UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

for the quarterly period ended September 30, 2012

 

 

¨         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ______to _________.

 

Commission file number: 000-29363

 

 

(Exact name of registrant as specified in its charter)

 

Nevada		88-0343702
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

 

1771 E. Flamingo Road, #201-A Las Vegas, NV		89119
(Address of principal executive offices)		(Zip Code)

 

(702) 734-3457

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):

 

Large accelerated filer¨	Accelerated filer¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)	Smaller reporting companyx

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

 

The number of shares outstanding of the Registrant’s Common Stock on November 15, 2012 was 67,780,879.

 

 

PLAYERS NETWORK

FORM 10-Q

Quarterly Period Ended September 30, 2012

 

		Page
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	2
	Statements of Operations for the Three and Nine Months ended September 30, 2012 and 2011 (Unaudited)	3
	Statements of Cash Flows for the Nine Months ended September 30, 2012 and 2011 (Unaudited)	4
	Notes to the Condensed Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
SIGNATURES		28

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

 

On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified in our Annual Report on Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

 

Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” refer specifically to Players Network.

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements

 

PLAYERS NETWORK

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2012				2011
Assets			(Unaudited)
Current assets:
Cash		$	7,492			$	49,208
Accounts receivable, net of allowance for doubtful accounts of $-0- and $240, at September 30, 2012 and December 31, 2011, respectively			10,000				4,000
Deferred television costs			162,001				–
Prepaid expenses			125				15,082
Total current assets			179,618				68,290
Fixed assets, net			91,440				113,561
Debt issuance costs			5,276				–
Total Assets		$	276,334			$	181,851
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable		$	591,124			$	581,970
Accrued expenses			205,650				209,183
Deferred revenues			205,000				92,405
Convertible debentures, net of discounts of $157,003 and $-0-at September 30, 2012 and December 31, 2011, respectively			25,997				–
Short term debt			35,000				35,000
Derivative liabilities			357,860				–
Total current liabilities			1,420,631				918,558
Total Liabilities			1,420,631				918,558
Stockholders' (Deficit):
Series A preferred stock, $0.001 par value, 2,000,000 shares authorized; 2,000,000 shares issued and outstanding			2,000				2,000
Series B preferred stock, $0.001 par value, 10,873,347 shares authorized; 4,349,339 shares issued and outstanding			4,349				4,349
Common stock, $0.001 par value, 150,000,000 shares authorized; 66,595,379 and 61,131,390 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively			66,595				61,131
Additional paid-in capital			20,403,896				19,927,741
Accumulated (deficit)			(21,621,137	)			(20,731,928	)
Total Stockholders' (Deficit)			(1,144,297	)			(736,707	)
Total Liabilities and Stockholders' (Deficit)		$	276,334			$	181,851

 

See accompanying notes to financial statements.

 

 

PLAYERS NETWORK

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2012				2011				2012				2011
Revenue:		$	11,254			$	12,207			$	41,953			$	50,820
Expenses:
Direct operating costs			46,302				70,153				95,678				278,043
General and administrative			94,550				126,438				324,697				409,427
Officer salaries			85,450				142,974				256,350				334,038
Salaries and wages			19,649				22,548				59,342				63,681
Bad debts (recoveries)			(10,000	)			–				(240	)			–
Depreciation and amortization			5,736				1,306				17,209				2,420
Total operating expenses			241,687				363,419				753,036				1,087,609
Net operating loss			(230,433	)			(351,212	)			(711,083	)			(1,036,789	)
Other income (expense):
Other income			2,221				–				23,520				17,115
Gain on sale of fixed assets			–				–				5,250				–
Interest income			–				302				–				623
Interest (expense)			(24,134	)			(253	)			(32,036	)			(835	)
Change in derivative liabilities			20,080				–				(174,860	)			–
Total other income (expense)			(1,833	)			49				(178,126	)			16,903
Net loss		$	(232,266	)		$	(351,163	)		$	(889,209	)		$	(1,019,886	)
Weighted average number of common shares outstanding - basic and fully diluted			66,315,764				60,628,990				64,352,286				60,071,857
Net (loss) per share - basic and fully diluted		$	(0.00	)		$	(0.01	)		$	(0.01	)		$	(0.02	)

 

 

 

See accompanying notes to financial statements.

 

 

PLAYERS NETWORK

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the nine months ended
		September 30,
		2012				2011
Cash flows from operating activities
Net (loss)		$	(889,209	)		$	(1,019,886	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Bad debts expense (recoveries)			(240	)			–
Depreciation and amortization expense			17,209				2,420
Gain on sale of fixed assets			(5,250	)			–
Forgiveness of debt			–				(17,115	)
Change in fair market value of derivative liabilities			174,860				–
Amortization of convertible note payable discounts			25,997				–
Amortization of debt issuance costs			1,224				–
Stock issued for services			234,165				128,583
Stock issued for compensation, related party			177,243				79,800
Options and warrants granted for services			8,404				15,243
Options and warrants granted for services, related party			16,807				113,814
Decrease (increase) in assets:
Accounts receivable			(5,760	)			8,831
Deferred television costs			(162,001	)			–
Prepaid expenses			14,957				(16,325	)
Interest receivable			–				(623	)
Increase (decrease) in liabilities:
Deferred revenues			112,595				41,429
Accounts payable			9,154				13,910
Accrued expenses			(3,533	)			(25,625	)
Net cash used in operating activities			(273,378	)			(675,544	)
Cash flows from investing activities
Payment of investment in note receivable			–				(20,000	)
Payment on equity method investments			–				(25,499	)
Proceeds from the sale of fixed assets			10,162				–
Purchase of fixed assets			–				(120,638	)
Net cash provided by (used in) investing activities			10,162				(166,137	)
Cash flows from financing activities
Proceeds from convertible debentures			183,000				–
Repayment of long term debt			–				(18,000	)
Payments on debt issuance costs			(6,500	)			–
Proceeds from sale of common stock			25,000				–
Proceeds from sale of common stock, related party			20,000				200,000
Net cash provided by (used in) financing activities			221,500				182,000
Net increase (decrease) in cash			(41,716	)			(659,681	)
Cash - beginning			49,208				812,245
Cash - ending		$	7,492			$	152,564
Supplemental disclosures:
Interest paid		$	655			$	623
Income taxes paid		$	–			$	–
Non-cash investing and financing activities:
Value of debt discount		$	183,000			$	–
Cancellation of shares of common stock, 361,765 shares		$	362			$	–

 

See accompanying notes to financial statements.

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Note 1 – Basis of Presentation

 

The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

 

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2011 and notes thereto included in the Company's 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

 

Reclassifications

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.

 

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.

 

Cost Method of Accounting for Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Statement of Operations. If circumstances suggest that the value of the Investee Company has subsequently recovered, such recovery is not recorded. Impairment analysis on our investments which are accounted for on the cost method of accounting resulted in complete impairment at December 31, 2011.

