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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended June 30, 2016

 

¨

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

 

For the transition period from _________ to _________

 

Commission File No. 000-53462

 

VNUE, INC.

(Formerly Tierra Grande Resources Inc.)

(Name of Registrant in its Charter)

 

Nevada

98-054-3851

(State of Other Jurisdiction of incorporation or organization)

(I.R.S. Employer I.D. No.)

 

104 West 29th Street, 11th Floor, New York, NY 10001

(Address of Principal Executive Offices)

 

Issuer’s Telephone Number: 857-777-6190

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 ¨ No  x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes ¨ No x

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:

 

November 30, 2016

Common Voting Stock: 646,919,239

 

 
 
 

VNUE, INC.

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED JUNE 30, 2016

 

TABLE OF CONTENTS

 

 

PAGE

PART I - FINANCIAL INFORMATION

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Item 2.

Management Discussion & Analysis of Financial Condition and Results of Operations

4

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

13

Item 4.

Controls and Procedures

14

 

PART II - OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

15

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

Item 3.

Defaults Upon Senior Securities

15

Item 4.

Mining Safety Disclosures

15

Item 5

Other information

15

Item 6.

Exhibits

16

 

CERTIFICATIONS

 

 

31.1

Certification of Chief Executive Officer and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act .

 

 

 

 

 

 

 

32.1

Certification of Chief Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 

 

2

Table of Contents

 

PART I

FINANCIAL INFORMATION

 

The accompanying interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the interim period ended June 30, 2016 are not necessarily indicative of the results that can be expected for the year ending December 31, 2016.

 

 

3

Table of Contents

 

Vnue, Inc.

 

June 30, 2016 and 2015

 

Index to the Condensed Consolidated Financial Statements

 

Contents

 

Page(s)

 

Condensed Consolidated balance sheets at June 30, 2016 (Unaudited) and December 31, 2015

 

F-2

 

Condensed Consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 (Unaudited)

 

F-3

 

Condensed Consolidated statement of changes in stockholders’ deficit for the period ended June 30, 2016 (Unaudited)

 

F-4

 

Condensed Consolidated statements of cash flows for the six months ended June 30, 2016 and 2015 (Unaudited)

 

F-5

 

Notes to the condensed consolidated financial statements (Unaudited)

 

F-6

 

 
F-1
Table of Contents

 

VNUE, Inc.

Condensed Consolidated Balance Sheets

 

 

 

June 30,

2016

 

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$1,791

 

 

$7,788

 

Prepaid expenses

 

 

12,500

 

 

 

37,500

 

 

 

 

 

 

 

 

 

 

Total assets

 

$14,291

 

 

$45,288

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$509,990

 

 

$280,610

 

Accrued expenses

 

 

210,817

 

 

 

84,311

 

Advances from stockholders

 

 

14,720

 

 

 

14,720

 

Note payable to officer

 

 

68,809

 

 

 

54,643

 

Notes payable

 

 

34,000

 

 

 

59,000

 

Convertible notes payable, net

 

 

37,011

 

 

 

11,441

 

Convertible notes payable, related parties, net

 

 

18,333

 

 

 

13,003

 

Derivative liabilities

 

 

188,112

 

 

 

249,246

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

1,081,792

 

 

 

766,974

 

 

 

 

 

 

 

 

 

 

Commitment and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock, par value $0.0001: 20,000,000 shares authorized; no shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, par value $0.0001: 750,000,000 shares authorized; 644,401,239 and 640,913,164 shares issued and outstanding, respectively

 

 

64,440

 

 

 

64,091

 

Additional paid-in capital

 

 

4,247,366

 

 

 

3,736,177

 

Common stock to be issued, 43,974,321 shares and 7,816,667 shares, respectively

 

 

897,084

 

 

 

132,057

 

Accumulated deficit

 

 

(6,276,391)

 

 

(4,654,011)

 

 

 

 

 

 

 

 

 

Total Stockholders’ Deficit

 

 

(1,067,501)

 

 

(721,686)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$14,291

 

 

$45,288

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-2
Table of Contents

 

VNUE Inc.

