. The holders of the Series A Preferred
Stock have no liquidation or redemption preference rights but get treated as common stockholders on an as converted basis.
The
Company believes that the issuance of the Series A Preferred Stock was exempt from the registration requirements under the Securities
Act of 1933, as amended pursuant to Section 4(a)(2) of the Act in that said transaction did not involve a public solicitation and
said restricted shares were issued to only a small number of employees and consultants with an ongoing relationship with the Company.
As
of September 30, 2022, and December 31, 2021, there were 4,250,579 shares of Series A Preferred issued and outstanding.
Preferred
Stock Series B
On
January 3, 2022, the Company authorized and designated a class of 1,600 shares, par value $0.0001 of Series B Convertible Preferred
Stock (“Series B Preferred Stock”), in accordance with a Certificate of Designation filed with the State of Nevada (the “Series
5 Designation”).
During
the three months ended March 31, 2022 the Company issued 1,535 restricted shares of Series B Preferred Stock to GHS Investments (“GHS”)
in return for $1,500,000 (less $130,000 in fees) in financing provided to the Company.
Pursuant
to the Series B Designation, each share of Series B Preferred Stock may be converted into $1,200 of common stock of the Company. In connection
with the issuance of the Series B Preferred Stock, the Company recorded $42,000 in financing fees and a $300,000 expense for the beneficial
conversion feature of Series B Preferred stock.
During
the three months ended June 30, 2022 the Company issued an additional 556 Series B Preferred Shares. 280 of these shares were issued
for gross cash proceeds of $280,000. 10 of these shares were issued as a commitment fee, and 266 of these shares were issued to retire
debt. In connection with these issuances the Company recorded $12,000 in financing fees, a beneficial conversion feature of $87,000 and
a loss of $154,200 on the retirement of debt.
During the three months ended September
30, 2022 the Company issued an additional 176 Series B Preferred Shares. 164 of these shares were issued for gross cash proceeds
of $151,600 shares. 12 of these shares were issued as a commitment feet. In connection with these issuances the Company recorded
$14,400 in financing fees and a beneficial conversion feature of $45,200. Though the nine months ended September 30, 2022 the Company
has accrued $145,103 in dividends on these Series B Preferred Issuances.
As
of September 30, 2022, and December 31, 2021, there were 2,267 and -0- shares of Series B Preferred outstanding, respectively.
Preferred
Stock Series C
On
May 25, 2022 the Company authorized and designated a class of 10,000 shares of Series C Preferred Stock, par value $0.0001. The holders
of the Series C Preferred Stock shall have the right to cast one million (1,000,000) votes for each share held of record on all matters
submitted to a vote of holders of the Company’s common stock. On the same date, the Company issued to each of Zach Bair, CEO &
Chairman, Anthony Cardenas, CCO and Director, and Lou Mann, EVP and Director, 1,000 shares of this newly created Series
C Preferred Stock for services rendered. These share which represented 3,000,000,000 (billion) votes was value at the trading price of
the Company’s securities of $0.0051 on the date of Board of Director approval. As a result the Company recorded a non-cash charge
of $15,300,000 on its Statement of Operation for the three months ended June 30, 2022.
As
of September 30, 2022 and December 31, 2021, there were 3,000 and -0- shares of Series C Preferred Stock outstanding.