 

Revenue Recognition

The Company recognizes revenue from its internet television platform from internally generated products and from partnered merchants when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the customers purchase a product or access a web-based video, the product or web-based video has been electronically delivered to the purchaser and payment has been received. At that time, the Company's obligations to the customer is substantially complete. The Company records the net amount it retains from the sale of items from its internet television platform after paying any agreed upon percentage of the purchase price to the featured advertising merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the partnered merchant in the transaction. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Network revenue consists of monthly network broadcast subscription revenue, which is recognized over the period in which the subscription service is available. Broadcast television advertising revenue is recognized when advertisements are aired. Video production revenue is recognized as digital video film is completed and accepted by the customer and collection is reasonably assured.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Revenue from the distribution of domestic television series is recognized as earned using the following criteria:

 

·

Persuasive evidence of an arrangement exists;

·

The show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery;

·

The license period has begun and the customer can begin its exploitation, exhibition or sale;

·

The price to the customer is fixed and determinable; and

·

Collectability is reasonably assured.

 

Due to practical limitations applicable to operating relationships with On-Demand networks, the Company has not considered collectability of advertising or television license revenues to be reasonably assured, and accordingly, the Company has not recognize such revenue unless payment has been received.

 

Audio/Video content licensing revenues were recognized when the underlying royalties from the sales of the related products were earned. The Company recognized minimum revenue guarantees, if any, ratably over the term of the license or as earned royalties based on actual sales of the related products, if greater.

 

Deferred revenues consist of the following at September 30, 2012 and December 31, 2011:

 

	September 30,			December 31,
	2012			2011
Deferred revenues on television pilot episodes	$	205,000		$	55,000
Deferred revenues on audio/video content licensing		-			37,405
Total deferred revenues	$	205,000		$	92,405

 

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

 

Deferred Television Costs

Deferred television costs as of September 30, 2012, included direct production and development costs stated at the lower of cost or net realizable value based on anticipated revenue. Production overhead is not included as the Company outsources its production costs to third party vendors. Capitalized television production costs for each pilot episode are to be expensed as revenues are recognized upon delivery and acceptance of the completed pilot episodes using the individual-film-forecast-computation method for each television show produced. The Company has not recognized revenues from the creation of these pilot episodes yet. Accordingly, no production costs have been expensed as of September 30, 2012.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Deferred television costs consist of the following at September 30, 2012 and December 31, 2011:

 

		September 30,				December 31,
		2012				2011
Development and pre-production costs		$	20,000			$	–
In-production			83,476				–
Post production			58,525				–
Total deferred television costs		$	162,001			$	–

 

Due to practical limitations applicable to monetizing our developed content over On-Demand networks, the Company has not considered collectability of advertising or television license revenues to be reasonably assured, and accordingly, the Company has expensed production costs related to the development of our On-Demand and internet-based content as incurred.

 

Recent Accounting Pronouncements

In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

 

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.

 

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.

 

In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.

 

 

Note 2 – Going Concern

 

As shown in the accompanying condensed financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of ($21,621,137), and as of September 30, 2012, the Company’s current liabilities exceeded its current assets by $1,241,013 and its total liabilities exceeded its total assets by $1,144,297. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

Note 3 – Related Party

 

Officers

On July 10, 2012 the Company’s Board of Directors granted the issuance of 143,154 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $21,473 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company’s Board of Directors granted the issuance of 91,800 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $13,770 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 20, 2012, the Company sold 120,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $12,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 29, 2012 the Company’s Board of Directors granted the issuance of 650,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $52,000 based on the closing price of the Company’s common stock on the date of grant.

 

On February 29, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $40,000 based on the closing price of the Company’s common stock on the date of grant.

 

On February 14, 2012, the Company sold 80,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $8,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Officer compensation expense was $256,350 and $334,038 at September 30, 2012 and 2011, respectively. The balance owed was $51,160 and $68,007 at September 30, 2012 and 2011, respectively.

 

Board of Directors

On February 29, 2012, the Company’s Board of Directors granted fully vested cashless common stock options to purchase 300,000 shares of the Company’s common stock over a three year period to one of the Company’s Directors as a compensation bonus. The options are exercisable until February 29, 2015 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 207% and a call option value of $0.0560, was $16,807.

 

Officer and Director Departures

On May 16, 2012 the Company cancelled 361,765 shares for non-performance of services commensurate with the departure of one of the Company’s former Officers.

 

On January 13, 2012, Paul Chachko resigned as Chairman of the Board of Directors and Mark Bradley resumed the position. Pursuant to his departure 999,000 common stock options were forfeited.

 

On January 18, 2012, Merrill Brown resigned as Director.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On March 12, 2012, Peter Heumiller resigned as President and COO. Pursuant to his departure he purchased certain equipment at the net book value, which approximated fair value for a total of $4,912. He also repaid a total of $11,299 of previously reimbursed moving costs and general expenses. In addition, Mr. Heumiller forfeited all unearned common stock grants and options, effective January 1, 2012. On May 16, 2012, a total of 361,765 of shares of common stock previously granted and delivered to Mr. Heumiller were voluntarily returned to treasury and cancelled.

 

 

Note 4 – Fair Value of Financial Instruments

 

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

The Company has convertible notes that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of September 30, 2012 and December 31, 2011:

 

Fair Value Measurements at September 30, 2012

Level 1

Level 2

Level 3

Assets

None

$

–

$

–

$

–

Total assets

–

–

–

Liabilities

Convertible debentures, net of discounts of $157,003

–

–

25,997

Short term debt

–

35,000

–

Derivative liability

–

–

357,860

Total liabilities

–

35,000

383,857

$

–

$

(35,000

)

$

(383,857

)

 

Fair Value Measurements at December 31, 2011

Level 1

Level 2

Level 3

Assets

None

$

–

$

–

$

–

Total assets

–

–

–

Liabilities

None

–

–

–

Total liabilities

–

–

–

$

–

$

–

$

–

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Note 5 – Fixed Assets

 

Fixed assets consist of the following:

 

		September 30,				December 31
		2012				2011
Computers and office equipment		$	15,627			$	24,449
Website development costs			99,880				99,880
Total Fixed Assets			115,507				124,329
Less accumulated depreciation			(24,067	)			(10,768	)
		$	91,440			$	113,561

 

During the nine months ended September 30, 2012, we realized a gain on the sale of assets in the amount of $5,250 from total proceeds received of $10,162 received amongst two individuals for the sale of fixed assets with a combined carrying value of $4,912.

 

Depreciation expense totaled $17,209 and $2,420 for the periods ended September 30, 2012 and 2011, respectively.

