(Mark One)

 

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

 

 

 

¨     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: 000-54074

 

 

(Exact name of registrant as specified in its charter)

 

 

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 November 19, 2013, there were 133,520,776 shares of the Registrant's common stock outstanding.

 

 

 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

 

		September 30,			December 31,
		2013			2012
Assets
Current assets
Cash		$	44,483		$	63,286
Accounts receivable			254,266			-
Other receivables			32,529			-
Deferred financing cost, net of amortization of $24,397			47,029			-
Inventory			500			-
Prepaid expenses			45,000			487,083
Total current assets			423,807			550,369
Furniture and fixtures, net			2,491			-
Other assets
Intangible assets, net			2,513,938			-
Deposits			5,585			15,000
Investments - available for sale			314			-
Total other assets			2,519,837			15,000
Total assets		$	2,946,135		$	565,369
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and accrued expenses		$	1,494,228		$	1,341,279
Due to related parties			1,700			10,790
Convertible notes payable - net of unamortized discount of $177,198			257,802			-
Total current liabilities			1,753,730			1,352,069
Commitments and contingencies			-			-
Stockholders' equity (deficit)
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none outstanding			-			-
Common stock, $0.001 par value, 300,000,000 shares authorized; 124,910,426 and 62,069,672 shares issued and outstanding			124,911			62,070
Additional paid in capital			21,419,050			12,002,614
Common stock payable			8,625			8,625
Other comprehensive loss			(2,821)			-
Accumulated deficit			(20,357,360)			(12,860,009)
Total stockholders' equity (deficit)			1,192,405			(786,700)
Total liabilities and stockholders' equity (deficit)		$	2,946,135		$	565,369

 

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

 

 

 

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Revenue		$	373,737		$	-		$	416,051		$	-
Cost of revenue			215,230			-			235,620			-
Gross profit			158,507			-			180,431			-
Operating expenses
Stock compensation expense			868,899			316,721			3,123,079			937,759
Legal and professional fees			339,713			172,004			1,357,412			549,967
Executive compensation			47,333			58,150			318,805			177,440
Research and development			8,635			-			217,137			-
General and administrative expenses			995,347			63,231			2,264,538			173,672
Impairment of intangibles			-			-			342,610			-
Total operating expenses			2,259,927			610,106			7,623,581			1,838,838
Loss from operations			(2,101,420)			(610,106)			(7,443,150)			(1,838,838)
Other (income) expenses
Loss (gain) on extinguishment of debt			-			224,969			(15,988)			224,969
Interest expense			16,497			25,099			70,189			61,629
Total other (income) expenses			16,497			250,068			54,201			286,598
Net loss		$	(2,117,917)		$	(860,174)		$	(7,497,351)		$	(2,125,436)
Net loss per common share - basic and diluted		$	(0.02)		$	(0.02)		$	(0.08)		$	(0.05)
Weighted average number of common shares outstanding - basic and diluted			100,188,737			50,534,583			88,916,495			46,878,967

 

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

 

 

 

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Net loss		$	(2,117,917)		$	(860,174)		$	(7,497,351)		$	(2,125,436)
Unrealized holding gain (loss) on available-for-sale securities			(940)			-			(2,821)			-
Comprehensive loss		$	(2,118,857)		$	(860,174)		$	(7,500,172)		$	(2,125,436)

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

		Nine Months Ended
		September 30,
		2013			2012
Cash flows from operating activities:
Net loss		$	(7,497,351)		$	(2,125,436)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			49,572			-
Impairment of intangibles			342,610			-
Common stock issued for services/interest			4,889,633			937,759
Amortization of deferred financing cost			24,397			-
Amortization of debt discount on notes payable			247,043			2,500
Loss (gain) on extinguishment of debt			(15,988)			224,969
Non-cash interest expense			-			36,439
Change in operating assets and liabilities:
Accounts receivable			(254,266)			-
Inventory			(500)			-
Prepaid expenses, deposits and other			403,969			34,472
Accounts payable and accrued expenses			142,159			226,287
Due to related parties			(9,090)			2,528
Net cash flows used in operating activities			(1,677,812)			(660,482)
Cash flows from investing activities:
Loan to targeted merger candidate			-			(79,000)
Purchase of property and equipment			(2,491)			-
Net cash flows used in investing activities			(2,491)			(79,000)
Cash flows from financing activities:
Book overdraft			-			(382)
Proceeds from short term advances			116,200			32,000
Payments of short term advances			(116,200)			(39,300)
Proceeds from convertible note			466,500			107,300
Proceeds from issuance of common stock			1,195,000			940,000
Net cash flows provided by financing activities			1,661,500			1,039,618
Net increase (decrease) in cash			(18,803)			300,136
Cash and cash equivalents, beginning of period			63,286			-
Cash and cash equivalents, end of period		$	44,483		$	300,136
Supplemental cash flow disclosures:
Interest paid		$	-		$	-
Income taxes paid		$	-		$	-
Supplemental non-cash investing and financing activities:
Increase (decrease) in prepaid common stock compensation		$	(442,083)		$	34,245
Unrealized loss on available for sale investments		$	2,821		$	-
Discount on convertible notes		$	424,600		$	-
Warrants issued for deferred financing cost		$	75,955		$	-
Common stock issued for merger/acquisition consideration		$	2,778,438			-
Common stock issued to satisfy accounts payable		$	323,510		$	-
Common stock issued for cash-less warrant exercise		$	2,875		$	-

 

The accompanying notes are an integral part of these financial statements

 

 

 

 

Note 1 – Organization and Nature of Business

 

Adaptive Medias, Inc. f/k/a Mimvi, Inc. (“the Company”) was formed on August 7, 2007 under the laws of the State of Nevada. The Company, through its core content monetization platform and technology, provides app developers, publishers and video content developers one of the only end-to-end monetization platforms driven by programmatic algorithms. The Company provides these unique capabilities to monetize content efficiently across multiple marketing channels, including mobile, video and online display advertising.

 

Pursuant to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company’s emphasis on providing a supply-side platform for mobile, video and online display advertising. In connection with the name change, effective on November 6, 2013, the Company’s ticker symbol was changed to ADTM. The Definitive Schedule 14C filed by the Company on October 7, 2013 incorrectly identified the Company’s new name as “Adaptive Media, Inc.”, a scrivener’s error.

 

The Company’s wholly-owned subsidiary, Adaptive Media, Inc. (“Adaptive Media”) is a programmatic audience and content monetization company for website owners, app developers and video publishers who want to more effectively optimize content through advertising. The company provides a foundation for publishers and developers looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across multiple devices. Adaptive Media meets the needs of its publishers with an emphasis on maintaining user experience, while delivering timely and relevant ads through its multi-channel ad delivery and content platform.

 

 

On August 6, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Wolf Acquisition Corporation, a California corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Lone Wolf, Inc., a California corporation (“Lone Wolf”), Eric Rice and DFM Agency, LLC, (the “Principal Shareholders”) and Eric Rice solely in his capacity as the shareholder representative under the Merger Agreement (the “Shareholders’ Representative”). The Merger Agreement provided for the merger of Merger Sub with and into Lone Wolf (the “Merger”), with Lone Wolf surviving the Merger as a wholly-owned subsidiary of the Company. On December 28, 2012 the Company, Merger Sub, Lone Wolf, the Principal Shareholders and the Shareholders’ Representative entered into an Amendment No. 1 to the Merger Agreement for the purpose of, among other things, (i) reducing the number of shares issuable in the merger to a maximum of 850,000 shares of the Company’s common stock, less a number of shares of the Company’s common stock equal to the amount of the outstanding debt of Lone Wolf and unpaid transaction expenses; and (ii) reducing the number of Escrow Shares to 200,000. The Amendment and the transactions contemplated thereby were approved by the Company’s Board of Directors on December 28, 2012.