Condensed Consolidated Statements of Operations

 

 

 

 

For the Three Months Ended

June 30, 2016

 

 

For the Three

Months Ended

June 30, 2015

 

 

For the Six

Months Ended

June 30, 2016

 

 

For the Six

Months Ended

June 30, 2015

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Software development

 

 

$139,593

 

 

$1,554,324

 

 

$906,369

 

 

$1,578,181

 

Acquisition-related costs

 

 

 

-

 

 

 

906,462

 

 

 

-

 

 

 

906,462

 

General and administrative

 

 

 

654,821

 

 

 

248,776

 

 

 

837,562

 

 

 

303,794

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

 

(794,414)

 

 

(2,709,562)

 

 

(1,743,931)

 

 

(2,788,437)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivative liability

 

 

 

(13,595)

 

 

25,809

 

 

 

218,257

 

 

 

119,297

 

Gain on extinguishment of derivative liability

 

 

 

-

 

 

 

-

 

 

 

21,308

 

 

 

-

 

Financing costs

 

 

 

(48,782)

 

 

(75,387)

 

 

(118,014)

 

 

(93,182)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expenses), net

 

 

 

(62,377)

 

 

(49,578)

 

 

121,551

 

 

 

26,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$(856,791)

 

$(2,759,140)

 

$(1,622,380)

 

$(2,762,322)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic and diluted

 

 

$(0.00)

 

$(0.01)

 

$(0.00)

 

$(0.01)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic and diluted

 

 

 

677,655,257

 

 

 

474,209,166

 

 

 

669,406,614

 

 

 

439,217,170

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-3
Table of Contents

 

VNUE Inc.

Condensed Consolidated Statement of Changes in Stockholders' Deficit

For the Six Months ended June 30, 2016 (unaudited)

 

 

 

Common Stock par value $0.0001

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Number

of Shares

 

 

Amount

 

 

Paid-In

Capital

 

 

Shares to

be Issued

 

 

Accumulated

Deficit

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

640,913,164

 

 

$64,091

 

 

$3,736,177

 

 

$132,057

 

 

$(4,654,011)

 

$(721,686)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

 

 

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

719,027

 

 

 

 

 

 

 

719,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,000

 

 

 

 

 

 

 

41,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares transferred by majority shareholder treated as compensation

 

 

 

 

 

 

 

 

 

 

491,153

 

 

 

 

 

 

 

 

 

 

 

491,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversion of debt

 

 

3,488,075

 

 

 

349

 

 

 

20,036

 

 

 

 

 

 

 

 

 

 

 

20,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,622,380)

 

 

(1,622,380)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2016

 

644,401,239

 

 

$64,440

 

 

$4,247,366

 

 

$897,084

 

 

$(6,276,391)

 

$(1,067,501)

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-4
Table of Contents

 

VNUE Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

For the Six

Months Ended

June 30, 2016

 

 

For the Six

Months Ended

June 30, 2015

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

 

Net loss

 

$(1,622,380)

 

$(2,762,322)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization

 

 

-

 

 

 

35,400

 

Derivative value in excess of convertible notes

 

 

28,431

 

 

 

-

 

Change in fair value of derivative liabilities

 

 

(218,257)

 

 

(119,297)

Note issued for financing costs

 

 

25,000

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Gain on extinguishment of debt

 

 

(21,308)

 

 

-

 

Amortization of debt discount

 

 

47,400

 

 

 

40,996

 

Shares issued for services

 

 

-

 

 

 

1,500,027

 

Shares issued for acquisition-related costs

 

 

-

 

 

 

906,462

 

Shares to be issued for financing costs

 

 

41,000

 

 

 

-

 

Shares to be issued for services

 

 

719,027

 

 

 

-

 

Shares transferred for compensation

 

 

491,153

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expense

 

 

25,000

 

 

 

(50,000)

Accounts payable

 

 

229,380

 

 

 

(9,539)

Accrued expense

 

 

130,391

 

 

 

2,186

 

 

 

 

 

 

 

 

 

 

Net Cash Used in Operating Activities

 

 

(125,163)

 

 

(406,087)

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Advances to related party

 

 

-

 

 

 

(52,037)

 

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

-

 

 

 

(52,037)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Advances from (repayment to) stockholders, net

 

 

14,166

 

 

 

(61,991)

Repayment of convertible notes payable

 

 

-

 

 

 

(41,000)

Proceeds from issuance of convertible notes payable

 

 

100,000

 

 

 

-

 

Shares to be issued for proceeds from sale of common shares

 

 

5,000

 

 

 

-

 

Proceeds from issuance of common shares

 

 

-

 

 

 

686,320

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

 

119,166

 

