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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

x

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

 

For the quarterly period ended February 28, 2015

 

Commission File Number: 000-55140

  

STREAMTRACK, INC.

(Exact name of registrant as specified in its charter)

 

Wyoming

 

26-2589503

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

347 Chapala Street

Santa Barbara, California 93101

(Address of principal executive offices)

 

(805) 308-9151

(Registrant’s telephone number, including area code)

 

____________________________________________________________ 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

   

 

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

 

At April 13, 2015 there were 1,604,072,233 shares of the Company’s common stock outstanding.

 

 

 

TABLE OF CONTENTS

 

    Page  

PART I

 

Item 1.

Financial Statements

  F-1  

Item 2.

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

 

3

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

   

10

 

Item 4.

Controls and Procedures

   

11

 
 

PART II

 

Item 1.

Legal Proceedings

   

12

 

Item 1A.

Risk Factors

    12  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

   

12

 

Item 3.

Defaults Upon Senior Securities

   

12

 

Item 4.

Mine Safety Disclosures

   

12

 

Item 5.

Other Information

   

12

 

Item 6.

Exhibits

   

13

 

 

 
2

 

StreamTrack, Inc.

Consolidated Balance Sheets

 (unaudited)

 

    As of
February 28,
2015
   

As of
August 31,
2014

 
Assets:         
Current assets        
Cash   $ 7,991     $ 26,590  
Accounts receivable, net of allowances of $6,000 and $6,000, respectively     200,318       314,731  
Prepaid expenses     10,511       16,858  
Other current assets     15,828       10,150  
Total current assets     234,648       368,329  
Property and equipment, net     602,665       499,315  
Other assets                
Notes receivable     176,250       171,000  
Other assets     51,353       45,853  
Total other assets     227,603       216,853  
Total assets   $ 1,064,916     $ 1,084,497  
               
Liabilities and Stockholders' Deficit                
Current liabilities                
Account payable and accrued expenses   $ 1,105,058     $ 1,109,456  
Line of credit     544,695       532,305  
Derivative liabilities embedded within convertible notes payable     971,036       1,022,350  
Capital lease payable - in default     59,204       63,704  
Related party payables     109,924       8,062  
Convertible notes payable, net of discount of $81,628 and $79,328, respectively     687,566       745,445  
Related party convertible notes payable, net of discount of $2,690 and $15,046, respectively     172,310       309,951  
Total current liabilities     3,649,793       3,791,273  
Long term liabilities                
Convertible notes payable, net of discount of $104,610 and $0, respectively     128,281       10,000  
Related party convertible notes payable, net of discount of $735,190 and $0, respectively     149,274       85,134  
Related party payables     -       626,864  
Total long term liabilities     277,555       721,998  
Total liabilities     3,927,348       4,513,271  
               
Series C preferred stock; $0.0001 par value; 20,000 shares authorized; 500 shares issued and outstanding as of February 28, 2015     75,000       -  
               
Commitments and contingencies (note 5)                
Stockholders' Deficit:                
Series A preferred stock; $0.0001 par value; 100 shares authorized; 0 shares issued and outstanding as of February 28, 2015 and August 31, 2014     -       -  
Series B preferred stock; $0.0001 par value; 200,000 shares authorized; 200,000 shares issued and outstanding as of February 28, 2015 and August 31, 2014     20       20  
Common stock, $0.0001 par value; Unlimited shares authorized at February 28, 2015; 1,000,000,000 shares authorized at August 31, 2014; 968,543,899 shares issued and outstanding at February 28, 2015; 202,247,023 shares issued and 184,786,023 shares outstanding as of August 31, 2014     96,853       18,479  
Additional paid-in capital     3,334,084       2,109,652  
Accumulated deficit   (6,368,389 )   (5,556,925 )
Total stockholders' deficit   (2,937,432 )   (3,428,774 )
Total liabilities and stockholders' deficit   $ 1,064,916     $ 1,084,497  

 

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

 

 
F-1

  

 StreamTrack, Inc.

Consolidated Statements of Operations

 (unaudited)

 

    For the Three Months Ended February 28,
2015
    For the Three Months Ended February 28,
2014
    For the Six
Months Ended February 28,
2015
    For the Six
Months Ended February 28,
2014
 
Revenues:                
Advertising   $ 209,286     $ 386,810     $ 518,394     $ 902,387  
Services     8,250       8,250       19,250       16,500  
Total revenues     217,536       395,060       537,644       918,887  
                               
Costs of sales:                                
Media network     86,001       129,386       191,583       257,329  
Depreciation and amortization     9,340       82,296       77,986       164,592  
Colocation services     38,334       47,850       76,668       95,550  
Broadcaster commissions     21,804       37,095       66,935       100,888  
Other costs     928       2,558       3,382       75,583  
Total costs of sales     156,407       299,185       416,554       693,942  
                               
Gross profit     61,129       95,875       121,090       224,945  
                               
Operating expenses:                                
Product development     5,250       32,976       14,249       115,728  
Officer compensation     10,499       120,000       58,499       240,000  
Sales and marketing (including stock compensation of $0, $0, $0 and $8,262, respectively)     36,129       22,176       76,978       64,815  
Other expenses     221,150       139,904       438,509       296,473  
Total operating expenses     273,028       315,056       588,235       717,016  
                               
Loss from operations   (211,899 )   (219,181 )   (467,145 )   (492,071 )
                               
Other income (expense):                                
Other income (expense)   (30,224 )     2,625     (56,681 )     5,250  
Interest expense (including accretion of debt discount of $209,191, $10,925, $331,760 and $20,537, respectively)   (300,178 )   (87,916 )   (495,305 )   (165,599 )
Loss on extinguishment   (66,537 )     8,499     (66,537 )     120,364  
Change in fair value of derivatives     4,850,179     (534,359 )     274,204       53,970  
Total other income (expense)     4,453,240     (611,151 )   (344,319 )     13,985  
                               
Income (loss) before provision for income taxes     4,241,341     (830,332 )   (811,464 )   (478,086 )
                               
Provision for income taxes     -       -       -       -  
                               
Net income (loss)   $ 4,241,341     $ (830,332 )   $ (811,464 )   $ (478,086 )
                               
Basic net income (loss) per common share attributable to common stockholders   $ 0.01     $ (0.04 )   $ (0.00 )   $ (0.02 )
Diluted net income (loss) per common share attributable to common stockholders   $ 0.00     $ (0.04 )   $ (0.00 )   $ (0.02 )
Weighted-average number of shares used in computing basic per share amounts     746,259,588       21,501,826       520,396,235       25,405,871  
Weighted-average number of shares used in computing dilutive per share amounts     20,028,323,474       21,501,826       520,396,235       28,405,871  

  

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

 

 
F-2

 

StreamTrack, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

    For the Six Months Ended
February 28,
2015
    For the Six Months Ended
February 28,
2014
 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss)   $ (811,464 )   $ (478,086 )
Adjustments to reconcile net income (loss) to net cash  used in operating activities:                
Stock-based compensation and stock for services     -       24,516  
Depreciation and amortization     204,764       169,262  
Re-measurement of derivative liabilities   (274,204 )   (53,970 )
Accretion of debt discount     331,760       20,537  
Stock issued for services and finance fees     56,241       -  
Amortization of finance fees     5,144       20,833  
Loss on extinguishment of debt     66,537       -  
Changes in operating assets and liabilities:                
Accounts receivable     114,413       27,706  
Prepaid expenses     6,347       3,082  
Other current assets   (5,678 )   (15,011 )
Accounts payable and accrued expenses     209,187     (2,877 )
Related party payables     101,862       -  
Net cash provided by (used in) operating activities     4,909     (284,008 )
               