 

 

Note 6 – Accrued Expenses

 

As of September 30, 2012 and December 31, 2011 accrued expenses included the following:

 

		September 30,				December 31,
		2012				2011
Customer Deposits		$	13,500			$	13,500
Accrued Payroll, Officers			51,160				60,357
Accrued Payroll and Payroll Taxes			136,738				135,234
Accrued Interest			4,252				92
		$	205,650			$	209,183

 

 

Note 7 – Convertible Debentures

 

Convertible debentures consist of the following at September 30, 2012 and December 31, 2011, respectively:

 

 

		September 30,				December 31,
		2012				2011
Unsecured $37,500 convertible promissory note carries an 8% interest rate (“Third Asher Note”), matures on June 10, 2013. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty five percent (55%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.		$	37,500			$	–
Unsecured $50,000 convertible promissory note carries an 8% interest rate (“Continental Note”), matures on May 31, 2013. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to seventy percent (70%) of the average of the three lowest reported daily sale or daily closing bid prices (whichever is the lower) for the Company’s common stock as reported on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded) during the thirty (30) trading days immediately preceding the Conversion Date, subject to adjustment as provided herein (including, without limitation, adjustment pursuant to Section 6), or a fixed conversion price of $0.001 per share, whichever is greater. Interest shall be due and payable, in arrears, on the last day of each month while any portion of the Principal Amount remains outstanding. The note carries a twenty two percent (16%) interest rate in the event of default.			50,000				–

 

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

		September 30,				December 31,
		2012				2011
Unsecured $37,500 convertible promissory note carries an 8% interest rate (“Second Asher Note”), matures on April 12, 2013. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.			37,500				–
Unsecured $58,000 convertible promissory note carries an 8% interest rate (“First Asher Note”), matures on February 7, 2013. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.		$	58,000			$	–
Total convertible debenture			183,000				–
Less: unamortized debt discount			(157,003	)			–
Convertible debenture		$	25,997			$	–

 

In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total discounts of $183,000 and $-0- for the variable conversion feature of the convertible debts incurred during the nine months ended September 30, 2012 and year ended December 31, 2011, respectively. The discount will be amortized to interest expense over the term of the debentures using the effective interest method. The Company recorded $25,997 and $-0- of interest expense pursuant to the amortization of the note discounts during the nine months ended September 30, 2012 and 2011, respectively.

 

The three “Asher” convertible debentures carry default provisions that place a “maximum share amount” on the note holders. The maximum share amount that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the Company’s issued and outstanding shares.

 

In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued represented embedded derivative features, and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value of the compound embedded derivatives associated with the convertible debentures utilizing a lattice model.

 

The Company recorded interest expense in the amount of $3,110 and $-0- for the nine months ended September 30, 2012 and 2011, respectively related to convertible debt.

 

 

Note 8 – Short Term Debt

 

Short-term debt consists of the following at September 30, 2012 and December 31, 2011:

 

		September 30				December 31,
		2012				2011
4% unsecured debenture, due June 7, 2012. Currently in default.		$	35,000			$	35,000

 

Accrued interest on the above promissory notes totaled $1,142 and $92 at September 30, 2012 and December 31, 2011, respectively.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The following presents components of interest expense by instrument type at September 30, 2012 and 2011, respectively:

 

		September 30,				September 30,
		2012				2011
Interest on convertible debentures		$	3,110			$	–
Amortization on discount on convertible debentures			25,997				–
Amortization on debt issuance costs			1,224
Interest on short term debt			1,050				–
Accounts payable related finance charges			655				835
		$	32,036			$	835

 

 

Note 9 – Derivative Liabilities

 

As discussed in Note 7 under Convertible Debentures, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible note is variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

 

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $325,671 and $-0- at September 30, 2012 and December 31, 2011, respectively. The change in fair value of the derivative liabilities resulted in a loss of $174,860 and $-0- for the nine months ended September 30, 2012 and 2011, respectively, which has been reported as other income (expense) in the condensed statements of operations.

 

The following presents the derivative liability value by instrument type at September 30, 2012 and December 31, 2011, respectively:

 

		September 30,				December 31,
		2012				2012
Convertible debentures		$	256,892			$	–
Common stock warrants			100,968				–
		$	357,860			$	–

 

The following is a summary of changes in the fair market value of the derivative liability during the nine months ended September 30, 2012 and the year ended December 31, 2011:

 

		Derivative Liability Total
Balance, December 31, 2011		$	–
Increase in derivative value due to issuances of convertible promissory notes			261,441
Increase in derivative value attributable to tainted warrants			64,230
Change in fair market value of derivative liabilities due to the mark to market adjustment			32,189
Balance, September 30, 2012		$	357,860

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Key inputs and assumptions used to value the convertible debentures and warrants issued during the nine months ended September 30, 2012 and the year ended December 31, 2011:

·

Stock prices on all measurement dates were based on the fair market value and would fluctuate with projected volatility.

·

The warrant exercise prices ranged from $0.15 to $1.00, exercisable over 2 to 3 year periods from the grant date.

·

The holders of the securities would convert monthly to the ownership limit starting at 4.99% increasing by 10% per month.

·

The holders would automatically convert the note at the maximum of 3 times the conversion price if the Company was not in default.

·

The monthly trading volume would reflect historical averages and would increase at 1% per month.

·

The Company would redeem the notes based on availability of alternative financing, increasing 2% monthly to a maximum of 10%.

·

The holder would automatically convert the note at maturity if the registration was effective and the Company was not in default.

·

The computed volatility was projected based on historical volatility.

 

 

Note 10 – Changes in Stockholders’ Equity (Deficit)

 

Preferred Stock

No preferred shares were issued during the nine months ended September 30, 2012 or 2011.

 

Common Stock Issuances

On August 28, 2012 the Company granted 200,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $22,000 based on the closing price of the Company’s common stock on the date of grant.

 

On August 28, 2012 the Company granted 75,000 shares of free trading common stock to a consultant for business development services provided. The total fair value of the common stock was $8,250 based on the closing price of the Company’s common stock on the date of grant.

 

On August 28, 2012 the Company granted 50,000 shares of free trading common stock to a consultant for website development services provided. The total fair value of the common stock was $5,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 25,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $3,750 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 150,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $22,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company issued 50,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $7,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company issued 70,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $10,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 25,000 shares of free trading common stock to a consultant for services provided. The total fair value of the common stock was $3,750 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 100,000 shares of free trading common stock to a consultant for services provided. The total fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company’s Board of Directors granted the issuance of 143,154 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $21,473 based on the closing price of the Company’s common stock on the date of grant.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On July 10, 2012 the Company’s Board of Directors granted the issuance of 91,800 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $13,770 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company granted 175,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $8,750 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company issued 500,000 shares of restricted common stock for business development services provided. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company issued 500,000 shares of restricted common stock to another consultant for business development services provided. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company issued 50,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $2,500 based on the closing price of the Company’s common stock on the date of grant.

 

On April 30, 2012 the Company issued 50,000 shares of restricted common stock for professional services provided. The total fair value of the common stock was $2,500 based on the closing price of the Company’s common stock on the date of grant.

 

On April 20, 2012, the Company sold 120,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $12,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 18, 2012 the Company issued 600,000 shares of restricted common stock for professional services provided. The total fair value of the common stock was $42,000 based on the closing price of the Company’s common stock on the date of grant. The Company retained the right to re-purchase the shares for $42,000 during the next six months.

 

On February 29, 2012 the Company granted 50,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $4,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on May 14, 2012.

 

On February 29, 2012 the Company granted 50,000 shares of free trading common stock for Information Technology services provided. The total fair value of the common stock was $4,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on May 14, 2012.

 

On February 29, 2012 the Company’s Board of Directors granted the issuance of 650,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $52,000 based on the closing price of the Company’s common stock on the date of grant.

 

On February 29, 2012 the Company’s Board of Directors granted the issuance of 500,000 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $40,000 based on the closing price of the Company’s common stock on the date of grant.