 

 

583,329

 

 

 

 

 

 

 

 

 

 

Net Change in Cash

 

 

(5,997)

 

 

125,205

 

 

 

 

 

 

 

 

 

 

Cash – Beginning of the Reporting Period

 

 

7,788

 

 

 

46

 

 

 

 

 

 

 

 

 

 

Cash – End of the Reporting Period

 

$1,791

 

 

$125,251

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest Paid

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Income Tax Paid

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Non-Cash Financing and Investing Activities

 

 

 

 

 

 

 

 

Common shares issued upon conversion of notes payable and accrued interest

 

$20,385

 

 

 

-

 

Note payable converted to convertible note

 

$50,000

 

 

$-

 

Fair value of derivative created upon issuance of convertible debt recorded as debt discount

 

$

 150,000

 

 

$

-

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-5
Table of Contents

 

VNUE, Inc.

Six Months Ended June 30, 2016 and 2015

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 - Organization and Basis of Presentation

 

History and Organization

 

VNUE, Inc. (formerly Tierra Grande Resources, Inc.) ("VNUE", "TGRI", or the "Company") was incorporated under the laws of the State of Nevada on April 4, 2006. TGRI engaged in the acquisition and exploration of mineral properties and was inactive prior to the reverse acquisition described below.

 

VNUE LLC ("VNUE LLC" or “Predecessor”) was a limited liability company organized under the laws of the State of Delaware on August 1, 2013 which began operations in January 2014. On December 3, 2014, VNUE LLC filed a certificate of merger and merged into VNUE Washington with VNUE Washington as the surviving corporation. On May 29, 2015, VNUE, Inc. entered into a merger agreement with VNUE Washington, Inc. Pursuant to the terms of the Merger Agreement, all of the outstanding shares of any class or series of VNUE Washington were exchanged for an aggregate of 507,629,872 shares of TGRI common stock as follows: (i) all shares of VNUE Washington stock of any class or series issued and outstanding immediately prior to the closing of the Merger were exchanged for an aggregate of 477,815,488 fully paid and non-assessable shares of TGRI common stock; and (ii) 29,814,384 shares of TGRI common stock were issued to an attorney as payment for legal services performed prior to and in connection with the Merger. As a result of the Merger, VNUE Washington became a wholly-owned subsidiary of the Company, with the former stockholders of VNUE Washington collectively owning shares of the Company's common stock representing approximately 79.0% of the voting power of the Company's outstanding capital stock. On May 29, 2015 the Company changed its name to VNUE, Inc.

 

As the former owners and management of VNUE Washington have voting and operating control of the Company after the Merger, the transaction has been accounted for as a reverse merger with VNUE Washington deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. Due to the change in control, the consolidated financial statements reflect the historical results of VNUE Washington prior to the Merger, and that of the combined company following the Merger. Common stock and the corresponding capital amounts of the Company pre-Merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger, with 126,866,348 shares of common stock outstanding before the reverse merger reflected in the accompanying financial statements as shares issued upon the reverse merger. The fair value of $906,462 of the 29,814,384 shares issued to the attorney was recorded as an acquisition related cost at the date of the merger.

 

The Company is developing a technology driven solution for Artists, Venues and Festivals to automate the capturing, publishing and monetization of their content.

 

Basis of Presentation

 

The interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for a fair presentation of results for the interim periods.  Certain information and footnote disclosures required under the accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated balance sheet information as of December 31, 2015 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on December 15, 2016 (the “2015 Annual Report”). These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2015 and notes thereto included in the 2015 Annual Report. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period.

 

 
F-6
Table of Contents

 

Going Concern

 

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the condensed consolidated financial statements, the Company had a stockholders’ deficit of $1,067,501 at June 30, 2016, and incurred a net loss of $1,622,380, and used cash in operating activities of $125,163 for the six months then ended. Certain of the Company’s notes payable are also past due and in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern

 

Management estimates that the current funds on hand will be sufficient to continue operations through December, 2016. The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and on its ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

Principles of Consolidation

 

The Company consolidates all wholly owned and majority-owned subsidiaries in which the Company’s power to control exists. The Company consolidates the following subsidiaries and/or entities:

 

Name of consolidated

subsidiary or Entity

 

State or other jurisdiction of

incorporation or organization

 

Date of incorporation or formation

(date of acquisition/disposition, if applicable)

 

Attributable

interest

 

 

VNUE Inc. (formerly TGRI)

 

The State of Nevada

 

April 4, 2006 (May 29, 2015)

 

 100

%

 

VNUE Inc. (VNUE Washington)

 

The State of Washington

 

October 16, 2014

 

 100

%

 

VNUE LLC

 

The State of Washington

 

August 1, 2013 (December 3, 2014)

 

 100

%

 

VNUE Technology Inc.