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment   (308,114 )     -  
Other assets   (5,500 )     -  
Net cash used in investing activities   (313,614 )     -  
               
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of convertible promissory notes     115,000       10,000  
Payments on related party notes payable   (89,284 )     -  
Note receivable   (5,250 )   (5,250 )
Proceeds from line of credit     12,390       124,387  
Payments on capital lease   (4,500 )   (9,000 )
Proceeds from issuance of convertible promissory notes - net advances from related parties     261,750       158,411  
Net cash provided by financing activities     290,106       278,548  
               
Change in cash and cash equivalents   (18,599 )   (5,460 )
Cash and cash equivalents, beginning of period     26,590       7,980  
Cash and cash equivalents, end of period   $ 7,991     $ 2,520  
               
Supplemental disclosures of cash flow information:                
Cash paid for interest  

$

-     $ 983  
Cash paid for income taxes  

$

-    

$

-  
               
Non cash investing and financing activities:                
Issuance of common stock for conversion of debt and accrued interest   $ 130,576     $ 69,661  
Issuance of preferred stock in satisfaction of amounts owed to officers  

$

-     $ 200,000  
Acquisition of assets with issuance of common stock  

$

-     $ 42,500  
Beneficial conversion feature recorded on convertible debt   $ 938,614     $ 7,895  
Issuance of common stock for accounts payable   $ 165,231    

$

-  
Financing fees added to Line of Credit   $ 45,000    

$

-  

 

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

 

 
F-3

 

 StreamTrack, Inc.

Notes to Consolidated Financial Statements

(unaudited)

 

1. Nature of Business

 

StreamTrack, Inc. (the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through its RadioLoyaltyTM Platform (the “Platform”) to over 5,000 internet and terrestrial radio stations and other broadcast content providers. The Platform consists of a web-based and mobile player that manages streaming audio and video content, social media engagement, display and video ad serving within the web player and is also capable of replacing audio ads with video ads within the web player in a live or on-demand environment. The Company offers the Platform directly to its broadcasters and integrates or white labels its technologies with web-based internet radio guides and other web-based content providers. The Company is also continuing development of WatchThis™, a patent-pending technology to provide web, mobile and IP television streaming services that are e-commerce enabled within streamed content. The Company was incorporated as a Wyoming corporation on May 6, 2008.

 

Basis of Presentation

 

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K for year ended August 31, 2014. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, StreamTrack Media, Inc. and RadioLoyalty, Inc., California corporations. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the six months ended February 28, 2015, the Company recorded an operating loss of $467,145 and a net loss of 811,464. As of February 28, 2015, the Company had a working capital deficit of $3,415,145, which excluding the derivative liability was $971,036 indicated that the Company may have difficulty continuing as a going concern.

 

Management is confident but cannot guarantee that the Company will be able to raise additional capital in order to repay debts and continue operations. For the twelve months ending August 31, 2015, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others of $144,420, $1,149,770, and $63,704, respectively. The Company's normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Since inception and through the date of these financial statements, the Company has successfully raised a significant amount of capital through debt and equity offerings. The Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2015. The Company expects those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. The Company will attempt to have its potential partners pay for the some of these costs but management cannot be certain that it will succeed in entering into such arrangements. Management may potentially make a business decision to move forward, delay, or cancel certain partnerships because of the Company’s overall capital needs. Nonetheless, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan and become profitable. If the Company is unable to become profitable and sustain positive cash flow from operations, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 
F-4

  

Use of Estimates

 

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

 

2. Composition of Certain Financial Statement Captions

 

Property and Equipment

 

Property and equipment consisted of the following:

 

    February 28,
2015
    August 31,
2014
 
         

Software

 

$

1,555,346

   

$

1,247,232

 

Servers, computers, and other related equipment

   

198,924

     

198,924

 

Leasehold improvements

   

1,675

     

1,675

 
   

1,755,945

     

1,447,831

 

Less accumulated depreciation and amortization

 

(1,153,280

)

 

(948,516

)

Property and equipment, net

 

$

602,665

   

$

499,315

 

 

Depreciation expense totaled $204,764 and $169,262 for the six months ended February 28, 2015 and 2014, respectively. There have been no write-offs or impairments of property and equipment since the Company’s inception on November 30, 2011.

 

Note Receivable

 

At February 28, 2015, note receivable consisted of a $150,000 convertible promissory note and $26,250 in accrued interest. The note bears interest at 7% and is due from a digital content provider on or before August 28, 2016. The balance owed can be converted into either preferred stock or common stock of the digital content provider, at the Company’s election, subject to certain conditions and contingencies. The Company agreed to work with the digital content provider to make modifications to its Universal PlayerTM technology platform to better suit the digital content provider’s specific needs. The Company received a $25,000 deposit previously. The Company has recorded the remaining fees, which are recorded as a note receivable.

 

 
F-5

  

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following:

 

   

February 28,
2015

    August 31,
2014
 
         

Accounts payable

 

$

801,810

   

854,207

 

Accrued interest

   

128,804

     

75,736

 

Accrued broadcaster commissions

   

75,064

     

60,695

 

Accrued consulting fees

   

10,000

     

43,333

 

Credit card

   

89,380

     

75,485

 

Accounts payable and accrued expenses

 

$

1,105,058

     

1,109,456

 

 

3. Fair Value

 

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

 

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

 

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

 

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

 

When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available. Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2015 and August 31, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, prepaids, accounts payable, accrued liabilities, notes payable, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short term in nature or they are payable on demand.

 

 
F-6

  

The fair value of these financial assets and liabilities was determined using the following inputs:

 

    Fair Value Measurement Using      
    Quoted Prices in Active Markets for Identical Instruments
(Level 1)
    Significant
Other
Observable Inputs (Level 2)
    Significant Unobservable
Inputs
(Level 3)
    Total  
             

Fair values as of February 28, 2015

               

Liabilities:

               

Derivative liabilities

 

$

-

   

$

971,036

   

-

   

$

971,036

 
                               

Total liabilities measured at fair value

 

$

-

   

$

971,036

     

-

   

$

971,036

 
                               

Fair values as of August 31, 2014

                               

Liabilities:

                               

Derivative liabilities

 

$

-

   

$

1,022,350

     

-

     

1,022,350

 
                               

Total liabilities measured at fair value

 

$

-

   

$

1,022,350

     

-

     

1,022,350

 

 

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

 

4. Asset Acquisition / Disposition

 

Asset Acquisition

 

On November 21, 2013, the Company, entered into an Asset Purchase Agreement with Robot Fruit, Inc., a New York corporation ("Robot Fruit") pursuant to which, the Company issued 850,000 shares of common stock in exchange for Robot Fruit Mobile Application Development Platform and related code and intellectual property. The Company accounted for the purchase as an asset acquisition as the assets did not meet the definition of a business. In connection with the agreement, the Company determined the fair market value of the common stock issued to be $42,500, which was recorded as software within property and equipment on the accompanying balance sheet. The Company determined the expected life of the asset acquired to be 36 months.

 

 
F-7

  

Disposition

 

On November 15, 2013, the Company entered into an Asset Purchase Agreement with Dane Media, LLC (the "Agreement"), a New Jersey limited liability company ("Dane Media") pursuant to which, for an aggregate purchase price of $150,000, Dane Media purchased from StreamTrack, its (i) Student Matching Services (as defined in the Agreement), (ii) each of (A) www.studentmatchingservice.com and (B) www.studentmatchingservices.com, and (iii) each of the (A) Call Center Agreement, and the (B) Data/List Management Agreement (as each are described in the Agreement).