 

On February 29, 2012 the Company granted 25,000 shares of restricted common stock to an employee as a bonus for services provided. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On February 29, 2012 the Company granted 15,000 shares of restricted common stock to an employee as a bonus for services provided. The total fair value of the common stock was $1,200 based on the closing price of the Company’s common stock on the date of grant.

 

On February 29, 2012 the Company granted 130,800 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $10,464 based on the closing price of the Company’s common stock on the date of grant.

 

On February 29, 2012 the Company granted 100,000 shares of restricted common stock to a consultant for Information Technology services provided. The total fair value of the common stock was $8,000 based on the closing price of the Company’s common stock on the date of grant.

 

On February 14, 2012, the Company sold 80,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $8,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 15, 2012, the Company sold 250,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Common Stock Cancellations

On May 16, 2012 the Company cancelled 361,765 shares for non-performance of services commensurate with the departure of one of the Company’s Officers.

 

Common Stock Option Issuances

On February 29, 2012 the Company’s Board of Directors granted 150,000 cashless stock options as compensation for business development services to a consultant. The options are exercisable until February 28, 2015 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 207% and a call option value of $0.0560, was $8,404.

 

On February 29, 2012 the Company’s Board of Directors granted 300,000 cashless stock options as compensation for service on the Board of Directors to one of its directors. The options are exercisable until February 28, 2015 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 207% and a call option value of $0.0560, was $16,807.

 

 

Note 11 – Warrants and Options

 

Options Granted

On February 29, 2012 the Company’s Board of Directors granted 150,000 cashless stock options as compensation for business development services to a consultant. The options are exercisable until February 28, 2015 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 207% and a call option value of $0.0560, was $8,404.

 

On February 29, 2012 the Company’s Board of Directors granted 300,000 cashless stock options as compensation for service on the Board of Directors to one of its directors. The options are exercisable until February 28, 2015 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 207% and a call option value of $0.0560, was $16,807.

 

Warrants Granted

On August 9, 2012 the Company issued warrants to purchase 200,000 shares at $0.18 per share, exercisable for 60 months in exchange for cash proceeds of $50,000 received pursuant to a convertible debenture. The proceeds received were allocated between the debenture and warrants on a relative fair value basis.

 

On April 20, 2012, the Company granted 120,000 warrants, exercisable at $0.15 per share over a three year period as part of the sale of a unit offering, including the sale of 120,000 shares of common stock, in exchange for total proceeds of $12,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On February 14, 2012 the Company issued warrants to purchase 80,000 shares at $0.15 per share, exercisable for 36 months in exchange for cash proceeds of $8,000 from the Company’s CEO in conjunction with the sale of 80,000 shares of common stock. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 15, 2012 the Company issued warrants to purchase 250,000 shares at $0.15 per share, exercisable for 36 months in exchange for cash proceeds of $25,000 in conjunction with the sale of 250,000 shares of common stock. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Options and Warrants Cancelled

A total of 2,299,000 options were forfeited and cancelled with the departure of two of the Company’s Directors and one of its Officers during the nine months ended September 30, 2012.

 

No warrants were cancelled during the nine months ended September 30, 2012.

 

Options and Warrants Expired

During the nine months ended September 30, 2012, a total of 1,100,000 options and 2,407,780 warrants that were outstanding as of December 31, 2011 expired.

 

Options Exercised

No options were exercised during the nine months ended September 30, 2012.

 

 

Note 12 – Income Taxes

 

The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the nine months ended September 30, 2012 and the year ended December 31, 2011, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At September 30, 2012, the Company had approximately $13,640,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.

 

The components of the Company’s deferred tax asset are as follows:

 

		September 30,				December 31,
		2012				2011
Deferred tax assets:
Net operating loss carry forwards		$	4,774,000			$	4,515,000
Net deferred tax assets before valuation allowance			4,774,000				4,515,000
Less: Valuation allowance			(4,774,000	)			(4,515,000	)
Net deferred tax assets		$	–			$	–

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at September 30, 2012 and December 31, 2011, respectively.

 

A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:

 

		September 30,				December 31,
		2012				2011
Federal and state statutory rate			35%				35%
Change in valuation allowance on deferred tax assets			(35%	)			(35%	)

 

In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

 

Note 13 – Subsequent Events

 

Convertible Debentures

On November 6, 2012, the Company received net proceeds of $27,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $35,000 that matures on May 6, 2013. Upon an event of default, the face value is convertible into shares of common stock at the discretion of the note holder at a price equal to, the lesser of either (i) 60% of the lowest closing bid price during the twenty (20) trading days immediately preceding the Notice of Conversion or (ii) seven cents ($0.07) per share. On the ninetieth (90^th) day following Closing, the Company shall make mandatory monthly payments to the Holder in the amount of one thousand ($1,000) per month. The Company paid a debt issuance cost of $3,000 and 73,000 shares of restricted stock as part of this agreement.

 

Common Stock Issuances

On November 6, 2012 the Company granted 73,000 shares of restricted common stock as a debt offering cost on the Dutchess Opportunity Fund convertible debt financing. The total fair value of the common stock was $5,110 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company granted 100,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $8,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company granted another 100,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $8,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company granted another 50,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $4,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company issued 150,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $12,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company granted 50,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $4,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company granted 50,000 shares of free trading common stock to a consultant for video production services provided. The total fair value of the common stock was $4,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company’s Board of Directors granted the issuance of 250,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $20,000 based on the closing price of the Company’s common stock on the date of grant.

 

On October 12, 2012 the Company’s Board of Directors granted the issuance of 312,500 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $25,000 based on the closing price of the Company’s common stock on the date of grant.

 

Investments

On November 1, 2012, the Company elected to convert a Note Receivable in the amount of $22,477, consisting of $20,000 of principal and $2,477 of interest receivable in exchange for an additional 7.5% ownership interest in iCandy, Inc. (“ICI”), and 7.5% interest in iCandy Burlesque, Inc. (“ICB”). The conversion results in a total ownership of 17.5% in both entities as of November 1, 2012. Both, the investments and the note receivable were written off as impaired at December 31, 2011 due to valuation and collectability uncertainties.

 

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview and Outlook

 

Players Network was incorporated in the State of Nevada in March of 1993. Players Network is a global media and entertainment company engaged in the development of Digital Networks. We distribute broadband video and other social media content over a wide variety of internet enabled devices and cable television channels. Due to recent capital infusions and an expanded management team, the Company has been able to complete the first phase of development and launch its proprietary scalable technology platform. The platform is designed to deliver video content and develop digital social communities, including “Vegas On Demand TV”, which is our first digital branded network that was in development during 2011. We launched our beta version on October 7, 2011.

 

The Company operates a Video On Demand (“VOD”) television channel, also named Vegas On Demand, which consists of original programming that is distributed over its own VOD channels to approximately 24,000,000 homes over the internet with distribution partners that include, Comcast, Hulu, Blinkx, Google, YouTube and Yahoo Video, for DVD home video, and various mobile platforms. Players Network has a fourteen year history of providing consumers with quality ‘Gaming and Las Vegas Lifestyle’ video content.