 

The State of Washington

 

October 16, 2014

 

 90

%

 

VNUE Media  Inc.

 

The State of Washington

 

October 16, 2014

 

 89

%

 

VNUE Technology, Inc. and VNUE Media, Inc. were inactive corporations at June 30, 2016 and December 31, 2015. Inter-company balances and transactions have been eliminated.

  

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

 
F-7
Table of Contents

 

Fair Value of Financial Instruments

 

The Company follows the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below:

 

Level 1

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the end of the period.

 

Level 3

Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The carrying amounts of the Company’s financial assets and liabilities, including cash, prepaid expenses, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments.

 

The fair value of the derivative liabilities of $188,112 and $249,246 at June 30, 2016 and December 31, 2015, respectively, were valued using Level 2 inputs.

 

Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Internal Software Development Costs

 

Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company considers technological feasibility to be established when all planning, designing, coding and testing has been completed according to design specifications. After technological feasibility is established, any additional costs are capitalized. Through June 30, 2016, technological feasibility of the Company’s software had not been established; and, accordingly, no costs have been capitalized to date.

 

Loss per Common Share

 

Basic earnings (loss) per share are computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation as their effect is antidilutive.

 

 
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For the periods ended June 30, 2016 and 2015, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. As of June 30, 2016 and 2015, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive.

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Convertible Notes Payable

 

 

81,403,600

 

 

 

4,362,162

 

 

Stock-Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

Income Taxes

 

The Company follows the asset and liability method of accounting for income taxes.  Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income (loss) in the period that includes the enactment date.  

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

 

 
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In August, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

 

In March 2016, the FASB issued the ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that all income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future condensed consolidated financial statement presentation or disclosures.

 

Note 3 - Related Party Transactions

 

Note Payable to President, CEO and Significant Stockholder

 

On December 31, 2014 the Company entered into a note payable agreement with its President, CEO and significant stockholder of the Company. The note is unsecured, non-interest bearing and due on December 31, 2024. As of June 30, 2016 and December 31, 2015 the note payable to the officer was $68,809 and $54,643, respectively. 

 

Advances From Employees

 

From time to time, employees of the Company advance funds to the Company for working capital purposes. As of June 30, 2016 and December 31, 2015, the advances from the employees were $14,720. Those advances are unsecured, non-interest bearing and due on demand.

 

Note 4 - Notes Payable

 

Notes payable as of June 30, 2016 and December 31, 2015 consist of the following

 

 

 

 

 

As of

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Individual

 

(a)

 

$9,000

 

 

$9,000

 

Tarpon

 

(b)

 

 

25,000

 

 

 

-

 

Tarpon

 

(c)

 

 

-

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$34,000

 

 

$59,000

 

 

 

(a)On December 17, 2015, the Company issued a Promissory Note in the principal amount of $9,000. The note is due within 10 business days of the Company receiving a notice of effectiveness of its Form S-1 filed on February 22, 2016. Failure to make payment during that 10 business day period shall constitute an Event of Default, as a result of which the note will become immediately due and payable and the balance will bear interest at 7%. The Company’s Form S-1 was declared effective on March 8, 2016 and payment was due before March 22, 2016. The Company did not repay the note before March 22, 2016; therefore, the note is in default with an interest rate of 7%.

 

 
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(b)On February 18, 2016, as a condition for the execution of an Equity Purchase Agreement with Tarpon (See Note 7), the Company issued a Promissory Note to Tarpon in the principal amount of $25,000 with an interest rate at 10% per annum and a maturity date of August 31, 2016. The note was recorded as financing cost upon issuance.

 

 

 

 

(c)On June 15, 2015, the Company entered into a Financing Cost Note of $50,000 with Tarpon as part of the Equity Purchase Agreement entered into with Tarpon on June 15, 2015. The note earns interest at 10% and is due on December 31, 2015. During 2016 the terms of the note were amended and this note was converted to a convertible note. See Note 5.
  