 

On January 7, 2013, Merger Sub was merged with and into Lone Wolf and became a wholly-owned subsidiary of the Company. On January 7, 2013, , (i) each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time was automatically converted into one share of common stock of Lone Wolf; and (ii) each share of common stock of Lone Wolf was canceled and converted automatically into the right to receive approximately 0.0530908 per share of the Company’s common shares.

 

As of September 30, 2013, all of the common shares for the merger consideration have been issued.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of merger and the allocation of the purchase price to the fair value of net assets acquired:

 

Cash		$	6,057
Accounts receivable, net			5,000
Investments – available for sale			3,135
Intangible assets			342,610
Accounts payable and accrued liabilities			(90,866)
Total purchase price – allocated		$	265,936

 

 

 

 

On July 2, 2013, the Company entered into an Agreement whereby it acquired Adaptive Media as a wholly owned subsidiary.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the allocation of the purchase price to the fair value of net assets acquired:

 

 

 

The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of September 30, 2013, the Company has continued to raise funds through the sale of its equity securities to obtain additional operating capital. The Company is dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing until the Company can earn revenue and realize positive cash flow from its operations. There are no assurances that the Company will be successful in earning revenue and realizing positive cash flow from its operations. Without sufficient financing it would be unlikely that the Company will continue as a going concern. Based on the Company’s current rate of cash outflows, cash on hand and proceeds from the recent sale of equity securities, management believes that its current cash will not be sufficient to meet the anticipated cash needs for working capital through December 31, 2013.

 

The Company’s plans with respect to its liquidity issues include, but are not limited to, the following:

 

 

 

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and achieve profitable operations. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States, and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly represent the financial position, results of operations and cash flows of the Company as of and for the periods ended September 30, 2013 and 2012. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The consolidated financial statements should be read in conjunction with the financial statements included in the Form 10-K for the year ended December 31, 2012. The December 31, 2012 balance sheet data contained herein was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

 

 

 

Principles of Consolidation

 

The consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated as a result of consolidation.

 

Reclassifications

 

Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented.

  

Operating Segments

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the segment. The Company operates as one segment.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.

 

Cash and cash equivalents

 

For purposes of the consolidated statements of cash flows, the Company considers highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2013 and December 31, 2012, the Company had no cash equivalents.

 

Revenue Recognition

 

The Company recognizes revenue when four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. Cost of products sold consists of the cost of the purchased goods and labor related to the corresponding sales transaction. When a right of return exists, the Company defers revenues until the right of return expires. The Company recognizes revenue from services at the time the services are completed.

 

Accounts Receivable

 

Accounts receivable are recognized and stated at the original invoices amount less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer's willingness or ability to pay. Accounts with outstanding balances longer than the payment terms are considered past due. The Company writes off trade receivables when it determines that they have become uncollectible. Bad debt expense is reflected as a component of general and administrative expenses in the consolidated statements of operations.

 

Property and Equipment

 

Property and equipment is stated at cost. The Company provides depreciation on the cost of its equipment using the straight-line method over an estimated useful life of five years and zero salvage value. Expenditures for repairs and maintenance are charged to expense as incurred.

 

Research and Development Costs

 

Research and development costs are charged to expense when incurred. Research and development includes costs such as contracted license agreement fees with no alternative future use, salaries, wages and software engineering consulting fees. Purchased in-process research and development expense represents the value assigned or paid for acquired research and development for which there is no alternative future use as of the date of acquisition.

 

Net Loss per Share

 

The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potentially dilutive securities. For the three and nine months ended September 30, 2013 and 2012, potentially dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net loss per common share. These securities included warrants of 34,928,752 as of September 30, 2013 and stock options of 13,800,208 as of September 30, 2013; none as of September 30, 2012. 

 

 

 

Fair Value of Financial Instruments

 

The Company had adopted the framework for measuring fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).

 

The three levels of inputs that may be used to measure fair value are as follows:

 

 

Cash, other current assets, accounts payable and other accrued liabilities, are reflected in the consolidated balance sheets at their estimated fair values primarily due to their short-term nature. As to notes payable, estimated fair values are based on borrowing rates currently available to the Company for loans with similar terms and maturities.

 

		As of September 30, 2013
								Fair Value Measurements Using:
		Carrying Amount			Total Fair Value			Quoted Prices in Active Markets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Investments - available for sale		$	314		$	314		$	314		$	-		$	-

 

Intangible Assets 

 

Intangible assets consisting of websites, customer lists, developed technology and trade names and are stated at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. 

 

Amortization is computed primarily on the straight-line method for financial statement purposes over their estimated useful lives ranging from three to 10 years. Estimated useful lives will vary based on the nature of the intangible asset. 

 

Intangible assets – Goodwill

 

The Company's goodwill associated with its acquisitions is not amortized. Management reviews goodwill for impairment at least on an annual basis and at other times when existing conditions raise substantial questions about their recoverability. An impairment charge is recognized in the period which management determines that the assets are impaired. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

    

Provision for Taxes

 

The Company accounts for its income taxes under the asset and liability method which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

 

Stock Based Compensation

 

The Company recognizes stock-based compensation for all share-based payment awards made to employees, including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan, based on the estimated fair values.

 

 

 

Non-employee stock-based compensation is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable. The fair value of options granted are estimated on the date of each grant using the Black-Scholes option pricing model and amortized ratably over the options’ vesting periods, which approximate the service period.

 

Recently Issued Accounting Pronouncements

 

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on the Company’s  consolidated financial position, operations or cash flows.

Note 3 – Intangible Assets

 

The following table summarizes the intangible assets the Company has as of September 30, 2013 and December 31, 2012:

 

		Useful		September 30,			December 31.
		Lives		2013			2012
Websites		10 years		$	11,296		$	-
Customer lists		3 years			306,505			-
Developed technology		3 years			174,415			-
Trade names		3 years			85,607			-
					577,823			-
Less: accumulated amortization					(49,572)			-
Identifiable intangibles, net					528,251			-
Goodwill					1,985,687			-
Intangible assets, net				$	2,513,938		$	-

 

For the three and nine months ended September 30, 2013, the amortization for intangible assets was $49,572.

 

The Company determined that the intangible assets associated with the Lone Wolf transaction were fully impaired and $342,610 was recognized as impairment of intangibles in the consolidated statements of operations for the nine-month period ended September 30, 2013.

Note 4 – Income Taxes

 

The Company had net operating losses (NOLs) as of September 30, 2013 of approximately $8,400,000 for federal tax purposes, portions of which are currently expiring each year through 2032. The Company may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carry-forwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC Section 382 analysis, it is possible that the utilization of the NOLs could be substantially limited. The Company has no tax provision for the three and nine-month periods ended September 30, 2013 and 2012 due to losses and full valuation allowances against net deferred tax assets.