 

Pursuant to the Agreement, the Company shall not compete with Dane Media in call center verified education leads for a period of 12 months following execution of the Agreement. The Company will continue to operate its advertising and lead generation business in various other vertical markets. Moreover, pursuant to the Agreement, the Company forgave certain payments owed by Dane Media to the Company of $38,135 which were invoiced between September 1, 2013 and November 15, 2013. The $150,000 purchase price was paid according to the following schedule: $50,000 upon closing of the transaction; $50,000 on December 13, 2013; and $50,000 on December 31, 2013. In connection, with the transaction the Company recorded a gain on sale of $111,865. The Company did not reclass the income and expenses directly related to the disposition of the education related lead generation to discontinued operations. The Company still operates within the advertising and lead generation business services with other verticals.

 

5. Commitments and Contingencies

  

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

 

(a) In one or more tranches as necessary, 3,740,000 shares of common stock (the "Initial Issuance") and an additional 200,000 shares of common stock as a settlement fee.

 

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

 

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

 

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

 

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

 

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

 

In connection with the settlement, during the six months ended February 28, 2015 the Company issued 223,423,000 shares of common stock to ASC in which gross proceeds of $221,472 were generated from the sale of the common shares. In connection with the transaction, ASC received fees of approximately $56,681 and provided payments of approximately $164,791 to settle outstanding vendor payables. The remaining amount on the settlement of liabilities owed by the Company to ASC is in the aggregate amount of approximately $151,730 as of February 28, 2015. The Company cannot reasonably estimate the amount of proceeds ASC expects to receive from the sale of these shares which will be used to satisfy the liabilities. Thus, the Company accounts for the transaction as the shares are sold and the liabilities are settled. All amounts are included within accounts payable. Shares which are held by ASC at each reporting period are accounted for as issued but not outstanding.

 

Legal Proceedings

 

The Company is potentially subject to various legal proceedings and claims arising in the ordinary course of its business. There are no pending legal proceedings against the Company as of the date of these financial statements.

 

 
F-8

 

6. Capital Lease

 

The Company leased computer servers and related hardware under capital lease agreements. The lease terms are typically from three to five years, depending on the type of equipment. The leased equipment typically has a bargain purchase price, and qualifies for treatment as a capital lease. For book purposes, the assets are amortized over their estimated useful lives. As of February 28, 2015 and August 31, 2014, assets under capital leases had been fully depreciated.

 

On March 22, 2013, the Company reached a settlement and release agreement with IBM Credit, LLC, (“IBM”) the lessor associated with the Company’s computer servers and software classified under capital lease. The balance owed to IBM as of March 22, 2013 was agreed to be $108,704. The Company agreed to make payments of $9,000 per month, with a final payment of $9,704 on March 1, 2014, in order to satisfy this balance. As of February 28, 2015 and as of the date of these financial statements, the Company was in default of this agreement and the amount outstanding of $59,204 is reflected as a current liability on the accompanying balance sheet. 

 

7. Related Party Transactions

 

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

 

The related party payable as of February 28, 2015 and August 31, 2014 consists of unpaid compensation and non-interest bearing cash advances and charges on personal credit lines made on behalf of the Company by the Executives. The balances owed to the Executives are not secured and are due on demand. Interest will be charged on these balances. During the six months ended February 28, 2015, the Executives converted a significant portion of amounts due to them for unpaid compensation and other advances to long-term convertible notes payable, see Note 8 for additional information. In addition, the Executives agreed to a temporary reduction in their annual salary from $240,000 to $50,000 per annum for the period from December 1, 2014 to May 31, 2015.

 

See Notes 8 and 10 for additional related party transactions.

 

8. Debt Instruments

 

Asset-Based Debt Financing

 

On April 11, 2013, the Company executed a non-dilutive asset-based debt financing (the “Lender Financing”) with a third party (the “Lender”). The Lender Financing consists of a $250,000 line of credit, subsequently increased to $520,000, secured by all of the Company’s assets. The Company’s management also executed limited recourse guarantees with the Lender. Interest is payable monthly based on a floating interest rate determined based on a formula outlined in detail within the financing agreement. The Company anticipates the effective monthly interest rate charged on the outstanding balance owed to the third party will be between 2.6% and 1.1%.

 

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

 

On March 31, 2015, the Company executed an extension to this agreement whereby the maturity date has been extended to December 31, 2015. The Lender financing is currently capped at $545,692 which begins decreasing to $500,000 on April 30, 2015; $450,000 on June 30, 2015; and $300,000 on September 30, 2015 and the remainder on December 31, 2015.

 

 
F-9

  

Convertible Notes Payable

 

The Company relied on various financings from a lender since 2010 (the “Creditor”). Each note issued by the Creditor (the “Creditor Notes”) bears interest per annum at a rate of 8%, default interest rate of 22% and is generally payable within six months from the issuance date. In April 2014, the Creditor entered into an exchange agreement with another lender whereby they transferred their interest in the Creditor Notes to another lender. See below for additional information.

  

Vendor Convertible Note

 

On November 1, 2012, the Company issued a convertible note for $140,000 (the “Vendor Note”) to a former Vendor ("Vendor"). The Vendor Note was executed on November 1, 2012 and was immediately convertible into the Company’s common stock at a 50% discount to the lowest bid price for the five days prior to the conversion date. The table below details the transactions with the Vendor during the six months ended February 28, 2015.

 

Vendor Note, principal balance as of August 31, 2014   $ 35,300  
Conversion of Vendor Note to common stock (119,750,000 common shares issued)   (31,050 )
Vendor Note, principal balance, February 28, 2015   $ 4,250  

 

Since the number of shares the Vendor Note was convertible into was indeterminable, the Company determined a derivative liability was embedded within the Vendor Note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $190,927 as of November 1, 2012. As a result of the valuation of the derivative liability being in excess of the value of the proceeds of the Vendor Note by $50,927, this amount was recorded within change in fair value of derivatives by the Company on November 1, 2012. The debt discount associated with the Vendor Note was immediately expensed to interest expense as a result of the Vendor Note being immediately convertible and due on demand.

 

As of May 31, 2014, the conversion price of the Vendor Note is based upon a 50% discount to lowest five days bid prices of the Company’s common stock over the five-day period prior to conversion. As a result, the lower the stock price at the time the Vendor converts the Vendor Note, the more common shares the Vendor will receive. To the extent the Vendor converts the Vendor Note and then sells its common stock, the common stock may decrease due to the additional shares in the market. This could allow the Vendor to receive greater amounts of common stock upon conversion. The sale of each share of common stock further depresses the stock price. Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Vendor would be issued upon conversion. The table below details the number of shares of the Company’s common stock the Vendor would be issued, if the Vendor elected to convert the Vendor Note to common shares on each reporting date. The shares issuable upon conversion of the Vendor Note may result in substantial dilution to the interests of the Company’s other shareholders.

 

Creditor #2 Convertible Promissory Notes

 

In April 2014, the Creditor entered into an exchange agreement with another lender (the “Creditor #2”) whereby the Creditor transferred the Creditor's notes and accrued interest to Creditor #2. In April, the Company entered into i) a note agreement for $284,560 representing amounts transferred from the Creditor; ii) two $125,000 notes in which the proceeds were received on the same date (collectively referred to as the “Creditor #2 Notes”) with Creditor #2. The Creditor #2 Notes bear interest per annum at 10.0%, payable six months after the issuance date and are convertible on the date of issuance based upon based upon a 45% discount to lowest trading price, for the 15 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #2 converts the Creditor #2 Notes, the more common shares the Creditor #2 will receive. The table below details the transactions with the Creditor #2 during the six months ended February 28, 2015.