Note 5 – Convertible Notes Payable

 

Convertible notes payable consist of the following:

 

 

 

 

 

 

As of

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

 

 

2016

 

 

2015

 

Various Convertible Notes

 

(a)

 

$55,000

 

 

$55,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Tarpon Convertible Note

 

(b)

 

 

33,500

 

 

 

-

 

Ylimit, LLC

 

(c)

 

 

100,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Convertible Notes

 

 

 

 

 

188,500

 

 

 

55,000

 

Discount

 

 

 

 

 

(133,156)

 

 

(30,556)

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes, net

 

 

 

 

$55,344

 

 

$24,444

 

 

(a)The Company has issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a "pre-money" valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a "pre-money" valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $55,000 as of June 30, 2016 and December 31, 2015, of which $30,000 was due to related parties.

 

 

(b)On June 15, 2015, as a condition for the execution of an Equity Purchase Agreement with Tarpon (See Note 7), the Company issued a Promissory Note to Tarpon in the principal amount of $50,000 with an interest rate at 10% per annum and a maturity date of December 31, 2015. The note was recorded as financing cost upon issuance. On February 26, 2016, the Company and Tarpon entered into an amendment to the Promissory Note. The amendment added a conversion feature to the Note so that the Note and all accrued interest are convertible into shares of the Company’s common stock at a conversion price equal to 80% of the lowest closing bid price of the common stock for the 30 trading days preceding the conversion date, and the maturity date was extended to December 31, 2016. On March 2, 2016 and March 28, 2016, Tarpon converted principal and interest of $10,075 and $10,310, respectively, into 1,144,925 shares and 2,343,150 shares, respectively, of the Company’s common stock.

 

 

(c)On May 9, 2016 the Company issued a convertible note in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. The Note Conversion Price is determined as follows: if the Company receives equity funding of $1 million or more, then the Lender may choose to either convert the Note into shares of the Company’s common stock or request repayment of the principal and interest on the Note. If the Lender chooses to convert the Note, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest owed by the Company as of the date of the conversion divided by 85% of the per share stock price in the equity funding. If the Company borrows additional amounts above the initial $100,000, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest of those additional borrowings owed by the Company as of the date of the conversion divided by 75% of the per share stock price in the equity funding. The Note is secured by the Company’s rights, titles and interests in all the Company’s tangible and intangible assets, including intellectual property and proprietary software whether existing now or created in the future. Further consideration was the granting of 10,000,000 shares of common stock, valued at $41,000 and recorded as shares to be issued.

  

 
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The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair values of the embedded conversion features were recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Condensed Consolidated Statement of Operations. The discounts are being amortized using the effective interest rate method over the life of the debt instruments.

 

As of March 31, 2016 the unamortized discount was $56,122. During the three months ended June 30, 2016 the Company issued a convertible note and created a derivative liability upon issuance with a fair value of $113,796, of which $100,000 was recorded as a valuation discount, and the remaining $13,796 was recorded as a financing cost. During the six months ended June 30, 2016, amortization of debt discount was $30,900. In addition $16,500 of discount was recorded as interest expense upon conversion of the notes. The unamortized balance of the debt discount was $133,156 as of June 30, 2016.

 

For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:

 

 

 

June 30,

2016

 

 

December 31,

2015

 

Convertible notes payable, net

 

$37,011

 

 

$11,441

 

Convertible notes payable, related party, net

 

 

18,333

 

 

 

13,003

 

Total

 

$55,344

 

 

$24,444

 

 

Note 6 – Derivative Liability

 

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion prices of the Notes described in Note 5 were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

As of June 30, 2016 and December 31, 2015, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:

 

 

June 30, 2016

 

December 31, 2015

Exercise Price

$ 0.0018 – 0.0117

 

$ 0.0124 – 0.0282

Stock Price

$ 0.0026

 

$ 0.065

Risk-free interest rate

0.36 – 0.58%

 

0.85%

Expected volatility

188%

 

188%

Expected life (in years)

0.50 – 1.833

 

1.67

Expected dividend yield

0%

 

0%

Fair Value:

$ 188,112

 

$ 249,246

 

 
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The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the averaged historical volatility of similar companies since we did not have sufficient market and historical information to estimate the volatility of our own stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes, or an estimate of until such notes would be converted. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

 

During the six months ended June 30, 2016 and 2015, the Company recognized $218,257 and $119,297, respectively, as other income, which represented the change in the value of the derivative from the respective prior period. In addition, the Company recorded a derivative upon issuance of convertible debt  of $178,773 and recognized a gain of $21,308 during the six months ended June 30, 2016 which represented the extinguishment of derivative liabilities related to conversion of notes to common stock.