Note 5 – Investment Securities - Available For Sale

 

As of September 30, 2013, investment securities available for sale were $314 consisting of publicly traded equity securities that were acquired as part of the merger in January 2013.  They are recorded at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in other comprehensive loss.

 

Investment securities available for sale are evaluated periodically to determine whether a decline in their value is other than temporary.  The term “other than temporary” is not intended to indicate a permanent decline in value.  Rather, it means that the prospects for near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security.  Management reviews criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary.  Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

 

 

 

As of September 30, 2013, the following is a summary of the cost, fair value and unrealized losses on the Company’s investment securities: 

 

Note 6 – Notes Payable

 

During the nine months ended September 30, 2013, the Company entered into notes payable with terms as follows:

 

Convertible Notes 

 

On May 21, 2013, the Company entered into a convertible note agreement for a principal amount of $425,000 with an original issue discount of $25,000, a legal fee payment requirement of $5,000 and a placement agent fee of $32,000 for net proceeds of $363,000. A portion of the placement agent fee was paid through the issuance of 660,000 warrants to purchase common stock of the Company. The value of these warrants was estimated at $74,955 using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years.

 

The maturity date is December 31, 2013 with an annual interest rate of 8%. At any time after the issuance date until the note is no longer outstanding, this note is convertible, in whole or in part, into 4,250,000 shares of common stock of the Company at a per share price of $0.10, at the option of the holder subject to certain conversion limitations. Concurrently with the issuance of such note, the holder was granted a warrant to purchase 4,000,000 shares of the Company’s common stock with a strike price of $0.25, subject to certain potential adjustments to the strike price and including a cash-less exercise provision. Note this has been adjusted to $.075 on 9/17/13. The fair value of these warrants was estimated at $222,221 using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years.

 

On May 15, 2013, the Company entered into an unsecured convertible note agreement with a principal amount of $75,000 and paid financing fees of $4,000 for net proceeds of $71,000. The maturity date was September 1, 2013 with an annual interest rate of 10%. As of September 30, 2013, this note was paid in-full.

 

On June 14, 2013, the Company entered into a convertible note agreement with a principal amount of $35,000 and paid financing fees of $2,500 for net proceeds of $32,500. The maturity date of this note was July 1, 2013 with an annual interest of 10%. On July 1, 2013, this note was paid in-full.

 

The respective discounts are being amortized over the period from the commitment date until the notes become convertible by the holder. The details are as follows:

 

Face value of the convertible notes payable		$	460,000
Less: original issue discount			(25,000)
Less: discount related to conversion feature			(202,379)
Less: value attributed to warrants			(222,221)
Add: amortization of debt discount			247,402
Carrying value of notes as of September 30, 2013		$	257,802

 

Short-Term Advances

 

During the nine months ended September 30, 2013, the Company received $41,200 short-term advances from two parties with no formal payment arrangements and no interest requirements. As of September 30, 2013, the $41,200 had been paid in-full.

 

For the three and nine months ended September 30, 2013, $16,497 and $25,099, respectively, was recorded as interest expense. For the three and nine months ended September 30, 2012, $70,189 and $61,629, respectively, was recorded as interest expense.

 

 

As of September 30, 2013, the Company had no preferred shares outstanding. The Company's articles of incorporation authorize the Company to issue up to 50,000,000 shares of $0.001 par, preferred shares having preferences to be determined by the Board of Directors for dividends, and liquidation of the Company's assets.

 

 

 

 

As of September 30, 2013, the Company has 300,000,000, $0.001 par value, shares of common stock authorized. The holders are entitled to one vote for each share on matters submitted to a vote to shareholders, and to share pro rata in all dividends payable on common stock after payment of dividends on any preferred shares having preference in payment of dividends.

 

 

 

On January 3, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $35,000 or $0.35 per share.

 

On January 7, 2013, the Company entered into a series of transactions with consultants to the Company as follows:

 

The Company entered into two separate settlement agreements with consultants. After the consummation of such settlement agreements; the consultants hold 3,166,667 warrants to purchase common stock of the Company at a per share price of $0.10.

 

The Company issued 2,875,000 shares of its common stock to two consultants in a cash-less exercise of warrants issued to them in January 2010.

 

The Company issued a warrant for the right to purchase 1,500,000 common shares at a per share price of $0.10 as consideration for the issuance and immediate exercise of the 2,000,000 warrants below.

 

The Company issued a warrant for the right to purchase 2,000,000 common shares at a per share price of $0.10. Immediately upon the grant of this warrant, the consultant exercised the warrant and the Company issued 2,000,000 common shares in exchange for $200,000.

 

On January 14, 2013, the Company issued and sold 125,000 shares of its common stock to an accredited investor for an aggregate purchase price of $25,000 or $0.20 per share.

 

On January 22, 2013, the Company issued and sold 250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $50,000 or $0.20 per share.

 

On January 29, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $34,000 or $0.34 per share.

  

On February 6, 2013, the Company issued 750,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $210,000 or $0.28 per share.

 

On February 8, 2013, the Company issued and sold 250,000 shares of its common stock to an accredited investor for an aggregate purchase price of $50,000 or $0.20 per share.

 

On March 1, 2013, the Company issued 367,865 shares of its common stock with a fair value of $108,526, or $0.30 per share, to settle an outstanding payable of $74,759 recognizing a loss on debt settlement of $33,767.

 

On March 1, 2013, the Company issued 180,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $50,400 or $0.28 per share.

 

On March 5, 2013, the Company issued and sold 250,000 shares of its common stock to an accredited investor for an aggregate purchase price of $25,000 or $0.20 per share. 

 

On March 7, 2013, the Company issued and sold 300,000 shares of its common stock to an accredited investor for an aggregate purchase price of $60,000 or $0.20 per share.

 

On March 15, 2013, the Company issued and sold 750,000 shares of its common stock to an accredited investor for an aggregate purchase price of $75,000 or $0.10 per share.

 

On April 1, 2013, the Company issued 83,333 shares of its common stock to a consultant in exchange for services rendered with a fair value of $15,833 or $0.19 per share.

 

On March 31, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $18,000 or $0.18 per share.

 

On April 1, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $19,000 or $0.19 per share.

 

On April 1, 2013, the Company issued 83,333 shares of its common stock to a consultant in exchange for services rendered with a fair value of $15,833 or $0.19 per share.

 

 

 

On April 3, 2013, the Company issued and sold 500,000 shares of its common stock to three accredited investors for an aggregate purchase price of $50,000 or $0.10 per share.

 

On April 4, 2013, the Company issued and sold 250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $25,000 or $0.10 per share.

 

On April 5, 2013, the Company issued and sold 150,000 shares of its common stock to one accredited investor for an aggregate purchase price of $15,000 or $0.10 per share.

 

On April 9, 2013, the Company issued 610,174 shares of its common stock to a vendor to satisfy a partial amount of the outstanding balance with a fair value of $128,137 or $0.21 per share.

 

On April 10, 2013, the Company issued and sold 1,500,000 shares of its common stock to one accredited investor for an aggregate purchase price of $150,000 or $0.10 per share.

 

On April 9, 2013, the Company issued and sold 1,250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $125,000 or $0.10 per share.

 

On April 19, 2013, the Company issued 60,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $9,600 or $0.16 per share.