 

Vegas On Demand TV offers its audience the ability to connect to Vegas Insiders through unique, high-quality programming that captures the excitement, sex appeal, entertainment, and the non-stop adrenaline rush of the Las Vegas gaming lifestyle. Players Network’s content goes beyond poker, casino action, sports betting, and racing, to lifestyle programs about entertainment and fine living that attract young and sophisticated viewers that comprise the major digital media demographic. Whenever possible our content incorporates an expert, insider or celebrity within the Vegas community in order to enhance promotional merchandising to prospective customers.

 

The Company plans to use both its platform and original branded programming and events as a means to develop additional revenue streams, as well as marketing and membership benefits of our social media platform. These revenue streams include branded entertainment, sponsorships for events, and media placement, third party commissions for video and banner advertisements, merchandise and production sales and services.

 

Players Network has addressed the digital market in an effort to grow as a New Media Company using “Vegas On Demand”, its flagship Branded Television Channel Destination, it use its scalable, custom Enterprise Web Platform to host “Vegas On Demand”, which can also be replicated to launch thousands of Channel Destinations in any Lifestyle Category, for any Lifestyle Brand.

 

PNTV’s Enterprise Platform efficiently deploys, manages and distributes videos with integrated revenue-generating tools that go beyond traditional advertising. On our Platform, the viewer of a video is brought into a web environment encompassing that video’s lifestyle, where they are presented with Membership, Merchandising, Couponing, Subscription, Loyalty Programs, Contest and other Marketing opportunities, including the integration of Live Events. The Platform also integrates Branded Sponsorships, and a game-like Virtual Economy supported by our Cost Per Action Advertising network.

 

PNTV’s next-generation Media Network operates across all distribution platforms from TV screens to mobile devices, gaming consoles, computers and tablets. We have positioned ourselves to provide companies with an affordable, turnkey, integrated solution that creates bookable revenue while generating net profits. We have not yet generated revenues from our Platform, but plan to market our services to companies in 2013 that can make their initial investment using a small portion of their existing marketing budget.

 

By providing companies and Lifestyle Brands with their own Channel Destination on our Enterprise Web Platform and offering our Media and Production expertise, we plan to provide an integrated Media, Marketing and Merchandising solution that aims to save our customers significant time and money that would need to be incurred to replicate equivalent services.

 

We have also leveraged our existing library of original content, and distribution network, to build this infrastructure hub and launch our initial digital Lifestyle Network: “VegasOnDemand.tv”.

 

Through the cross-promotional integration of Sponsored Live Events, Contests and Media creation and distribution, PNTV’s Platform can deliver a targeted audience that can be monetized in multiple ways. The Platform is a Revenue Engine that grows as audience and page views increase. The Platform also provides a self-perpetuating aggregation juncture where Las Vegas businesses and “Insiders” can connect socially with their audience/customer and generate shared revenues.

 

The ability to Monetize Video in so many ways, coupled with an efficient, easy-to-use technical and administrative back-end dashboard, is a powerful feature of PNTV’s Platform. It allows the creation of unlimited, new Channel Destinations using our scalable Content Management System (“CMS”) framework, with cost-competitive operations. Importantly, it allows Content Management by administrative and editorial level employees without the expense of having a full-time technical engineering staff in-house.

 

The Company’s platform has two main membership categories: 1) the Consumer/User who visits our digital communities and partakes in viewing ad-supported and pay-per-view premium videos, purchases products and connects with “Insiders”, who are our 2) Premium Members.

 

Premium Members must be industry Insiders and/or experts in their Lifestyle category. For example, with regard to Vegas On Demand, Insiders are designed to be the who’s-who of Vegas: Entertainers, Nightclub Promoters, Casino Hosts, famous Chefs, etc. who offer our Members deals on transactions connected to their sphere of influence. Deals may include being invited to a special VIP Event, Line Passes, two-for-one offers, PPV Video discounts, etc.

 

Transactions can be purchased using credit cards, or our incentivized Virtual Economy. When using our Virtual Economy, we set the value of the goods and services that are redeemed through a Points (Virtual Currency) System. Points can be bought or earned using our CPA Ad Network. Our Virtual Economy allows the Company to realize revenue every time Points are earned, as well as every time Points are redeemed.

 

On May 11, 2011, we acquired a 10% interest in iCandy, Inc. (“ICI”), and a 10% interest in iCandy Burlesque, Inc. (“ICB”), Nevada entertainment companies that develop and operate a variety of entertainment shows in the United States, primarily in casinos within Las Vegas, NV and Atlantic City, NJ. We acquired these interests in exchange for $25,499 that was in turn spent on the development of a promotional video that will be distributed over our media channels. In addition, we agreed to pay a license fee of 20% of the adjusted gross revenues that we earn from the distribution and sales related to the promotional video content. No such revenues have been earned to date. At December 31, 2011, we recognized a complete reserve for the impairment of this investment due to uncertainties regarding the future economic benefit. On November 1, 2012, we elected to convert a Note Receivable in the amount of $22,477, consisting of $20,000 of principal and $2,477 of interest receivable in exchange for an additional 7.5% ownership interest in iCandy, Inc. (“ICI”), and 7.5% interest in iCandy Burlesque, Inc. (“ICB”). The conversion results in a total ownership of 17.5% in both entities as of November 1, 2012.

 

In December of 2011, the Company signed an agreement with J&H Productions to produce a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business. The agreement also provides for the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform.

 

 

 

Results of Operations for the Three Months Ended September 30, 2012 and 2011:

 

		For the Three Months Ended
		September 30,								Increase /
		2012				2011				(Decrease)
Revenues		$	11,254			$	12,207			$	(953	)
Direct operating costs			46,302				70,153				(23,851	)
General and administrative			94,550				126,438				(31,888	)
Officer salaries			85,450				142,974				(57,524	)
Salaries and wages			19,649				22,548				(2,899	)
Bad debts (recoveries)			(10,000	)			–				10,000
Depreciation and amortization			5,736				1,306				4,430
Total Operating Expenses			241,687				363,419				(121,732	)
Net Operating (Loss)			(230,433	)			(351,212	)			(120,779	)
Total other income (expense)			(1,833	)			49				(1,882	)
Net (Loss)		$	(232,266	)		$	(351,163	)		$	(118,897	)

 

 

Revenues:

 

During the three months ended September 30, 2012 and 2011, we received revenues primarily from licensing fees from our private networks, including the sale of in-home media and advertising fees. Aggregate revenues for the three months ended September 30, 2012 were $11,254 compared to revenues of $12,207 in the three months ended September 30, 2011, a decrease in revenues of $953, or approximately 8%. Revenues decreased due to decreased market saturation of our video content through our existing media channels.

 

In addition to building and expanding our technology and revenues for the future through the development of a new e-commerce website that we launched in October of 2011, we continued production during the three months ended September 30, 2012 on a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business, including the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform. As of September 30, 2012, we have collected a total of $205,000 pursuant to the production of these pilot episodes; however, the revenue is deferred until delivery and acceptance of the completed pilot episodes in accordance with the individual-film-forecast-computation method.