 

Note 7 – Stockholders’ Deficit

 

Shares to be Issued

 

On February 26, 2016, the Company entered into a common stock purchase agreement with an individual pursuant to which it agreed to issue shares of the Company’s common stock in exchange for proceeds of $5,000. The shares due were not issued as of June 30, 2016 and were reflected as common shares to be issued in the accompanying condensed consolidated balance sheets.

 

On January 2, 2016, the Company entered into an employment agreement with an officer pursuant to which it granted 10,000,000 shares of the Company’s common stock. The shares vested immediately and were recognized as stock based compensation expense during the period ended March 31, 2016 based on their fair value on the agreement date of $650,000. The shares due were not issued as of June 30, 2016 and were reflected as common shares to be issued in the accompanying condensed consolidated balance sheet.

 

During 2015, the Company entered into a consulting agreement which included, among other things, monthly compensation of 791,667 shares of common stock. As of December 31, 2015, 1,583,334 shares of common stock with a value of $86,291 were earned but were not issued, and were included in common shares to be issued in the accompanying  December 31, 2015 consolidated balance sheet.  During the period ended June 30, 2016, the consultant earned 4,750,002 shares with a value of $43,882 As of June 30, 2016, 6,333,336 shares of common stock with a value of $130,173 have not been issued and are included in common shares to be issued in the accompanying condensed consolidated balance sheet

 

On September 10, 2015, the Company entered into a one-year consulting agreement with a consultant, which included, among other things, compensation of $50,000 to be paid in shares of common stock based on the closing price of the Company’s common stock on the final trading day of the consulting agreement. As of December 31, 2015, $16,667 of common shares were earned but were not issued, and were included in common shares to be issued in the accompanying December 31, 2015 consolidated balance sheet. During the period ended June 30, 2016 the Company recognized $25,000 of compensation for the value of the shares earned during the period. As of June 30, 2016, $41,667 of the value of the shares of common stock has been included in common shares to be issued in the accompanying condensed consolidated balance sheet.

 

Equity Purchase Agreement with Tarpon Bay Partners, LLC

 

On June 15, 2015, the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Tarpon Bay Partners, LLC, a Florida limited liability company (“Tarpon”).  Under the terms of the Equity Purchase Agreement, Tarpon was to purchase, at the Company's election, up to $5,000,000 of the Company's registered common stock (the “Shares”).

 

On February 18, 2016, the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Tarpon Bay Partners, LLC, a Florida limited liability company (“Tarpon”).  Under the terms of the Equity Purchase Agreement, Tarpon will purchase, at the Company's election, up to $10,000,000 of the Company's registered common stock (the “Shares”).

 

 
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During the term of the Equity Purchase Agreement, the Company may at any time deliver a “put notice” to Tarpon thereby requiring Tarpon to purchase a certain dollar amount of the Shares. Simultaneous with the delivery of such Shares, Tarpon shall deliver payment for the Shares. Subject to certain restrictions, the purchase price for the Shares shall be equal to 125% of the lowest Closing Price during the Valuation Period as such capitalized terms are defined in the Agreement.

 

The number of Shares sold to Tarpon shall not exceed the number of such shares that, when aggregated with all other shares of common stock of the Company then beneficially owned by Tarpon, would result in Tarpon owning more than 9.99% of all of the Company's common stock then outstanding. Additionally, Tarpon may not execute any short sales of the Company's common stock. Further, the Company has the right, but never the obligation to draw down.

 

The Equity Purchase Agreement shall terminate (i) on the date on which Tarpon shall have purchased Shares pursuant to the Equity Purchase Agreement for an aggregate Purchase Price of $10,000,000, or (ii) on the date occurring 24 months from the date on which the Equity Purchase Agreement was executed and delivered by the Company and Tarpon.

 

As a condition for the execution of the Equity Purchase Agreements by Tarpon, the Company issued Promissory Notes to Tarpon on June 15, 2015 and February 18, 2016 in the principal amounts of $50,000 and $25,000 with interest rates of 10% per annum. The maturity date of the note issued on June 15, 2015 was December 31, 2015 which was extended to December 31, 2016 as part of the note amendment on February 26, 2016. The maturity date of the note issued on February 18, 2016 is August 31, 2016. The issuance of the notes was recorded as a finance cost in the accompanying condensed consolidated statement of operations for the periods ending June 30, 2016 and 2015.