 

On April 30, 2013, the Company issued 120,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $14,400 or $0.12 per share.

 

On April 30, 2013, the Company issued 83,333 shares of its common stock to a consultant in exchange for services rendered with a fair value of $10,000 or $0.12 per share.

 

On May 1, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $13,000 or $0.13 per share.

 

On May 3, 2013, the Company issued 517,242 shares of its common stock in exchange for this settlement agreement with a fair value of $75,000. The Crone Law Group filed a claim against the Company on November 19, 2012, alleging breach of contract, account stated, quantum meruit and fraud, and seeking damages of $123,062, plus punitive damages, relating to allegedly unpaid legal fees. On December 26, 2012, Company filed a cross-claim against Mark Crone, dba Crone Law Group, for breach of duty, declaratory judgment and unjust enrichment. The matter was subsequently settled on May 3, 2013 with the Company agreeing to issue a total of 517,242 shares of its common stock valued at $75,000, or $0.145 per share, based on the fair value of the stock on May 3, 2013.

 

On May 8, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $13,000 or $0.13 per share.

 

On May 31, 2013, the Company issued 180,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $21,600 or $0.12 per share.

 

On May 31, 2013, the Company issued 50,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $6,000 or $0.12 per share.

 

On June 3, 2013, the Company issued 100,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $12,000 or $0.12 per share.

 

On June 7, 2013, the Company issued 208,333 shares of its common stock to a consultant in exchange for services rendered with a fair value of $25,000 or $0.12 per share.

 

On June 10, 2013, the Company issued 83,333 shares of its common stock to a consultant in exchange for services rendered with a fair value of $10,000 or $0.12 per share.

 

On June 20, 2013, the Company issued 290,000 shares of its common stock to a consultant in exchange for the settlement of outstanding accounts payable with a fair value of $34,800 or $0.12 per share.

 

On June 20, 2013, the Company issued 184,794 shares of its common stock to a consultant in exchange for services rendered with a fair value of $17,925 or $0.097 per share.

 

On June 25, 2013, the Company issued 46,053 shares of its common stock to a consultant in exchange for services rendered with a fair value of $3,684 or $0.08 per share.

 

 

On June 26, 2013, the Company issued 542,651 shares of its common stock to the Company’s law firm in exchange for services rendered with a fair value of $43,412 or $0.08 per share, however, the law firm will not issue a credit on their respective invoices until the shares are sold. As of September 30, 2013, the $43,412 is being recorded as a reduction of accounts payable.

 

On June 30, 2013, the Company issued 328,500 shares of its common stock to five consultants in exchange for services rendered with a fair value of $25,480 or $0.08 per share.

 

In June 2013, the Company issued 530,899 shares of its common stock effective January 7, 2013 for the Lone Wolf merger consideration with a fair value of $265,938 in accordance with the merger agreement of which 200,000 shares are being held in escrow by the transfer agent as of September 30, 2013.

 

On July 01, 2013, the Company issued and sold 1,333,334 shares of its common stock to one accredited investor for an aggregate purchase price of $100,000 or $0.075 per share.

 

On July 01, 2013, the Company issued 226,835 shares of its common stock to two consultants in exchange for services rendered with a fair value of $18,111 or $0.08 per share.

 

In July 2013, the Company issued 33,500,000 shares of its common stock for the Adaptive Media transaction consideration with a fair value of $2,512,000 or $.075 in accordance with the purchase agreement.

 

On July 02, 2013, the Company issued 500,000 shares of its common stock to the Company’s former CEO in settlement of his employment agreement with a fair value of $40,000 or $0.08 per share.

 

On July 12, 2013, the Company issued and sold 666,667 shares of its common stock to one accredited investor for an aggregate purchase price of $50,000 or $0.075 per share.

 

On July 15, 2013, the Company issued and sold 2,333,335 shares of its common stock to three accredited investors for an aggregate purchase price of $175,000 or $0.075 per share.

 

On July 17, 2013, the Company issued 60,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $4,800 or $0.08 per share.

 

On July 23, 2013, the Company issued 100,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $11,000 or $0.11 per share.

 

On July 24, 2013, the Company issued 50,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $5,500 or $0.11 per share.

 

On July 31, 2013, the Company issued 401,250 shares of its common stock to four consultants in exchange for services rendered with a fair value of $32,100 or $0.08 per share.

 

On August 14, 2013, the Company issued 50,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $4,000 or $0.08 per share.

 

On August 15, 2013, the Company issued 100,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $8,000 or $0.08 per share.

 

On August 01, 2013, the Company issued 160,000 shares of its common stock to two consultants in exchange for services rendered with a fair value of $12,800 or $0.08 per share.

 

On August 24, 2013, the Company issued 125,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $10,000 or $0.08 per share.

 

On August 26, 2013, the Company issued and sold 4,000,000 shares of its common stock to two accredited investors for an aggregate purchase price of $300,000 or $0.075 per share.

 

On August 30, 2013, the Company issued 125,523 shares of its common stock to one consultant in exchange for services rendered with a fair value of $8,787 or $0.07 per share.

 

On August 30, 2013, the Company issued 60,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $4,200 or $0.07 per share.

 

On September 1, 2013, the Company issued 100,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $7,000 or $0.07 per share.

 

On September 12, 2013, the Company issued 75,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $6,000 or $0.08 per share.

 

On September 26, 2013, the Company issued 167,750 shares of its common stock to one consultant in exchange for services rendered with a fair value of $20,250 or $0.12 per share.

 

On September 20, 2013, the Company issued 600,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $54,000 or $0.09 per share.

 

During the nine months ended September 30, 2013, all of the stock purchase agreements wherein the Company sold and issued common shares to accredited investors provided for warrants to purchase common stock of the Company with various strike prices, at 100% warrant coverage.

 

 

 

 

On January 24, 2012, the Company issued 20,000 shares of its common stock for interest to a note holder with a fair value of $1,800.

 

On February 1, 2012, the Company issued 50,000 shares of its common stock for interest to a note holder with a fair value of $3,500.

 

On March 12, 2012, the Company issued 2,500,000 shares of its common stock to one accredited investor in exchange for an aggregate purchase price of $250,000. In addition, the investor was granted a warrant to purchase 2,500,000 shares of the Company’s common stock at $0.25 per share.

 

On March 12, 2012, the Company issued 800,000 shares of its common stock to the CEO of the Company in exchange for services rendered with a fair value of $73,600.

 

On March 12, 2012, the Company issued 250,000 shares of its common stock to a consultant in exchange for services to be rendered with a fair value of $142,500. These shares are to be earned ratably over a nine month period subject to forfeiture. An adjustment will be made on a quarterly basis going forward in order to recognize their fair value. As of September 30, 2012, $39,490 was recorded as stock compensation expense.

 

On March 28, 2012, the Company issued 50,000 shares of its common stock to a consultant in exchange for services rendered with a fair value of $25,000.

 

On March 28, 2012, the Company issued 50,000 shares of its common stock to an employee as a bonus in 2012 with a fair value of $25,000.

 

On May 1, 2012, the Company issued and sold 25,000 shares of its common stock to one accredited investor for an aggregate purchase price of $2,500.

 

On May 18, 2012, the Company issued 200,000 shares of its common stock to a consultant for consideration of an extension for payment of accounts payable with a fair value of $56,000.