 

Direct Operating Costs:

 

Direct operating costs were $46,302 for the three months ended September 30, 2012 compared to $70,153 for the three months ended September 30, 2011, a decrease of $23,851, or approximately 34%. Our direct operating costs decreased during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 due to our shift in content development from our On-Demand and internet channels to the development of a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business, including the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform. Our production costs incurred in the development of our content during the three months ended September 30, 2011 were expensed as incurred due to practical limitations applicable to monetizing our developed content over On-Demand networks, and the inability to be reasonably assured of the collectability of advertising or television license revenues, accordingly, the Company has expensed production costs related to the development of our On-Demand and internet-based content. During the three months ended September 30, 2012, the Company has deferred a total of $162,001 of television production costs for pilot episodes, which are to be expensed as revenues are recognized upon delivery and acceptance of the completed pilots using the individual-film-forecast-computation method for each television show produced. The Company has not recognized revenues from the creation of these pilot episodes yet. Accordingly, no production costs have been expensed as of September 30, 2012.

 

During the three months ending September 30, 2012 we granted 200,000 shares of common stock valued at $22,000 for video production services, while in the same period in 2011 we issued 85,000 shares valued at $6,800 for video production services.

 

General and Administrative:

 

General and administrative expenses were $94,550 for the three months ended September 30, 2012 compared to $126,438 for the three months ended September 30, 2011, a decrease of $31,888, or approximately 25%. The decrease in general and administrative expense for the three months ended September 30, 2012 compared to 2011 was due to decreased professional fees as we reigned in our operating activities and realized a reduction in our management personnel. During the three months ending September 30, 2012 we granted 545,000 shares of common stock valued at $76,750, for professional fees, business development and information technology services, while in the same period in 2011 we issued 141,667 shares valued at $11,333 and 315,00 stock options valued at $12,339 for professional fees and public relations services.

 

Salaries and Wages:

 

Officer salaries was $85,450 for the three months ended September 30, 2012 compared to $142,974 for the three months ended September 30, 2011, a decrease of $57,524 or approximately 40%. The decrease in officer salaries was primarily due to the salary of the former President and COO incurred during the three months ending September 30, 2011 that were not incurred in the same three month period ending September 30, 2012 pursuant to his resignation effective January 1, 2012.

 

Office salaries and wages expense was $19,649 for the three months ended September 30, 2012 compared to $22,548 for the three months ended September 30, 2011, a decrease of $2,899, or approximately 13%.

 

The Company recorded non-cash payments on accrued salaries and wages totaling $35,243 and $155,082, during the three months ended September 30, 2012 and 2011, respectively, which included accrued salaries from prior periods. The non-cash payments consisted of 234,954 shares and 997,500 shares of common stock, recorded at fair value of $35,243 and $79,800, issued to officers for the three months ended September 30, 2012 and 2011, respectively, as well as, common stock options, recorded at fair value of $-0- and $25,870 for the three months ended September 30, 2012 and 2011, respectively.

 

Bad Debts (Recoveries):

 

Bad Debts (Recoveries) were $(10,000) for the three months ended September 30, 2012 compared to $-0- for the three months ended September 30, 2011, an increase of $10,000, or approximately 100%. The increase was due to the reversal of a previous expense for the change in our estimated allowance for doubtful accounts during the three months ended September 30, 2012 that was not present in the comparative three months ended September 30, 2011.

 

Depreciation and Amortization:

 

Depreciation and amortization expense was $5,736 for the three months ended September 30, 2012 compared to $1,306 for the three months ended September 30, 2011, an increase of $4,430, or approximately 339%. Depreciation expense increased due to the additional depreciation on the launch of our internet-based proprietary scalable technology platform in October of 2011 that was not in existence during the comparative three months ended September 30, 2011.

 

Net Operating Loss:

 

Net operating loss for the three months ended September 30, 2012 was $230,433, or ($0.00) per share, compared to a net operating loss of $351,212 for the three months ended September 30, 2011, or ($0.01) per share, a decrease of $120,779 or 34%. Net operating loss decreased primarily as a result of our decreased professional fees, officer salaries and direct operating costs in the three months ended September 30, 2012 compared to the same period in 2011, as we became more efficient, operated with one less officer and deferred $37,570 of financing costs in 2012 until we can recognize the related deferred revenue from our pilot episodes.

 

Other Income (Expense):

 

Other income (expense) was $(1,833) for the three months ended September 30, 2012 compared to $49 for the three months ended September 30, 2011, a decrease of $1,882, or approximately 3,841%. Other income decreased primarily due to the change in derivative liability and related expenses incurred in the three months ended September 30, 2012 and were not yet present in the three months ended September 30, 2011.

 

Net Loss:

 

The net loss for the three months ended September 30, 2012 was $232,266 compared to a net loss of $351,163 for the three months ended September 30, 2011, a decreased net loss of $118,897, or 34%. Net loss decreased primarily as a result of decreased professional fees and officer salaries as diminished by the additional expenses related to the change in our derivative liability in the three months ended September 30, 2012 compared to the same period in 2011.

Results of Operations for the Nine Months Ended September 30, 2012 and 2011:

 

		For the Nine Months Ended
		September 30,								Increase /
		2012				2011				(Decrease)
Revenues		$	41,953			$	50,820			$	(8,867	)
Direct operating costs			95,678				278,043				(182,365	)
General and administrative			324,697				409,427				(84,730	)
Officer salaries			256,350				334,038				(77,688	)
Salaries and wages			59,342				63,681				(4,339	)
Bad debts (recoveries)			(240	)			–				240
Depreciation and amortization			17,209				2,420				14,789
Total Operating Expenses			753,036				1,087,609				(334,573	)
Net Operating (Loss)			(711,083	)			(1,036,789	)			(325,706	)
Total other income (expense)			(178,126	)			16,903				(195,029	)
Net (Loss)		$	(889,209	)		$	(1,019,886	)		$	(130,677	)

 

Revenues:

 

During the nine months ended September 30, 2012 and 2011, we received revenues primarily from licensing fees from our private networks, including the sale of in-home media and advertising fees. Aggregate revenues for the nine months ended September 30, 2012 were $41,953 compared to revenues of $50,820 in the nine months ended September 30, 2011, a decrease in revenues of $8,867, or approximately 17%. Revenues from networks decreased due to decreased market saturation of our video content through our newly revamped websites and the Company’s existing media channels.

 

In addition to building and expanding our technology and revenues for the future through the development of a new e-commerce website that we launched in October of 2011, we continued production during the three months ended September 30, 2012 on a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business, including the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform. As of September 30, 2012, we have collected a total of $205,000 pursuant to the production of these pilot episodes; however, the revenue is deferred until delivery and acceptance of the completed pilot episodes in accordance with the individual-film-forecast-computation method.

 

Direct Operating Costs:

 

Direct operating costs were $95,678 for the nine months ended September 30, 2012 compared to $278,043 for the nine months ended September 30, 2011, a decrease of $182,365, or approximately 66%. Our direct operating costs decreased during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 due to our shift in content development from our On-Demand and internet channels to the development of a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business, including the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform. Our production costs incurred in the development of our content during the nine months ended September 30, 2011 were expensed as incurred due to practical limitations applicable to monetizing our developed content over On-Demand networks, and the inability to be reasonably assured of the collectability of advertising or television license revenues, accordingly, the Company has expensed production costs related to the development of our On-Demand and internet-based content. During the nine months ended September 30, 2012, the Company has deferred a total of $162,001 of television production costs for pilot episodes, which are to be expensed as revenues are recognized upon delivery and acceptance of the completed pilots using the individual-film-forecast-computation method for each television show produced. The Company has not recognized revenues from the creation of these pilot episodes yet. Accordingly, no production costs have been expensed as of September 30, 2012.