  

Creditor #2 Notes, principal balance as of August 31, 2014   $ 464,449  
Conversion of Creditor #2 Notes to common stock (317,518,210 common shares issued)   (62,376 )
Creditor #2 Notes, principal balance as of February 28, 2015   $ 402,073  

 

 
F-10

 

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

 

During the six months ended February 28, 2015, the Company amortized the remaining discount of $62,500 to interest expense. The discount was the result of a derivative liability recorded in connection with the Creditor #2 Notes in fiscal 2014.

 

Creditor #3 Convertible Promissory Note

 

In December 2014, a convertible promissory note holder ("Holder") entered into an exchange agreement with another lender (the “Creditor #3”) whereby the Holder transferred the Holder’s notes and accrued interest to Creditor #3. In December 2014, the Company entered into i) a note agreement for $150,000 representing the principal amount transferred from the Holder. The Creditor #3 Note bears interest per annum at 10.0%, due on August 22, 2015 and is convertible on the date of issuance based upon based upon a 25% discount to lowest trading price, for the 5 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #3 converts the Creditor #3 Notes, the more common shares the Creditor #3 will receive. The table below details the transactions with the Creditor #3 during the six months ended February 28, 2015.

 

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

$

-  
Transfer from 3rd party     150,000  
Conversion of Creditor #2 Notes to common stock (92,777,777 common shares issued)   (37,150 )
Creditor #3 Notes, principal balance as of February 28, 2015   $ 112,850  

  

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

 

During the six months ended February 28, 2015, the Company recorded a discount of $150,000 due to the derivative liability, as discussed below in Note 9, having a fair market value in excess of the principal amount of the convertible note. During the six months ended February 28, 2015, the Company amortized $75,000 of the discount to interest expense. As of February 28, 2015, the carrying amount of the discount was $75,000 which will be amortized during fiscal 2015.

 

 
F-11

  

Convertible Promissory Notes

 

As of February 28, 2015, the Company has outstanding 24 convertible promissory notes issued between December 2011 and February 2015. The convertible promissory notes bear interest at either 4% or 8% per annum and are due in full, including principal and interest, two-three years from the issuance date ranging from August 2014 to February 2018. The convertible promissory notes also include a conversion option whereby the holders may elect at any time to convert any portion or the entire balance into the Company’s common stock at conversion prices ranging from $0.0001 to $1.25. The table below details the transactions associated with the convertible promissory notes during the six months ended February 28, 2015.

 

Convertible Promissory Notes, principal balance as of August 31, 2014   $ 745,134  
Proceeds received from additional Convertible Promissory Notes - Related Party     261,750  
Conversion of accrued salaries and advances to Convertible Promissory Notes - Related Party     626,864  
Proceeds received from additional Convertible Promissory Notes     147,912  
Note transferred to Creditor #3   (150,000 )
Payments on Convertible Promissory Notes - Related Party   (89,284 )
Convertible Promissory Notes, principal balance as of February 28, 2015   $ 1,542,376  

  

Of the convertible promissory notes outstanding, $1,059,464 are held by related parties. These related parties consist of the Company's officers, former officers, significant shareholders or entities controlled by these individuals. As of February 28, 2015 and August 31, 2014, $175,000 of these notes were included within the current portion of convertible promissory notes on the accompanying balance sheet as the note was due within one year of the balance sheet.

 

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

 

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

 

The discounts are amortized over the term of the convertible promissory note using the straight line method. The amortized value for each period is recorded as an offset against the debt discount on the balance sheet, classified as interest expense - accretion in the statement of operations and as accretion of debt discount within the statement of cash flows. During the six months ended February 28, 2015, the Company recorded a beneficial conversion feature of $1,011,505 in connection with the issuance of $1,031,505 in convertible notes. The increase in convertible notes payable during the six months ended February 28, 2015 of $1,031,505, $156,750 related to proceeds received from the Company's Chief Executive Officer, $100,000 in proceeds from the Chief Executive Officer of StreamTrack Media, Inc., $115,000 in proceeds from third parties, $32,891 in conversions of amounts payable to a third party to a note, $316,758 in salary and advances due to our Chief Executive Officer converted to a convertible note payable and $310,106 in salary and advances due to StreamTrack Media, Inc.'s Chief Executive Officer converted to a convertible note payable. During the six months ended February 28, 2015 and 2014, $191,755 and $20,537 of the discounts were amortized to interest expense, respectively. As of February 28, 2015, $849,118 discounts remained which will be expensed in fiscal 2015 through 2018.

 

On December 24, 2014, the Company entered into a convertible note agreement for $114,350 with a third party. Under the terms of the agreement the third party was to provide the Company with $81,459 in cash and relief of $48,333 in accrued consulting fees due to the third party. In addition, the Company agreed to issue 10,000,000 share of common stock and 500 shares of Series C Preferred Stock. The convertible note incurs interest at a rate of 4% per annum, is due December 24, 2016 and is convertible into shares of the Company's common stock on the date of issuance based upon based upon a 10% discount to lowest trading price, for the 15 trading days prior to conversion. As of February 28, 2015, proceeds of $40,000 had been received. Upon receipt the remaining proceeds, the Company will record additional discounts and a derivative liability. Subsequent to February 28, 2015, the remaining $41,459 was received.

 

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

 

 
F-12

  

9. Derivatives

 

Creditor Notes

 

Upon the six-month anniversary (180 days) of all financings with the Creditor, the shares underlying the Creditor’s Notes were eligible to be sold under Rule 144 under the Securities Act of 1933, as amended. As a result of the conversion price not being fixed, the number of shares of the Company’s common stock that were issuable upon the conversion of the Creditor’s Notes was indeterminable until such time as the Creditor elects to convert to common stock.

 

On the six-month anniversary of Creditor Notes, the Company measures and records a derivative liability using the input attributes disclosed below. On February 28, 2014, the Company re-measured the derivative liability using the weighted average input attributes below and determined the value to be $507,310 of which an expense of $24,250 was classified as “change in fair value of derivatives” and was recorded for the six months ended February 28, 2014 in the statement of operations.

 

    February 28,
2014
 
     

Expected life (in years)

 

0.10

 

Balance of note and accrued interest outstanding

 

$

303,578

 

Stock price

 

$

0.0070

 

Effective conversion price

 

$

0.0026

 

Shares issuable upon conversion

   

1,115,201,123

 

Risk-free interest rate

   

0.04

%

Expected volatility

   

61.83

%

Expected dividend yield

   

-

 

 

Creditor #2 Note

 

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

 

 
F-13

  

On February 28, 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $731,080 of which $215,239 was classified as income within “change in fair value of derivatives” and was recorded for the six months ended February 28, 2015 in the statement of operations.