 

On May 21, 2012, the Company issued and sold 500,000 shares of its common stock to one accredited investor for an aggregate purchase price of $50,000. In addition, the investor was granted a warrant to purchase 500,000 shares of the Company’s common stock at $0.25 per share.

 

On September 8, 2012, the Company issued 10,000 shares of its common stock to a note holder for consideration of extending the due date through September 2012. The total value of $2,250 has been recorded as interest expense as of September 30, 2012.

 

On September 18, 2012, the Company issued 15,000 shares of its common stock to a note holder for consideration of extending the due date through September 2012. The total value of $3,450 has been recorded as interest expense as of September 30, 2012.

 

During the nine months ended September 30, 2012, all of the stock purchase agreements wherein the Company sold and issued common shares to accredited investors provided for warrants to purchase common stock of the Company with various strike prices, at 100% warrant coverage.

 

 

The Company's 2010 Stock Incentive Plan, as amended and restated effective October 5, 2012 (the “Plan”), provides for the grant of options to purchase shares of common stock, restricted stock, stock appreciation rights (“SARs”) and restricted stock units (rights to receive, in cash or stock, the market value of one share of common stock). Incentive stock options (“ISOs”) may be granted only to employees. Nonstatutory stock options and other stock-based awards may be granted to officers, employees, non-employee directors and consultants.

 

As of September 30, 2013, 15,000,000 shares of the Company’s common stock have been authorized for issuance under the Plan of which 1,199,792 shares were available for future grant. Shares authorized under the Plan will be available for issuance pursuant to options or awards granted under the Plan. The Company’s Board of Directors administers the Plan, selects the individuals to whom options will be granted, determines the number of options to be granted, and the term and exercise price of each option. Stock options granted pursuant to the terms of the Plan generally cannot be granted with an exercise price of less than 100% of the fair market value on the date of the grant. The term of the options granted under the Plan cannot be greater than 10 years. Options vest at varying rates generally over three to five years along with performance based options.

 

 

The Company’s Board of Directors adopted the 2013 Consultant Stock Plan (the “2013 Plan”) on February 5, 2013 and reserved 2,000,000 shares of the Company’s common stock for issuance thereunder. On February 26, 2013, the Company registered the shares issuable under the 2013 Consultant Stock Plan on a Form S-8 Registration Statement as filed with the SEC.

 

 

 

 

The following table reflects warrant activity during the nine months ended September 30, 2013:

 

		Warrants for			Weighted
		Common Shares			Average Exercise Price
Outstanding as of December 31, 2012			17,240,000		$	0.33
Granted			28,478,752			0.15
Exercised – cash			(2,000,000)			0.10
Exercised - cash-less exercise			(2,875,000)			0.10
Forfeited, cancelled, expired			(5,915,000)			0.33
Outstanding and exercisable as of September 30, 2013			34,928,752		$	0.19

 

For the nine months ended September 30, 2013, the Company issued 28,478,752 warrants to purchase its common stock and recorded deferred financing cost for 660,000 warrants of $4,955 and debt discount of $222,221 for 4,000,000 warrants using the Black-Scholes option pricing model based upon the following assumptions: term of 3 years, risk free interest rate ranging from 3.90% a dividend yield of 0% and a volatility rate of 400%. The remaining warrants were issued with the sale of common stock.

 

The following table reflects warrant activity during the nine months ended September 30, 2012:

 

		Warrants for			Weighted
		Common Shares			Average Exercise Price
Outstanding as of December 31, 2011			5,000,000		$	0.50
Granted			11,850,000			0.29
Exercised – cash			-			-
Exercised - cash-less exercise			-			-
Forfeited, cancelled, expired			-			-
Outstanding and exercisable as of September 30, 2012			16,850,000		$	0.35

 

Stock Option Plans

 

The following table reflects the option activity during the nine months ended September 30, 2013:

 

		Options for			Weighted
		Common Shares			Average Exercise Price
Outstanding as of December 31, 2012			10,345,000		$	0.42
Granted			15,765,000			0.11
Exercised			(300,000)			0.20
Forfeited, cancelled, expired			(12,009,792)			0.31
Outstanding and exercisable as of September 30, 2013			13,800,208		$	0.17

 

For the nine months ended September 30, 2013, the Company issued 15,765,000 options to purchase its common stock while recording stock compensation expense for all of the options of $3,123,079 using the Black-Scholes option pricing model based upon the following assumptions: term of 3-5 years, risk free interest rate ranging from 0.07% ~ $0.75%, a dividend yield of 0% and a volatility rate of 400%.

 

The following table reflects the option activity during the nine months ended September 30, 2012:

 

		Options for			Weighted
		Common Shares			Average Exercise Price
Outstanding as of December 31, 2011			7,187,500		$	0.45
Granted			600,000			0.17
Exercised			-			-
Forfeited, cancelled, expired			-			-
Outstanding and exercisable as of September 30, 2012			7,787,500		$	0.43

 

As approved by the Board of Directors, on November 3, 2010, the Company granted 7,187,500 stock options to certain officers and consultants of the Company at $0.45 per share.  The term of these options are ten years. A total of 3,750,000 stock options valued at $1,632,810 vested immediately and 3,437,500 valued at $1,496,743 vest quarterly over a four year period.

 

For the nine months ended September 30, 2012, the Company issued 250,000 options to purchase its common stock while recording stock compensation expense for all of the options of $937,759.

 

 

 

The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: estimated expected life of 5 years; risk free interest rate of 1.11%; dividend yield of 0% and expected volatility of 164%.

 

 

As of September 30, 2013, the Company leases office space in Irvine, California, on a yearly basis and subleases office space in Manhattan Beach, California on a month-to-month basis. The current combined month rent is approximately $3,000 per month.

 

Prior to this, the Company leased two offices under signed lease agreements located in Sunnyvale, California and Westlake Village, California. The monthly rental payments under the agreements were approximately $4,188.

 

The office lease in Sunnyvale, California expired in September 2013. As of September 30, 2013, the total commitment on this office lease is $0. The Company did not renew this lease agreement.

 

The office lease in Westlake Village, California was scheduled to expire in December 2014 and did not include a cancellation clause. As of September 30, 2013, the total commitment on this office lease is $0 because in July 2013, the Company vacated the premises and settled with the landlord for $21,800, which is reflected as rent expense in the consolidated statements of operations for the three and nine months ended September 30, 2013.

 

For the three and nine months ended September 30, 2013 rent expense was $41,559 and $71,886, respectively. For the three and nine months ended September 30, 2012, rent expense was $1,525 and $5,394, respectively.

 

 

The Company has been threatened with legal action by Felix Chan, who formerly had an independent contractor relationship with the Company. Chan asserts that the Company is obliged to pay him $171,000 for services as an independent contractor. No claim has been filed, and the parties are engaging in settlement discussions. The Company intends to vigorously defend any claim filed on this matter.

 

In July 2013, the Company was threatened with legal action by Eric Rice, a former employee who claims to be entitled to payment of $90,000. The Company denies that it has any obligation. A claim was filed in Los Angeles Superior Court in September 2013. The Company intends to vigorously defend this claim, and has notified Mr. Rice that it intends to file a counter-claim related to a prior transaction in which Mr. Rice was involved.