 

During the nine months ending September 30, 2012 we granted 505,800 shares of common stock valued at $41,214 for video production services, while in the same period in 2011 we issued 385,000 shares valued at $61,730 for video production services.

 

General and Administrative:

 

General and administrative expenses were $324,697 for the nine months ended September 30, 2012 compared to $409,427 for the nine months ended September 30, 2011, a decrease of $84,730, or approximately 21%. The decrease in general and administrative expense for the nine months ended September 30, 2012 compared to 2011 was due to decreased professional fees as we reigned in our operating activities and realized a reduction in our management personnel. During the nine months ending September 30, 2012 we granted 3,215,000 shares of common stock valued at $203,415, for legal, business development, accounting, board of directors, and information technology services, while in the same period in 2011 we issued 441,667 shares valued at $62,813 and 315,00 stock options valued at $12,339 for business development, administrative and consulting services.

 

Salaries and Wages:

 

Officer salaries was $256,350 for the nine months ended September 30, 2012 compared to $334,038 for the nine months ended September 30, 2011, a decrease of $77,688 or approximately 23%. The decrease in officer salaries was primarily due to the salary of the former President and COO incurred during the nine months ending September 30, 2011 that were not incurred in the same nine month period ending September 30, 2012 pursuant to his resignation effective January 1, 2012.

 

Office salaries and wages expense was $59,342 for the nine months ended September 30, 2012 compared to $63,681 for the nine months ended September 30, 2011, a decrease of $4,339, or approximately 7%.

 

The Company recorded non-cash payments on accrued salaries and wages totaling $177,243 and $139,870, during the nine months ended September 30, 2012 and 2011, respectively, which included accrued salaries from prior periods. The non-cash payments consisted of 2,384,954 shares and 997,500 shares of common stock, recorded at fair value of $177,243 and $79,800, issued to officers for the nine months ended September 30, 2012 and 2011, respectively, as well as, common stock options, recorded at fair value of $-0- and $60,070 for the nine months ended September 30, 2012 and 2011, respectively.

 

Bad Debts (Recoveries):

 

Bad Debts (Recoveries) were $(240) for the nine months ended September 30, 2012 compared to $-0- for the nine months ended September 30, 2011, an increase of $240, or approximately 100%. The increase was due to the reversal of a previous expense for the change in our estimated allowance for doubtful accounts during the nine months ended September 30, 2012 that was not present in the comparative nine months ended September 30, 2011.

 

Depreciation and Amortization:

 

Depreciation and amortization expense was $17,209 for the nine months ended September 30, 2012 compared to $2,420 for the nine months ended September 30, 2011, an increase of $14,789, or approximately 611%. Depreciation expense increased due to the additional depreciation on the launch of our internet-based proprietary scalable technology platform in October of 2011 that was not in existence during the comparative nine months ended September 30, 2011.

 

Net Operating Loss:

 

Net operating loss for the nine months ended September 30, 2012 was $711,083, or ($0.01) per share, compared to a net operating loss of $1,036,789 for the nine months ended September 30, 2011, or ($0.02) per share, a decrease of $325,706 or 31%. Net operating loss decreased primarily as a result of our decreased professional fees, officer salaries and direct operating costs in the three months ended September 30, 2012 compared to the same period in 2011, as we became more efficient, operated with one less officer and deferred $162,001 of financing costs in 2012 until we can recognize the related deferred revenue from our pilot episodes.

 

Other Income (Expense):

 

Other income (expense) was $(178,126) for the nine months ended September 30, 2012 compared to $16,903 for the nine months ended September 30, 2011, a decrease of $195,029, or approximately 1,154%. Other income decreased primarily due to the change in derivative liability and related expenses incurred in the nine months ended September 30, 2012 and were not yet present in the nine months ended September 30, 2011.

 

Net Loss:

 

The net loss for the nine months ended September 30, 2012 was $889,209 compared to a net loss of $1,019,886 for the nine months ended September 30, 2011, a decreased net loss of $130,677, or 13%. Net loss decreased primarily as a result of decreased professional fees and officer salaries as diminished by the additional expenses related to the change in our derivative liability in the three months ended September 30, 2012 compared to the same period in 2011.

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total assets, accumulated deficit, stockholders’ equity and working capital at September 30, 2012 compared to December 31, 2011.

 

		September 30,				December 31,				Increase /
		2012				2011				(Decrease)
Total Assets		$	276,334			$	181,851			$	94,483
Accumulated (Deficit)		$	(21,621,137	)		$	(20,731,928	)		$	889,209
Stockholders’ Equity (Deficit)		$	(1,144,297	)		$	(736,707	)		$	407,590
Working Capital (Deficit)		$	(1,241,013	)		$	(850,268	)		$	390,745

 

Our principal source of operating capital has been provided from private sales of our common stock, revenues from operations, and debt and equity financings. At September 30, 2012, we had a negative working capital position of $1,241,013.

 

Debt Financing

During the nine months ended September 30, 2012, we received a total of $183,000 in exchange for a total of four convertible debentures. The convertible debentures mature on various dates through June 10, 2013 and are convertible into shares of common stock at various conversion rates ranging from fifty-five percent (55%) of the average of the three lowest trading bid prices to seventy percent (70%) of the average of the three (3) lowest reported daily sale or daily closing bid prices (whichever is the lowest) of the Company’s common stock for the ten (10) trading days prior to the conversion date.

 

Equity Financing

On April 20, 2012, the Company sold 120,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $12,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On February 14, 2012, the Company sold 80,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $8,000 received from the Company’s CEO. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 15, 2012, the Company sold 250,000 shares of its common stock and an equal number of warrants, exercisable at $0.15 per share over a three year period pursuant to a unit offering in exchange for total proceeds of $25,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

We have utilized these funds to expand our media distribution platforms and to continue production of original programming for our own distribution platforms, as well as our expanding distribution network. Although our revenues are expected to grow as we expand our operations, our revenues are not expected to exceed our investment and operating costs in the next twelve months, and we do not have funds sufficient to fund our operations at their current level for the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions in our industry, effectively monitor and manage our claims for payments that are owed to us, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

 

To conserve on the Company's capital requirements, the Company has issued shares in lieu of cash payments to outside consultants, and the Company expects to continue this practice. In the nine months ending September 30, 2012, the Company granted 6,155,754 shares of common stock valued at $436,618 in lieu of cash payments to employees and outside consultants. In the nine months ending September 30, 2011, the Company issued 1,839,167 shares of common stock valued at $208,383 in lieu of cash payments to employees and outside consultants. In the year ending December 31, 2011, the Company issued 2,317,599 shares of common stock valued at $420,178 in lieu of cash payments to employees and outside consultants, consisting of the value of common stock and common stock options, recorded at fair value. The Company is not now in a position to determine an approximate number of shares that the Company may issue for the preceding purpose in the remainder of 2012.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

 

Not applicable.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our principal executive officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer, as appropriate to allow timely decisions regarding required disclosure.