 

    February 28,
2015
 
     

Expected life (in years)

 

0.50

 

Balance of note outstanding

 

$

402,094

 

Stock price

 

$

0.0001

 

Effective conversion price

 

$

0.00006

 

Shares issuable upon conversion

   

7,310,800,000

 

Risk-free interest rate

   

0.5

%

Expected volatility

   

308.36

%

Expected dividend yield

   

-

 

 

Creditor #3 Note

 

The Creditor #3 Note was immediately convertible into the Company’s common stock at a 25% discount to the lowest traded price for the five days prior to the conversion date. As a result of the fact that the number of shares the Creditor #3 is convertible into is indeterminable, the Company determined a derivative liability was embedded within the Creditor #3. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $50,000 as of December 24, 2014. As a result of the valuation of the derivative liability being in excess of the value of the carrying value of Creditor #3 by $50,000, a loss on derivative liability of $50,000 was recorded by the Company.

 

On February 28, 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $150,467 of which $49,533 was classified as income within “change in fair value of derivatives” and was recorded for the six months ended February 28, 2015 in the statement of operations.

 

     

February 28,
2015

   

December 24,
2014

 
               

Expected life (in years)

 

0.50

   

0.80

 

Balance of note outstanding

 

$

112,850

   

$

150,000

 

Stock price

 

$

0.0001

   

$

0.0007

 

Effective conversion price

 

$

0.00008

   

$

0.0005

 

Shares issuable upon conversion

   

1,504,666,667

     

333,333,333

 

Risk-free interest rate

   

0.50

%

   

0.50

%

Expected volatility

   

308.36

%

   

308.36

%

Expected dividend yield

   

-

%

 

 

-

%

 

 
F-14

 

Vendor Note

 

The Vendor Note was executed on November 1, 2012 and was immediately convertible into the Company’s common stock at a 50% discount to the lowest bid price for the five days prior to the conversion date. As a result of the fact that the number of shares the Vendor Note was convertible into was indeterminable, the Company determined a derivative liability was embedded within the Vendor Note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $190,927 as of November 1, 2012. As a result of the valuation of the derivative liability being in excess of the value of the proceeds of the Vendor Note by $50,927, a deemed dividend of $50,927 was recorded by the Company on November 1, 2012. The debt discount of $140,000 associated with the Vendor Note was immediately expensed to interest expense – accretion as a result of the Vendor Note being immediately convertible and due on demand.

 

On February 28, 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $8,500 of which $67,531 was classified as income within “change in fair value of derivatives” and was recorded for the six months ended February 28, 2015 in the statement of operations.

 

On February 28, 2014, the Company re-measured the derivative liability using the weighted average input attributes below and determined the value to be $216,795 of which $97,219 was classified as income within “change in fair value of derivatives” and was recorded for the six months ended February 28, 2014 in the statement of operations.

 

     

February 28,

2015

   

February 28,

2014

 
               

Expected life (in years)

 

0.50

   

0.10

 

Balance of note outstanding

 

$

4,250

   

$

90,700

 

Stock price

 

$

0.0001

   

$

0.0070

 

Effective conversion price

 

$

0.00005

   

$

0.0021

 

Shares issuable upon conversion

   

85,000,000

     

44,243,902

 

Risk-free interest rate

   

0.50

%

   

0.04

%

Expected volatility

   

380.36

%

   

61.83

%

Expected dividend yield

   

-

%

 

 

-

%

 

Convertible Promissory Note

 

As discussed in Note 8, on December 24, 2014 the Company issued a $72,890 promissory note to a third party. The convertible promissory note was immediately convertible into the Company’s common stock at a 10% discount to the lowest traded price for the five days prior to the conversion date. As a result of the fact that the number of shares the promissory note is convertible into is indeterminable, the Company determined a derivative liability was embedded within the promissory note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $94,487 as of December 24, 2014. As a result of the valuation of the derivative liability being in excess of the value of the carrying value of convertible promissory note by $21,597, a loss on derivative liability of $21,597 was recorded by the Company.

 

 
F-15

  

On February 28, 2015, the Company re-measured the derivative liability using the input attributes below and determined the value to be $80,989 of which $13,498 was classified as income within “change in fair value of derivatives” and was recorded for the six months ended February 28, 2014 in the statement of operations.

 

     

February 28,
2015

   

December 24,
2014

 
               

Expected life (in years)

 

1.90

   

2.00

 

Balance of note outstanding

 

$

72,890

   

$

72,890

 

Stock price

 

$

0.0001

   

$

0.0007

 

Effective conversion price

 

$

0.00009

   

$

0.0005

 

Shares issuable upon conversion

   

809,888,889

     

134,981,481

 

Risk-free interest rate

   

0.50

%

   

0.50

%

Expected volatility

   

308.36

%

   

308.36

%

Expected dividend yield

   

-

%

 

 

-

%

 

10. Stockholders’ Equity

 

Series A Preferred Stock

 

Each share of Series A Preferred Stock has voting rights equal to the voting equivalent of the common stock into which it is convertible at the time of the vote. The holders of the Series A Preferred Stock are not entitled to dividends. The Series A Preferred Stock has no preferential rights to the Company’s common stock and will share in any liquidation proceeds with the common stock on an as converted basis. No shares of Series A Preferred Stock are outstanding as of February 28, 2015.

 

Series B Preferred Stock

 

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

 

 
F-16

  

On October 31, 2013, the Company entered into amendment, waiver and exchange agreements (the "Exchange Agreements") with Michael Hill (the Company's chief executive officer and director) and Aaron Gravitz (the Company's director). Under each Exchange Agreement, the Company issued to each of Mr. Hill and Mr. Gravitz 100,000 shares of Series B Preferred Stock in exchange for $100,000 in unpaid compensation.

 

Series C Preferred Stock

 

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

 

See Note 8 for discussion related to the issuance of Series C.

 

Common Stock

 

Each share of common stock has the right to one vote per share. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company, whenever funds are legally available, subject to the rights under any outstanding preferred stock.

 

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

 

See Note 8 for discussion related to the issuances of common stock.

 

Detachable Stock Warrants

 

As of February 28, 2015, the Company has a total of 287,500 detachable stock warrants outstanding. The warrants have a three-year term and are exercisable into the Company’s common stock at an exercise price of $0.41 per share.

 

 
F-17

  

Stock Based Compensation

 

The fair value of the Company’s Restricted Stock Units (“RSUs”) is expensed ratably over the vesting period. RSUs vest daily on a cliff basis over the service period, generally three years. The Company recorded stock-based compensation expense related to restricted stock units of $8,262 during the six months ended February 28, 2014. As of February 28, 2015, all compensation costs related to RSUs has been recognized.

   

11. Net Income (Loss) Per Share

 

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

 

Diluted net income (loss) per share is computed by giving effect to all potential shares of common stock, including convertible debt instruments, preferred stock, restricted stock unit grants and detachable stock warrants. Basic and diluted net loss per share for the six months ended February 28, 2015 and the three and six months ended February 28, 2014 was the same as the inclusion of all potential common shares outstanding would have been anti-dilutive. The following is the calculation of dilutive shares for the three months ended February 28, 2015.

 

    For the Three
Months Ended
February 28,
2015
 
     

Weighted-average common shares outstanding used in computing basic net income per share:

 

968,543,899

 

Common stock equivalents:

       

Creditor #2 Notes

   

7,310,800,000

 

Creditor #3 Note

   

1,504,667,667

 

Vendor Note

   

85,000,000

 

Convertible promissory note

   

809,889,889

 

Convertible promissory notes

   

8,667,604,837

 

Series B Preferred Stock (A)

   

-

 

Series C Preferred Stock

   

681,818,182

 

Weighted-average common shares outstanding used in computing dilutive net income per share:

   

20,028,323,474

 

 

 
F-18

 

The following is the reconciliation of net income used in the calculation of the dilutive income per share for the three months ended February 28, 2015.