On July 29, 2013, the Company was named as a defendant, along with two individuals, including Kasian Franks, who owns more than five percent of the outstanding common shares of Company, in a lawsuit filed by Khoi Senderowicz in Alameda County Superior Court. The suit alleges breach of an oral lease, and damages to property. The plaintiff seeks damages of $381,887. The Company believes that this a private landlord-tenant dispute between Khoi Senderowicz and Kasian Franks and intends to defend the claim vigorously. Discovery has not yet commenced.

 

The Company does not believe the ultimate outcome of these proceedings will have a material adverse impact on the Company’s consolidated financial statements.

 

 

In July 2013, several Mimvi employees who were under employment agreements were terminated.

On July 15, 2013, a separation agreement was reached with one former employee to include a $30,000 severance payable in nine payments of $5,000 from August 2, 2013 to October 16, 2013. On July 24, 2013, the Company issued 50,000 shares of its common stock as part of this separation agreement with a fair value of $5,500 or $0.11 per share. The agreement includes an extension of the deadline to exercise the 500,000 vested stock options granted on February 5, 2013 at a strike price of $0.30 per share until December 31, 2014. Concurrently with the execution of the separation agreement, the parties entered into a two-month consulting agreement for total fees of $10,000.

 

On July 15, 2013, a separation agreement was reached with another former employee to include a $30,000 severance payable in nine payments of $5,000 from August 2, 2013 to October 16, 2013. On July 23, 2013, the Company issued 100,000 shares of its common stock as part of this separation agreement with a fair value of $11,000 or $0.11 per share. The agreement includes an extension of the deadline to exercise the 500,000 vested stock options granted on November 27, 2012 at a strike price of $0.38 per share and the 200,000 vested stock options granted on April 24, 2013 at a strike price of $0.15 per share until December 31, 2014. Concurrently with the execution of the separation agreement, the parties entered into a two-and-a-half month consulting agreement for total fees of $12,500.

 

 

 

In July 2013 the Company was threatened with legal action by Eric Rice, a former employee who claims to be entitled to payment of $90,000. The Company denies that it has any obligation. A claim was filed in Los Angeles Superior Court in September 2013. The Company intends to vigorously defend this claim, and has notified Mr. Rice that it intends to file a counter-claim related to a prior transaction in which Mr. Rice was involved.

 

On October 3, 2013, the Company issued 500,000 shares of its common stock with a fair value of $55,000 or $0.11 per share to one former employee in settlement of his employment agreement..

 

On October 3, 2013, the Company issued and sold 666,667 shares of its common stock to one accredited investor for an aggregate purchase price of $50,000 or $0.075 per share.

 

On October 7, 2013, the Company issued and sold 1,000,000 shares of its common stock to one accredited investor for an aggregate purchase price of $75,000 or $0.075 per share.

 

On October 7, 2013, the Company issued 1,850,000 shares of its common stock to two consultants in exchange for services rendered with a fair value of $203,500 or $0.11 per share.

 

On October 8, 2013, the Company issued 125,565 shares of its common stock to a former consultant in settlement of their outstanding accounts payable with a fair value of $15,068 or $0.12 per share.

 

On October 17, 2013, the Company issued 205,618 shares of its common stock to one consultant in exchange for services rendered with a fair value of $22,618 or $0.11 per share.

 

On October 17, 2013, the Company issued 100,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $11,000 or $0.11 per share.

 

On October 17, 2013, the Company issued and sold 3,400,000 shares of its common stock to one accredited investor for an aggregate purchase price of $255,000 or $0.075 per share.

 

On October 23, 2013, the Company issued 175,000 shares of its common stock to a vendor in settlement of their outstanding accounts payable with a fair value of $17,500 or $0.10 per share.

 

On October 24, 2013, the Company issued 200,000 shares of its common stock to a vendor in settlement of their outstanding accounts payable with a fair value of $20,000 or $0.10 per share.

 

On October 31, 2013, the Company issued 187,500 shares of its common stock to one consultant in exchange for services rendered with a fair value of $15,000 or $0.08 per share.

 

On November 04, 2013, the Company issued 200,000 shares of its common stock to one consultant in exchange for services rendered with a fair value of $20,000 or $0.10 per share.

 

 

	19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

  

Overview

 

Adaptive Medias, Inc. f/k/a Mimvi, Inc. (the “Company”) was formed on August 7, 2007 under the laws of the State of Nevada. The Company, through its core content monetization platform and technology, provides app developers, publishers and video content developers one of the only end-to-end monetization platforms driven by programmatic algorithms. The company provides these unique capabilities to monetize content efficiently across multiple marketing channels, including mobile, video and online display advertising.

 

Pursuant to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company’s emphasis on providing a supply-side platform for mobile, video and online display advertising. In connection with the name change, effective on November 6, 2013, the Company’s ticker symbol was changed to ADTM. The Definitive Schedule 14C filed by the Company on October 7, 2013 incorrectly identified the Company’s new name as “Adaptive Media, Inc.”, a scrivener’s error.

 

The Company’s wholly-owned subsidiary, Adaptive Media, Inc. (“Adaptive Media”) is a programmatic audience and content monetization company for website owners, app developers and video publishers who want to more effectively optimize content through advertising. The company provides a foundation for publishers and developers looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across multiple devices. Adaptive Media meets the needs of its publishers with an emphasis on maintaining user experience, while delivering timely and relevant ads through its multi-channel ad delivery and content platform.

For more information, please visit:  www.adaptivem.com. Follow us on Twitter at @adaptive_m.

On September 24, 2013, we announced the signing of a Letter of Intent to acquire of Ember, Inc. (“Ember”). Ember is focused on shifting TV ad budgets toward online video. Right now, there is limited transparency in online video. Advertisers know where their ads are going on TV, yet are reluctant to shift their budgets toward online video due to the lack of transparency. Ember has created fine-tuned machine learning algorithms, contextual and semantic engines to ensure brand safety, placement and stronger ROI, and a real-time bidding (RTB) platform to optimize ad spends. This acquisition is expected to close before December 31, 2013. For more information, please visit: http://www.goember.com/.

 

 

   

 

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. Reference is also made to the Critical Accounting Policies included in the 2012 Form 10-K. There were no changes in those policies through September 30, 2013.

 

 

 

For the nine months ended September 30, 2013, we realized revenue of $416,051 compared to $0 for the nine months ended September 30, 2012, an increase of $416,051 or 100%. The increase was primarily due to advertising revenue and the sale of mobile apps.

 

For the nine months ended September 30, 2013, we incurred of goods sold of $235,620 compared to $0 for the nine months ended September 30, 2012, an increase of $235,620 or 100%. The increase was primarily due to the costs of media buys and mobile app development costs.

 

For the nine months ended September 30, 2013, our operating expenses increased to $7,623,581 compared to $1,838,838 for the nine months ended September 30, 2012, an increase of $5,784,743 or 315%.

 

For the nine months ended September 30, 2013, stock compensation expense increased to $3,123,079 from $937,759 for the nine months ended September 30, 2012, an increase of $2,185,320 or 233%. The increase was substantially due the Company’s significant increase in its operations and the fair value of the options issued based on the Black Scholes Option Pricing Model, which were expensed primarily due to the issuance of options to certain former employees of Lone Wolf, Inc. under their respective employment agreements effective January 7, 2013, the date we closed the merger with Lone Wolf, Inc. and its shareholders. Plus, there were several options granted to the former employees and consultants of the Company.