 

Inherent Limitations of Internal Controls

 

Our Principal Executive Officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, other than those stated above, during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

 

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On August 28, 2012 the Company granted 200,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $22,000 based on the closing price of the Company’s common stock on the date of grant.

 

On August 28, 2012 the Company granted 75,000 shares of free trading common stock to a consultant for business development services provided. The total fair value of the common stock was $8,250 based on the closing price of the Company’s common stock on the date of grant.

 

On August 28, 2012 the Company granted 50,000 shares of free trading common stock to a consultant for website development services provided. The total fair value of the common stock was $5,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 25,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $3,750 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 150,000 shares of restricted common stock to a consultant for services provided. The total fair value of the common stock was $22,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company issued 50,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $7,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company issued 70,000 shares of free trading common stock for professional services provided. The total fair value of the common stock was $10,500 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 25,000 shares of free trading common stock to a consultant for services provided. The total fair value of the common stock was $3,750 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company granted 100,000 shares of free trading common stock to a consultant for services provided. The total fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company’s Board of Directors granted the issuance of 143,154 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $21,473 based on the closing price of the Company’s common stock on the date of grant.

 

On July 10, 2012 the Company’s Board of Directors granted the issuance of 91,800 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $13,770 based on the closing price of the Company’s common stock on the date of grant.

 

The above securities were issued pursuant to the exemption from registration provided in Section 4(2) of the Securities Act of 1933, as amended.

 

 

Item 3. Defaults Upon Senior Securities

 

None

 

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

 

Item 5. Other Information

 

Debt Financing

On November 7, 2012, the Company received net proceeds of $27,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $35,000 that matures on May 6, 2013. Upon an event of default, the face value is convertible into shares of common stock at the discretion of the note holder at a price equal to, the lesser of either (i) 60% of the lowest closing bid price during the twenty (20) trading days immediately preceding the Notice of Conversion or (ii) seven cents ($0.07) per share. On the ninetieth (90th) day following Closing, the Company shall make mandatory monthly payments to the Holder in the amount of one thousand ($1,000) per month. The Company paid a debt issuance cost of $3,000 and 73,000 shares of restricted stock as part of this agreement.

 

Equity Line Financing

On November 7, 2012, pursuant to an Investment Agreement, Dutchess Capital Opportunity Fund II, LP committed to purchase up to $8,500,000 of the Company's common stock, over the course of thirty-six months (the "Equity Line Financing").

 

The Company may draw on the Equity Line Financing facility from time to time, as and when it determines appropriate in accordance with the terms and conditions of the Investment Agreement. The maximum amount that the Company is entitled to put in any one notice is 1) 300% of the average daily volume (U.S. market only) of the common stock for the three (3) trading days prior to the date of delivery of the applicable put notice, multiplied by the average of the closing prices for such trading days, or 2) $50,000. The purchase price will be set at ninety-five percent (95%) of the lowest daily volume weighted average price ("VWAP") of the Company's common stock during the four consecutive trading day period beginning on the trading day immediately following the date the Investor receives the applicable put notice. There are put restrictions applied on days between the put notice date and the closing date with respect to that particular put. During this time, the Company may not deliver another put notice. In addition, the Investor is not obligated to purchase shares if the Investor's total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company's outstanding common stock, as determined in accordance with Rule 13d-1 of the Securities Exchange Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective registration statement (as further explained below) to cover the resale of the shares.

 

The Investment Agreement further provides that the Investors and the Company are each entitled to customary indemnification from the other for any losses or liabilities they may suffer as a result of any breach by the other of any provisions of the Investment Agreement or Registration Rights Agreement (as defined below), or as a result of any lawsuit brought by a third-party arising out of or resulting from the other party's execution, delivery, performance or enforcement of the Investment Agreement or the Registration Rights Agreement.

 

The Investment Agreement also contains representations and warranties of each of the Company and the Investor. The assertions embodied in those representations and warranties were made for purposes of the Investment Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Investment Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what a stockholder or investor might view as material, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts.

 

Pursuant to the terms of a Registration Rights Agreement ("Registration Rights Agreement") dated November 7, 2012 between the Company and the Investor, the Company is obligated to file a registration statement with the Securities and Exchange Commission ("SEC") to register the resale by the Investor of 14,500,000 shares of the common stock underlying the Investment Agreement by or before 21 days following the date of the Registration Rights Agreement. In addition, the Company is obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the date the registration statement is filed.

 

In connection with the preparation of the Investment Agreement and the Registration Rights Agreement, the Company is required to pay the Investor a document preparation fee in the amount of $10,000.

 

The foregoing description of each of the Investment Agreement and the Registration Rights Agreement is qualified in its entirety by reference to the full text of the Investment Agreement and the Registration Rights Agreement, respectively, which are filed as Exhibits 10.10 and 10.12 to this Current Report on Form 10-Q and incorporated herin by reference.

 

Investment

On November 1, 2012, the Company elected to convert a Note Receivable in the amount of $22,477, consisting of $20,000 of principal and $2,477 of interest receivable in exchange for an additional 7.5% ownership interest in iCandy, Inc. (“ICI”), and 7.5% interest in iCandy Burlesque, Inc. (“ICB”). The conversion results in a total ownership of 17.5% in both entities as of November 1, 2012. Both, the investments and the note receivable were written off as impaired on December 31, 2012 due to valuation and collectability uncertainties.

 

Item 6. Exhibits

 

10.1		September 6, 2012 – Promissory Note (Asher 3)*
10.2		September 6, 2012 – Securities Purchase Agreement (Asher 3)*
10.3		July 10, 2012 – Promissory Note (Asher 2)*
10.4		July 10, 2012 – Securities Purchase Agreement (Asher 2)*
10.5		May 14, 2012 – Promissory Note (Asher 1)*
10.6		May 14, 2012 – Securities Purchase Agreement (Asher 1)*
10.7		August 9, 2012 – Promissory Note (Continental)*
10.8		August 9, 2012 – Note and Warrant Purchase Agreement (Continental)*
10.9		August 9, 2012 – Amendment to Promissory Note (Continental)*
10.10		November 7, 2012 – Investment Agreement (Dutchess Opportunity Fund II, LP)*
10.11		November 7, 2012 – Promissory Note (Dutchess Opportunity Fund II, LP)*
10.12		November 7, 2012 – Registration Rights Agreement (Dutchess Opportunity Fund II, LP)*
31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS		XBRL Instance Document.*
101.SCH		XBRL Schema Document.*
101.CAL		XBRL Calculation Linkbase Document.*
101.DEF		XBRL Definition Linkbase Document.*
101.LAB		XBRL Labels Linkbase Document.*
101.PRE		XBRL Presentation Linkbase Document.*

 

* Filed herewith.

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 16, 2012
	Players Network
	/s/ Mark Bradley
	Mark Bradley
	Chief Executive Officer
	(Principal Executive Officer and Principal Financial Officer)

 

 

 

 

 

 

 

 

 

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