 

    For the Three
Months Ended
February 28,
2015
 
     

Net income available to common stock holders:

 

$

4,241,371

 

Adjustments:

       

Accrued interest on convertible notes

   

128,113

 

Accretion of discount on convertible notes

   

331,760

 

Net income used in the calculation of the dilutive income per share:

 

$

4,701,214

 

 

(A) The Series B Preferred Stock is only convertible on a qualified financing in excess of $5.0 million. Thus, the potential dilutive shares have not been included within the calculation.

 

The warrants outstanding have been excluded from the table above as their exercise prices are greater than the average closing price of the Company's common stock for the three months ended February 28, 2015.

 

12. Subsequent Events

 

In March 2015, we entered into a $25,000 convertible note payable, with a third party. Under the terms of the agreement, the note incurs interest at 4%, is due in two years and convertible to common stock at $0.0001 per share.

 

Subsequent to February 28, 2015, 464,733,334 shares of common stock were issued in connection with $34,704 in convertible notes payable.

 

Subsequent to February 28, 2015, 103,570,000 shares of common stock were issued in connection with the settlement of accounts payable and related fees of $9,728.

 

Subsequent to February 28, 2015, the Company entered into an agreement relating to current credit line, see Note 8.

 

Subsequent to February 28, 2015, the Company authorized up to 300 million shares to be issued under the StreamTrack, 2015 Incentive Stock Plan.

 

 
F-19

 

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

 

The following discussion and analysis should be read in conjunction with the consolidated financial s

tatements and related notes included in this report and those in our Form 10-K/A for the fiscal year ended August 31, 2014 filed with the Securities and Exchange Commission December 15, 2014 and all subsequent filings.

 

Overview

 

StreamTrack, Inc. (“StreamTrack,” or the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through the RadioLoyaltyTM Platform (the “Platform”) to a global group of over 5,000 internet and terrestrial radio stations and other broadcast content providers.

 

Our business model is focused on the following core principles:

 

1.

We barter with audio content providers, namely internet and terrestrial radio stations, to obtain control and management of their desktop advertising opportunity (“Ad Inventory”). We also routinely purchase any Ad Inventory the content providers have not previously transferred to us by barter.

   

2.

In exchange for the Ad Inventory, we pay for all internet and mobile streaming costs associated with the broadcaster’s content that is streamed through our platform. We barter in order to scale our business. The end result of the barter is that we aggregate Ad Inventory from broadcasters that management believes can reach substantial size while maintaining a primarily fixed cost structure for our hardware, content delivery, labor and other costs, respectively.

   

3.

We re-broadcast original audio broadcast content through the Platform in a streaming media format in desktop and mobile environments. By re-broadcasting we ensure that we do not pay any royalties. Royalties are the responsibility of our broadcasters. This is a substantial advantage for us as many of our competitors pay royalties of up to 70% of revenues generated from licensed broadcast content.

   

4.

We serve advertisements (“Ads”) within the Platform in audio, display and video formats in a desktop environment and display ads in a mobile environment using our RadioLoyaltyTMApps.

   

5.

Ads are served by our automated systems based on geography and demographics data, among others.

   

6.

The primary technology that makes our Platform unique in the industry is that we are able to re-broadcast audio content with geographically targeted Ads that replace Ads served within an original broadcast targeting a listener in a certain geography. By having this capability we can also choose to replace audio Ads that do not generate as high of Ad revenues with video-based Ads that generate much higher Ad revenues. In effect, we make the broadcaster’s original broadcast capable of delivering Ads that are geographically targeted throughout a global broadcast marketplace while also utilizing video Ads and our proprietary video in-stream technology to increase advertising rates.

   

7.

All of our primary technology that supports the Platform is automated and capable of operating in a live environment. Audio content is streamed, Ads are targeted and served, audio Ads are replaced as needed and video Ads replace audio Ads, as desired and when possible.

 

Advertising revenue constitutes the majority of our total revenue, representing 96.4% of total revenue for the six months ended February 28, 2015. We anticipate this trend will continue and our revenues will be generated primarily from advertising. Our advertising revenue for the six months ended February 28, 2015 was almost entirely derived from advertising delivered on desktop devices.

 

We deliver content on mobile devices through our RadioLoyaltyTMapp but we do not currently generate significant mobile advertising revenues. Management believes that mobile advertising represents an opportunity for the Company in the coming years and on an ongoing basis. Management expects the mobile advertising market will grow at substantial rates in the coming years. However, many challenges exist in this market. We believe these challenges will be solved primarily with new technologies. We believe our current technologies and other technology under development will solve some of these challenges. By solving these challenges we will be able to monetize the mobile listenership we are growing today.

 

 
3

  

We are also continuing development of WatchThis™, a patent-pending merchandising in-stream technology to provide web-based and IP television streaming services with a unique e-commerce advertising capability. The technology is functional in a local environment. Our development efforts are currently focused on technical issues associated with operating the technology in a live streaming environment. If and once the technology is functional in a live streaming environment, management plans to use the in-video advertising method technology to create a video encode with keywords that tag frames with corresponding merchandise within video content. These tags would communicate with our advertising database to deliver the highest paying advertiser in real-time. Consumers would be able to view this content, select tagged products within the content, and complete purchases throughout the broadcast.

 

In November 2013, we completed an asset purchase of RobotFruit, a mobile loyalty and application platform. Robot Fruit provides a complete SAAS based mobile platform for publishers and content owners to directly sell their mobile web and in-app ad inventory on leading mobile devices. The platform is a self-service mobile loyalty and development platform that has an easy to use interface which enables station owners, content owners, business owners, artists and bands to quickly deploy in HTML5, native iOS and Android based application environments. We anticipate making the technology available to broadcasters, content owners and artists in the coming months.

 

Key Metrics:

 

We track listener hours because we believe it is the best key indicator of the growth of our Platform business. Revenues from advertising through our Platform represented substantially all of our revenues for the six months ended February 28, 2015. We also track the number of active users on our Platform as well as the RadioLoyaltyTM app as indicators of the size and quality of our audience, which are particularly important to potential advertisers. Additionally, the Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2015. The Company expects those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. Once these products are launched we will determine key indicators of growth for those products.

 

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

 

Player launches are defined as the number of individual times the UniversalPlayer™ was launched.

 

Registered users are defined as the number of users who have signed up for an account with us in order to access our broadcasters’ content and to earn loyalty points. The number of registered users may overstate the number of actual unique individuals who have signed up for an account with us in order to earn loyalty points, as an individual may register for, and use, multiple accounts under unique registration information. This is in breach of our terms and conditions but we may not be able to effectively manage and authenticate registration information in order to ensure each user is a unique individual. We define registered users as those who have signed up with us to receive loyalty points. We calculate this by the number of submissions we receive from users signing up for our loyalty service.

 

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

 

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

 

 
4

  

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

 

Comparison of the Six Months Ended February 28, 2015 and February 28, 2014

 

 

  For the Six
Months Ended
February 28,
2015
    For the Six
Months Ended
February 28,
2014
 

Revenue:

 

 

 

 

Advertising

 

$

518,394

   

$

902,387

 

Services

   

19,250

     

16,500

 

Total revenue

 

$

537,644

   

$

918,887

 

 

Revenues for the six months ended February 28, 2015 and 2014, totaled $537,644 and $918,887 respectively. The period over period decline can be attributed to several factors. Education related revenue decreased for the six month period year over year by $60,587 as a result of the sale of the education call center. Video revenue decreased for the six month period year over year by $176,442 attributable to overall industry technical changes and ad related errors including Vpaid errors, ad response times, increased latency, creative errors and creative load time. Tighter buying criteria by Customers as a result of quality scoring from companies such as Integral Ad Science and ForensIQ also reduced buys from some Customers. Display revenue decreased for the six month period year over year by $144,103. Our largest buyer of display traffic Undertone decreased by $177,422 for the six month period year over year as a result of decreased demand. While we were able to make up for some of this shortfall with other Customers, the decrease from this Customer accounted for the majority of the decline. Listening hours decreased for the six month period year over year by about 9.5%, also contributing to the decline in revenue. We anticipate generating additional advertising revenues from the launch of several new product offerings and certain new significant partnerships during the year ending August 31, 2015.