 

For the nine months ended September 30, 2013, legal and professional fees increased to $1,357,412 from $549,967 in the nine months ended September 30, 2012, an increase of $807,445 or 147% primarily due to the change in outside law firms, the retention of in-house general counsel in 2012 and activity that required increased amounts of time from our legal counsel due to litigation, financing matters, legacy debt/equity issues, intellectual property and legal counsel for revenue agreements.

 

For the nine months ended September 30, 2013, the executive compensation that we incurred increased to $318,805 from $177,440 in the nine months ended September 30, 2012, an increase of $141,365 or 80% primarily due to full periods of compensation in 2013 for our CVO, CEO and CFO. Upon the acquisition of Adaptive Media, Inc., on July 2, 2013, our former CVO and CEO resigned. On August 16, 2013, our former CFO resigned.

 

For the nine months ended September 30, 2013, the research and development expense that we incurred increased to $217,137 from $0 in the nine months ended September 30, 2012, an increase of $217,137 or 100% primarily due to an increase in the software engineering expenses we incurred with our employees and consultants as we continued to develop our products.

 

 

 

For the nine months ended September 30, 2013, the general and administrative expenses including stock compensation that we issued in the form of stock, investor relations expenses, legal and professional fees, outsourced consulting services that we incurred increased to $2,264,538 from $173,672 in the nine months ended September 30, 2012, an increase of $2,090,866 or 1,204% primarily due to significant increase in our operations, specifically investor relations expenses, personnel expenses and other general and administrative expenses.

 

For the nine months ended September 30, 2013, the impairment of intangibles that we incurred increased to $342,610 from $0 or 100% from the nine months ended September 30, 2012 due to management’s impairment test completed as of June 30, 2013 for the intangibles acquired in the Lone Wolf acquisition wherein the value was determined to be $0.

 

For the nine months ended September 30, 2013, the (gain) loss on settlement of debt that we incurred increased to $(15,988) from $224,969 in the nine months ended September 30, 2012 primarily due to the fair value measurement of restricted common stock issued to vendors in satisfaction of their accounts payable.

 

For the nine months ended September 30, 2013, the interest expense that we incurred increased to $70,189 from $61,629 in the nine months ended September 30, 2012, an increase of $8,560 or 14% primarily due to the amortization of debt discounts as a result of the beneficial conversion feature on the convertible notes payable.

 

For the nine months ended September 30, 2013, we incurred a loss of $7,497,351 or $(0.08) basic and diluted loss per share compared to a loss of $2,125,436 or $(0.05) basic and diluted loss per share for the nine months ended September 30, 2012. The increase in the loss is described above in the detailed operating expenses.

 

 

 

For the three months ended September 30, 2013, we realized revenue of $373,737 compared to $0 for the three months ended September 30, 2012, an increase of $373,737 or 100%. The increase was primarily due to advertising revenue and the sale of mobile apps.

 

For the three months ended September 30, 2013, we incurred of goods sold of $215,230 compared to $0 for the three months ended September 30, 2012, an increase of $215,230 or 100%. The increase was primarily due to the costs of media buys and mobile app development costs.

 

For the three months ended September 30, 2013, our operating expenses increased to $2,258,668, compared to $610,106 for the three months ended September 30, 2012, an increase of $1,648,562 or 270%.

 

For the three months ended September 30, 2013, stock compensation expense increased to $868,899 from $316,721 in the three months ended September 30, 2012, an increase of $552,178 or 174%. The increase was substantially due the Company’s significant increase in its operations and the fair value of stock based compensation based on the Black Scholes Option Pricing Model, which were expensed due to the issuance of options to employees and consultants.

 

For the three months ended September 30, 2013, legal and professional fees increased to $339,713 from $172,004 in the three months ended September 30, 2012, an increase of $167,709 or 98% primarily due to the change in outside law firms, the retention of in-house general counsel in 2012 and activity that required increased amounts of time from our legal counsel due to litigation, financing matters, legacy debt/equity issues, intellectual property and legal counsel for revenue agreements.

 

For the three months ended September 30, 2013, the executive compensation that we incurred decreased to $47,333 from $58,150 in the three months ended September 30, 2012, a decrease of $10,817 or 19% primarily due to the acquisition of Adaptive Media, Inc., on July 2, 2013, whereby our former CVO and CEO resigned. On August 16, 2013, our former CFO resigned.

 

For the three months ended September 30, 2013, the research and development expense that we incurred increased to $8,635 from $0 in the three months ended September 30, 2012, an increase of $8,635 or 100% primarily due to an increase in software engineering expenses we incurred with our employees and consultants as we continued to develop our products.

 

For the three months ended September 30, 2013, the general and administrative expenses including stock compensation that we issued in the form of stock, legal and professional fees, and investor relations expense that we incurred increased to $995,347 from $63,231 in the three months ended September 30, 2012, an increase of $932,116 or 1,474% primarily due to the overall significant increase in our operations, specifically investor relations expenses, personnel expenses and other general/administrative expenses.

 

 

 

For the three months ended September 30, 2013, the (gain) loss on settlement of debt that we incurred decreased to $0 from $224,969 in the three months ended September 30, 2012 primarily due to the fair value measurement of restricted common stock issued to vendors in satisfaction of their accounts payable in 2012.

 

For the three months ended September 30, 2013, the interest expense that we incurred decreased to $16,497 from $25,099 in the three months ended September 30, 2012, a decrease of $8,602 or 34% primarily due to the amortization of debt discounts as a result of the beneficial conversion feature on the convertible notes payable.

  

 

For the three months ended September 30, 2013, we incurred a loss of $2,117,917 or $(.02) basic and diluted loss per share compared to a loss of $860,174 or $(0.02) basic and diluted loss per share for the three months ended September 30, 2012. The increase in the loss is described above in the detailed operating expenses.

  

 

 

As of September 30, 2013, we had total current assets of $423,807 consisting of $44,483 in cash, $254,266 in accounts receivable, other receivables of $32,529, deferred financing costs of $47,029 net of amortization of $71,427, inventory (media) of $500 and $45,000 in prepaid expenses.

 

We had total current liabilities of $1,753,730 consisting of accounts payable and accrued expenses of $1,494,228, due to related parties of $1,700 and notes payable of $257,802 net of an unamortized discount of $177,198.

 

During the nine months ended September 30, 2013, we raised $1,661,500 in equity and debt financing.

  

On May 21, 2013, the Company entered into a convertible note agreement for a principal amount of $425,000 with an original issue discount of $25,000, a legal fee payment requirement of $5,000 and a placement agent fee of $32,000 for net proceeds of $363,000. As part of the placement agent fee, 660,000 warrants, with a fair value of $74,955, were issued to purchase common stock of the Company. The value of these warrants was determined using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years. The maturity date is December 31, 2013 with an annual interest rate of 8%. At any time after the issuance date until this note is no longer outstanding, this note shall be convertible, in whole or in part, into 4,250,000 common stock of the Company at a per share price of $0.10 at the option of the holder subject to certain conversion limitations. Concurrent with the issuance, the holder was granted a warrant to purchase 4,000,000 shares of the Company’s common stock with strike price of $0.25 subject to certain potential adjustments to the strike price and including a cash-less exercise provision. The value of these warrants was determined using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years.