Warrants
In
connection with the issuance of Series B Preferred Stock to the Company described in Note 14, the Company issued 264,550,794 warrants, with
a five year life, at an average strike price of $0.0788
A
summary of warrants is as follows:
| Schedule of warrants | |
| | | |
| | |
| | |
Number
of
Warrants | | |
Weighted
Average Exercise | |
| Balance
outstanding, December 31, 2020 | |
| 23,805,027 | | |
| | |
| Warrants
expired or forfeited | |
| (8,004,708 | ) | |
| - | |
| Balance
outstanding and exercisable, December 31, 2021 | |
| 15,800,319 | | |
$ | 0.00475 | |
| Warrants exercised or forfeited | |
| | | |
| (15,800,319 | ) |
| Warrants
granted during the nine months ended September 30, 2022 | |
| | | |
$ | 0.00788 | (a) |
| Balance
outstanding and exercisable, September 30, 2022 | |
| 264,550,794 | | |
| | |
| (a) | The
strike price is subject to adjustment based on the market price of the company’s stock
price |
Information
relating to outstanding warrants on September 30, 2022, summarized by exercise price, is as follows:
The
weighted-average remaining contractual life of all warrants outstanding and exercisable on September 30, 2022 is approximately 4.76 years.
The outstanding and exercisable warrants outstanding on September 30, 2022, had no intrinsic value.
NOTE
14 – COMMITMENT AND CONTINGENCIES
Litigation
Legal
Matters
DBW
Investments, LLC et al
As
disclosed in greater detail in the Company’s Form 10-Q, filed May 23, 2022, the Company remains in active litigation with DBW Investments,
LLC (“DBW”) and Golock Capital, LLC (“Golock”). The remainder of this disclosure will address all material updates
since the aforementioned Form 10-Q.
On
May 6, 2022, the Company filed a motion for leave to amend its answer, affirmative defenses, and counterclaims. As of the date hereof,
the Company’s motion is fully submitted to the Court, but no decision has been made.
On
August 17, 2022, the Company was informed that the case was reassigned from Judge Vernon S. Broderick to Judge Denise L. Cote.
The
Company remains committed to vigorously defending itself against DBW and Golock
LG
Capital, LLC et al
On
June 15, 2022, the Company commenced an action against LG Capital, LLC (“LG Capital”), Joseph Lerman (“Lerman”),
Boruch Greenberg (“Greenberg”), and Daniel Gellman (“Gellman”) (LG, Lerman, Greenberg, and Gellman, together,
the “LG Defendants”) in the U.S. District Court for the Eastern District of New York.
The
Company’s complaint alleges that: (i) LG is an unregistered dealer acting in contravention of federal securities laws and, thus,
the Company is entitled to rescission—pursuant to Section 29(b) of the Securities Exchange Act of 1934—of all unlawful securities
transactions by and between the Company and LG, including the Convertible Promissory Note, dated October 23, 2018 (the “Note”),
the Securities Purchase Agreement, dated October 23, 2018 (“SPA”), and all conversions made pursuant to the Note (“Conversions”);
(ii) Lerman, Greenberg, and Gellman are liable to the Company as control persons of LG Capital for its violations of federal securities
laws; (iii) LG Capital is a RICO enterprise, that Lerman, Greenberg, and Gellman are RICO culpable persons who controlled LG Capital,
and the LG Defendants violated RICO by engaging in unlawful debt collection through the Note and Conversions; (iv) Lerman, Greenberg,
and Gellman conspired to violate RICO through unlawful debt collection; (v) the LG Defendants have been unjustly enriched at the expense
of the Company through the Note, SPA, and Conversions; and (vi) a constructive trust be imposed against the LG Defendants.
The
LG Defendants are obligated to answer or otherwise respond to the Company’s complaint on or before August 30, 2022.
The
Company remains committed to vigorously asserting its legal claims against the LG Defendants.
NOTE
15 – SUBSEQUENT EVENTS
Subsequent
to September 30. 2022 the Company raise $166,341 in gross proceed proceeds from the sale of 36 Preferred B shares and from the private
placement of 75,193,682 common shares pursuant to the terms of its equity line. Additionally in connection with the issuance of the 36
Preferred B shares the Company also issued 15,104,986 warrants at a strike price of $0.00286 per share.
On October 12, 2022 the Company entered into a joint venture agreement with Kokku Games Ltda., South America’s
largest gaming and entertainment co-development firm to provide entertainers and their team tools and services needed to streamline,
production, management and promotion.