  

 

  For the Six
Months Ended
February 28,
2015
    For the Six
Months Ended
February 28,
2014
 

Costs of revenues:

       

Media network

 

$

191,583

   

$

257,329

 

Depreciation and amortization

   

77,986

     

164,592

 

Colocation services

   

76,668

     

95,550

 

Broadcaster commissions

   

66,935

     

100,888

 

Other

   

3,382

     

75,583

 

Total costs of revenue

 

$

416,554

   

$

693,942

 

 

 
5

 

Costs of revenues for the six months ended February 28, 2015 and 2014 totaled $416,554 and $693,942, respectively. Each reporting period we have recorded substantial amortization costs associated with the Platform. The significant amortization costs associated with the Platform ceased on December 1, 2014 when it became fully amortized. In order to operate the Platform and the RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We operate a substantial technology center at our offices in Santa Barbara, California but also utilize a contracted facility in Los Angeles, California, to support our operations and ensure our systems and content delivery maintain our service level agreements. We refer to these costs as colocation services. Colocation services costs should increase as our business grows. However, our current costs should remain fixed until and if we reach a substantial listener hours level that exceeds approximately 15,000,000 hours per month. We currently generate approximately 750,000 listener hours per month. Our advertising sales arrangements with over 5,000 stations facilitate us paying the broadcasters a monthly revenue sharing fee. We refer to these costs as broadcaster commissions. Broadcaster commissions are paid on ad inventory we purchase from the broadcasters, not on Ad Inventory we receive as a barter from the broadcasters. Other costs of sales include media network costs associated with the distribution of our content across a variety of advertising networks, streaming costs, and various application technologies that support our primary product offerings. 

 

    For the Six
Months Ended
February 28,
2015
    For the Six
Months Ended
February 28,
2014
 

Operating expenses

       

Product development

 

$

14,249

   

$

115,728

 

Officer compensation

   

58,499

     

240,000

 

Sales and marketing

   

76,978

     

64,815

 

Other

   

438,509

     

296,473

 

Total operating expenses

 

$

588,235

   

$

717,016

 

 

Operating expenses for the six months ended February 28, 2015 and 2014 totaled $588,235 and $717,016, respectively. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio and the WatchThisTM technology, as well as Officer compensation related to accrued but primarily unpaid salaries for our two primary executives officers. Marketing and sales costs incurred were primarily related to the labor costs of employing our sales force. Our sales force markets our products on a daily basis. We expect these costs to increase in the current fiscal year. Rents were primarily related to three leases we are obligated under for our Santa Barbara, California office. Consultant expenses included fees incurred with certain personnel primarily related to finance, business development and investor relations services. Professional fees included accounting, auditing and legal fees associated with public company matters. Travel and entertainment was associated with ongoing business development and investor relations activities. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

 

    For the Six
Months Ended
February 28,
2015
    For the Six
Months Ended
February 28,
2014
 

Other income (expenses)

       

Other income (expense)

 

$

(56,681

)

 

$

5,250

 

Interest expense

 

(163,545

)

 

(145,062

)

Interest expense – accretion

 

(331,760

)

 

(20,537

)

Gain on disposal of educational lead generation and other income

   

-

     

120,364

 

Loss on extinguishment

 

(66,537

)

   

-

 

Change in fair value of derivatives

   

274,204

     

53,970

 

Total other income (expenses)

 

$

(344,319

)

 

$

13,985

 

 

 
6

 

Other (expense) income for the six months ended February 28, 2015 and 2014, totaled $(344,319) and $13,985, respectively. We generated interest income on the note receivable. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit, among others. During November 2013, we completed the sales of our education lead generation vertical, Student Matching Service. We also recorded the accretion of various debt discounts associated with our convertible promissory notes. The accretion is a result of the amortization of the debt discounts associated with the convertible promissory notes over the term of the convertible promissory notes. As a result of the derivative classification regarding the beneficial conversion feature on some of our convertible notes, the derivative liabilities have to be re-measured as of each reporting date. For the six months ended February 28, 2015 and 2014, the re-measurement resulted in a gain (loss) on change in fair value of derivative liabilities of $274,204 and $53,970, respectively. If the convertible promissory notes issued to the Creditor #2 remain outstanding at any time subsequent to the six-month anniversary of the date the convertible promissory notes were issued, a derivative liability exists and will have to be measured as of each reporting date. Similarly, if any portion of the Vendor Note and Creditor #3 remains outstanding at the reporting date, the derivative liability has to be re-measured as of the reporting date. During the six months ended February 28, 2015 and 2014, the Company's stock price increased substantially from August 31, 2014 which impacted the valuation of the derivative liabilities.

 

We did not generate taxable profits for the six months ended February 28, 2015 and 2014, respectively. As a result, no provision for income taxes was recorded during either period.

 

Comparison of the Three Months Ended February 28, 2015 and February 28, 2014

 

 

  For the Three Months Ended February 28,
2015
    For the Three Months Ended February 28,
2014
 

Revenue:

       

Advertising

 

$

209,286

   

$

386,810

 

Services

   

8,250

     

8,250

 

Total revenue

 

$

217,536

   

$

395,060

 

 

Revenues for the three months ended February 28, 2015 and 2014, totaled $217,536 and $395,060, respectively. Video revenue decreased for the quarterly period year over year by $115,763 attributable to overall industry technical changes and ad related errors including Vpaid errors, ad response times, increased latency, creative errors and creative load time. Tighter buying criteria by Customers as a result of quality scoring from companies such as Integral Ad Science and ForensIQ also reduced buys from some Customers. Display revenue decreased for the quarterly period year over year by $62,274. Our largest buyer of display traffic, Undertone, decreased by $39,178 for the quarterly period year over year as a result of decreased demand. The decrease from this Customer accounted for the majority of the decline. Listening hours decreased for the quarterly period year over year by about 23%, also contributing to the decline in revenue. We anticipate generating additional advertising revenues from the launch of several new product offerings and certain new significant partnerships during the year ending August 31, 2015. 

 

 

  For the Three Months Ended February 28,
2015
    For the Three Months Ended February 28,
2014
 

Costs of revenues:

       

Media network

 

$

86,001

   

$

129,386

 

Depreciation and amortization

   

9,340

     

82,296

 

Collocation services

   

38,334

     

47,850

 

Broadcaster commissions

   

21,804

     

37,095

 

Other

   

929

     

2,558

 

Total costs of revenue

 

$

156,407

   

$

299,185

 

 

 
7

 

Costs of revenues for the three months ended February 28, 2015 and 2014, totaled $156,407 and $299,185, respectively. Each reporting period we have recorded substantial amortization costs associated with the Platform. The significant amortization costs associated with the Platform are anticipated to continue until these Platform asset value is fully amortized on December 1, 2014. In order to operate the Platform and the RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We operate a substantial technology center at our offices in Santa Barbara, California but also utilize a contracted facility in Los Angeles, California, to support our operations and ensure our systems and content delivery maintain our service level agreements. We refer to these costs as collocation services. Collocation services costs should increase as our business grows. However, our current costs should remain fixed until and if we reach a substantial listener hours level that exceeds approximately 15,000,000 hours per month. We currently generate approximately 750,000 listener hours per month. Our advertising sales arrangements with over 5,000 stations facilitate us paying the broadcasters a monthly revenue sharing fee. We refer to these costs as broadcaster commissions. Broadcaster commissions are paid on ad inventory we purchase from the broadcasters, not on Ad Inventory we receive as a barter from the broadcasters. Other costs of sales include media network costs associated with the distribution of our content across a variety of advertising networks, streaming costs, and various application technologies that support our primary product offerings. 