 

On May 15, 2013, the Company entered into an unsecured convertible note agreement with a principal amount of $75,000 and paid financing fees of $4,000 for net proceeds of $71,000. The maturity date was September 1, 2013 with an annual interest rate of 10%. As of September 30, 2013, this note was paid in-full.

 

On June 14, 2013, the Company entered into a convertible note agreement with a principal amount of $35,000 and paid financing fees of $2,500 for net proceeds of $32,500. The maturity date of this note is July 1, 2013 with an annual interest of 10%. As of September 30, 2013, this note was paid in-full.

 

We currently have limited funds to pay our currently due debts and liabilities. Should one or more of our creditors seek or demand payment, we are not likely to have the resources to pay or satisfy any such claims. Thus, we face risk of defaulting on our obligations to our creditors with consequential legal and other costs which would adversely impact our ability to continue our existence as a corporate enterprise.

 

Our insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy laws or state insolvency statutes. We also may face the risk that a receiver may be appointed. We face that risk and other risks resulting from our current financial condition.

 

For these and other reasons, we anticipate that unless we can obtain sufficient capital from an outside source and do so in the very near future, we may be unable to continue to operate as a corporation, continue to meet our filing obligations under the Securities Exchange Act of 1934, or otherwise satisfy our obligations to our stock transfer agent, our accountants, our legal counsel, our EDGAR filing agent, and many others.

 

For these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from the funds that we have raised in the nine months ended September 30, 2013 there can be no assurance that we will receive any additional financing or funding from any source or if any financing should be obtained, that existing shareholders will not incur substantial, immediate, and permanent dilution of their existing investment.

 

As of September 30, 2013, we have only limited working capital with which to pursue our business plan. The amount of capital required to sustain operations until we achieve positive cash flow from operations is subject to future events and uncertainties. It will be necessary for us to secure additional working capital through sales of our common stock and/or debt financing, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about our ability to continue as a going concern.

 

 

 

As of and for the years ended December 31, 2012 and 2011, our former auditor has issued a going concern qualification as part of their opinion in their audit report contained in our December 31, 2012 Form 10-K filed with the SEC.

 

 

For the nine months ended September 30, 2013, we have not incurred any material capital expenditures.

 

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

 

We have not entered into 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 would be considered material to investors.

 

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

 

 

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and our Acting Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

To remediate the material weakness, as identified above, in internal control over financial reporting, management has taken or will take the following actions as the financial resources become available:

 

 

 

 

 

We believe that the foregoing actions will improve our internal control over financial reporting, as well as our disclosure controls and procedures. We intend to perform such procedures and commit such resources as they become available and necessary to continue to allow us to overcome or mitigate this material weakness such that we can make timely and accurate quarterly and annual financial filings until such time as this material weakness is fully addressed and remediated.

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

 

The Company has been threatened with legal action by Felix Chan, who formerly had an independent contractor relationship with the Company. Chan asserts that the Company is obliged to pay him $171,000 for services as an independent contractor. No claim has been filed, and the parties are engaging in settlement discussions. The Company intends to vigorously defend any claim filed on this matter.

 

In July 2013, the Company was threatened with legal action by Eric Rice, a former employee who claims to be entitled to payment of $90,000. The Company denies that it has any obligation. A claim was filed in Los Angeles Superior Court in September 2013. The Company intends to vigorously defend this claim, and has notified Mr. Rice that it intends to file a counter-claim related to a prior transaction in which Mr. Rice was involved.

 

On July 29, 2013, the Company was named as a defendant, along with two individuals, including Kasian Franks, who owns more than five percent of the outstanding common shares of Company, in a lawsuit filed by Khoi Senderowicz in Alameda County Superior Court. The suit alleges breach of an oral lease, and damages to property. The plaintiff seeks damages of $381,887. The Company believes that this a private landlord-tenant dispute between Khoi Senderowicz and Kasian Franks and intends to defend the claim vigorously. Discovery has not yet commenced.

 

The Company does not believe the ultimate outcome of these proceedings will have a material adverse impact on the Company’s consolidated financial statements.

 

There are presently no other material pending legal proceedings to which the Company, any executive officer, any owner of record or beneficially of more than five percent of any class of voting securities is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

  

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

 

 

On January 07, 2013, the Company issued and sold 2,000,000 shares of its common stock to an accredited investor for exercise of 2,000,000 options of $200,000 or $0.10 per share.

 

On January 12, 2013, the Company issued and sold 250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $50,000 or $0.20 per share.

 

On February 1, 2013, the Company issued and sold 125,000 shares of its common stock to an accredited investor for an aggregate purchase price of $25,000 or $0.20 per share.

 

On February 8, 2013, the Company issued and sold 250,000 shares of its common stock to an accredited investor for an aggregate purchase price of $50,000 or $0.20 per share.

 

On March 8, 2013, the Company issued and sold 300,000 shares of its common stock to an accredited investor for an aggregate purchase price of $60,000 or $0.20 per share.

 

On March 15, 2013, the Company issued and sold 1,000,000 shares of its common stock to an accredited investor for an aggregate purchase price of $100,000 or $0.10 per share.

 

On April 3, 2013, the Company issued and sold 500,000 shares of its common stock to three accredited investors for an aggregate purchase price of $50,000 or $0.10 per share.

 

On April 4, 2013, the Company issued and sold 250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $25,000 or $0.10 per share.

 

 

 

On April 5, 2013, the Company issued and sold 150,000 shares of its common stock to one accredited investor for an aggregate purchase price of $15,000 or $0.10 per share.

 

On April 9, 2013, the Company issued and sold 1,250,000 shares of its common stock to two accredited investors for an aggregate purchase price of $125,000 or $0.10 per share.

 

On April 10, 2013, the Company issued and sold 1,500,000 shares of its common stock to one accredited investor for an aggregate purchase price of $150,000 or $0.10 per share. 

 

On April 16, 2013, the Company issued and sold 600,000 shares of its common stock to one accredited investor for an aggregate purchase price of $60,000 or $0.10 per share. 

 

On June 10, 2013, the Company issued and sold 350,000 shares of its common stock to one accredited investor for an aggregate purchase price of $35,000 or $0.10 per share.

 

On July 1, 2013, the Company issued and sold 1,333,334 shares of its common stock to one accredited investor for an aggregate purchase price of $100,000 or $0.075 per share.

 

On July 12, 2013, the Company issued and sold 666,667 shares of its common stock to one accredited investor for an aggregate purchase price of $50,000 or $0.075 per share.

 

On July 15, 2013, the Company issued and sold 2,333,335 shares of its common stock to three accredited investors for an aggregate purchase price of $175,000 or $0.075 per share.

 

On August 26, 2013, the Company issued and sold 4,000,000 shares of its common stock to two accredited investors for an aggregate purchase price of $300,000 or $0.075 per share.

 

The shares were issued pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder because such purchasers represented that they were “accredited investors” as such term is defined under the Securities Act and the sale did not involve any form of general solicitation or general advertising.  The investor made investment representations that the shares were taken for investment purposes and not with a view to resale.  The shares of Common Stock issued are restricted under Rule 144 promulgated under the Securities Act.

 

 

 

Item 3. Defaults upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

 

 

 

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.