 

   

For the Three

Months Ended

February 28,

2015

   

For the Three

Months Ended

February 28,

2014

 

Operating expenses

               

Product development

 

$

5,250

   

 $

32,976

 

Officer compensation

   

10,499

     

120,000

 

Sales and marketing

   

36,129

     

22,176

 

Other

   

221,150

     

139,904

 

Total operating expenses

 

$

273,028

   

$

315,056

 

 

Operating expenses for the three months ended February 28, 2015 and 2014, totaled $273,028 and $315,056, respectively. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio and the WatchThisTM technology, as well as Officer compensation related to accrued but primarily unpaid salaries for our two primary executives officers. Marketing and sales costs incurred were primarily related to the labor costs of employing our sales force. Our sales force markets our products on a daily basis. We expect these costs to increase in the current fiscal year. Rents were primarily related to three leases we are obligated under for our Santa Barbara, California office. Consultant expenses included fees incurred with certain personnel primarily related to finance, business development and investor relations services. Professional fees included accounting, auditing and legal fees associated with public company matters. Travel and entertainment was associated with ongoing business development and investor relations activities. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

 

    For the Three Months Ended February 28,
2015
    For the Three Months Ended February 28,
2014
 

Other income (expenses)

       

Other income (expense)

 

$

(30,224

)

 

$

2,625

 

Interest expense

 

(91,087

)

 

(76,991

)

Interest expense – accretion

 

(209,091

)

 

(10,925

)

Gain on disposal of education lead generation

   

-

     

8,499

 

Loss on extinguishment

 

(66,537

)

       

Change in fair value of derivatives

   

4,850,179

   

(534,359

)

Total other income (expenses)

 

$

4,453,240

   

$

(611,151

)

 

 
8

 

Other (expense) income for the three months ended February 28, 2015 and 2014, totaled $4,453,240 and ($611,151), respectively. We generated interest income on the note receivable. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit, among others. During November 2013, we completed the sales of our education lead generation vertical, Student Matching Service. We also recorded the accretion of various debt discounts associated with our convertible promissory notes. The accretion is a result of the amortization of the debt discounts associated with the convertible promissory notes over the term of the convertible promissory notes. As a result of the derivative classification regarding the beneficial conversion feature on some of our convertible notes, the derivative liabilities have to be re-measured as of each reporting date. For the three months ended February 28, 2015 and 2014, the re-measurement resulted in a gain (loss) on change in fair value of derivative liabilities of $4,850,179 and ($534,359), respectively. If the convertible promissory notes issued to the Creditor #2 remain outstanding at any time subsequent to the six-month anniversary of the date the convertible promissory notes were issued, a derivative liability exists and will have to be measured as of each reporting date. Similarly, if any portion of the Vendor Note remains outstanding at the reporting date, the derivative liability has to be re-measured as of the reporting date. At February 28, 2015, the Company's stock price had reached its par value of $0.0001 which had a significant impact on the value of the derivative liability. Thus, the prices at which discounts are calculated for conversions of notes payable using the lowest bid or traded price are fixed at $0.0001.

 

Liquidity and Capital Resources

 

As of February 28, 2015 we had cash totaling $7,991 which consisted of cash funds held at major financial institutions. We had net a working capital deficit of $3,415,145 as of February 28, 2015, compared to a net working capital deficit of $3,422,944 as of August 31, 2014. Our principal uses of cash during the six months ending February 28, 2015 were funding our operations.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the six months ended February 28, 2015, the Company recorded an operating loss of $467,145 and a net loss of $811,464. As of February 28, 2015, the Company had a working capital deficit of $3,415,145, which excluding the derivative liability was $2,444,109, indicating that the Company may have difficulty continuing as a going concern.

 

Management is confident but cannot guarantee that the Company will be able to raise in order to repay debts and continue operations. During the year ending August 31, 2015, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others. The Company's normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Additionally, the Company is currently in default on its capital lease. If the Company defaults on this capital lease, the lessor may decide to take back its equipment. If that occurred then the Company would likely need to lease third party servers in order to continue operating its business. Since inception and through August 31, 2014, the Company has successfully raised a significant amount of capital. Additionally, the Company anticipates launching several new product offerings in the second half of its fiscal year ending August 31, 2015. The Company expects those products to be profitable but notes that it will require significant capital for product development and ultimately commercial deployment. However, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan in order to become profitable. If the Company is unable to become profitable or sustain its cash flow, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Working Capital Related Party Financing

 

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

 

 
9

  

Capital Expenditures

 

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

 

Historical Trends

 

The following table summarizes our cash flow data for the six months ended February 28, 2015 and 2014.

 

    For the Six
Months Ended
February 28,
2015
    For the Six
Months Ended
February 28,
2014
 
         

Net cash provided by (used in) operating activities

 

$

4,909

   

$

(284,008

)

Net cash used in investing activities

 

(313,614

)

   

-

 

Net cash provided by financing activities

   

290,106

     

278,548

 

 

Cash flow provided by operating activities totaled $4,909 for the six months ended February 28, 2015, compared to $284,008 used for the six months ended February 28, 2014. Operating cash flow was negative as we continued operations and a focused effort on product development and efforts towards certain potential significant partnerships with third parties within the digital media industry.

 

Cash flow used in investing activities totaled $313,614 for the six months ended February 28, 2015, compared to $0 for the six months ended February 28, 2014. The increase in cash used in investing activities relates to internally developed products in which the capitalization criteria has been met.

 

Cash flow provided by financing activities totaled $290,106 for the six months ended February 28, 2015, compared to $278,548 for the six months ended February 28, 2014. We raised substantial capital through the issuance of convertible promissory notes, net proceeds from the line of credit, and advances from related our primary executive officers during the six months ended February 28, 2015 and 2014, respectively.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..

 

Not required for a smaller reporting company.

 

 
10

  

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (Principal Executive and Financial Officer); of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer (Principal Executive and Financial Officer) concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and which also are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (Principal Executive and Financial Officer), to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

There has not been any changes in our internal controls over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is not party to any legal proceeding. 

 

ITEM 1A. RISK FACTORS.

 

Not required for a smaller reporting company.

 

 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

 
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Item 6. EXHIBITS

 

(a) Exhibits:

 

Number

 

Description

     

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

 

XBRL Instance Document

     

101.SCH

 

XBRL Taxonomy Extension Schema Document

     

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 ___________________

 

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

STREAMTRACK, INC.

 
       

Date: April 20, 2015

By:

/s/ Michael Hill

 
 

Name:

Michael Hill

 
 

Title:

Chairman of the Board of Directors,

Chief Executive Officer, President,

and Chief Financial Officer (Principal Executive Officer,
Principal Financial Officer, and Principal Accounting Officer)

 

 

 

 

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