 

In addition, on February 18 2016, the Company and Tarpon entered into a Registration Rights Agreement (the “Registration Agreement”). Under the terms of the Registration Agreement the Company agreed to file a registration statement with the Securities and Exchange Commission with respect to the Shares within 120 days of February 18, 2016. The Company is obligated to keep such registration statement effective until (i) three months after the last closing of a sale of Shares under the Purchase Agreement, (ii) the date when Tarpon may sell all the Shares under Rule 144 without volume limitations, or (iii) the date Tarpon no longer owns any of the Shares.

 

The February 18, 2016 Purchase Agreement for $10,000,000 effectively supersedes and terminates the prior Equity Purchase Agreement with Tarpon dated June 15, 2015, which was for $5,000,000. At June 30, 2016, Tarpon had not purchased any shares under this agreement.

 

YLimit, LLC

 

On May 9, 2016 the Company issued a convertible note in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. As part of the consideration the company granted to the note holder 10,000,000 shares of common stock, valued at $41,000 which has been recorded as a financing cost. As of June 30, 2016 the shares have not been issued and are recorded as shares to be issued in the accompanying condensed consolidated balance sheet.

 

 
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Note 8 - Commitment and Contingencies

 

Litigation - Hughes Media Law Group, Inc.

 

On December 11, 2015, Hughes Media Law Group, Inc. ("HLMG") filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,552.78 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with VNUE Washington, for legal work performed by HMLG for VNUE Washington prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue VNUE Washington, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. On July 25, 2016, the court issued judgment awarding HLMG $133,482.12 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015.

 

License Agreement

 

On November 2, 2015, the Company entered into a License Agreement with Universal Music Corp. (“Universal”). The License Agreement is effective September 8, 2015, and has a term of Two (2) Years from the Effective Date. Under the terms of the License Agreement, Universal is granting to VNUE a non-exclusive, non-transferable, non-sub-licensable license to create and distribute content using certain Universal compositions, more specified in the Grant of Right’s section of the License Agreement. The Company will then market and sell this content via the VNUE Service at certain agreed upon price points more specifically described in the Business Model and Price Points Section of the License Agreement, and the Company shall pay Universal royalties for each sale of the content as specified in the Royalty Rates section of the License Agreement.

 

In accordance with the Minimum Guarantee provision of the License Agreement, the Company shall pay to Universal a minimum first year fee of Fifty Thousand Dollars ($50,000), which is due within 10 days of execution and a second year minimum fee of Fifty Thousand Dollars ($50,000), which is due upon the commencement of the second year of the Term. The Company paid the first installment in September 2015 and recorded such amount as a prepaid asset. As of June 30, 2016, $37,500 of this amount has been amortized and recorded as an operating expense and $12,500 remains prepaid.

 

Note 9 - Subsequent Events

 

Convertible Note Payable

 

On May 9, 2016 the Company issued a convertible note in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. During the period ended September 30, 2016 the Company obtained an increase of principal on the note to $250,000. As consideration for the increase in principal two officers transferred 35,000,000 shares of their common stock valued at $108,000 which will be recorded as a financing cost.

 

Transfer of Ownership-Loss of Control

 

On May 12, 2016, as part of the appointment of the Company’s new Chief Executive Officer, the Company’s controlling shareholder transferred the ownership of half of his shares to the new Chief Executive Officer. The Company considered the provisions of Staff Accounting Bulletin ("SAB") Topic 5T, Accounting for Expenses or Liabilities Paid by Principal Stockholders, and determined that the value of the shares was additional compensation cost and a contribution to capital by the controlling shareholder.  As such, the Company recorded a charge of $491,153 during the period ended June 30, 2016 relating to the fair market value of the shares on the date of the share transfer. As a result of the transfer the transferring shareholder is no longer a controlling shareholder.

 

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

 

Cautionary Statement Regarding Forward-Looking Information

 

The statements in this quarterly report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the  Private Securities Litigation Reform Act of 1995  , as amended. These statements appear in a number of different places in this report and can be identified by words such as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include, among others, statements regarding our business plans and availability of financing for our business.

 

You are cautioned that any such forward-looking statements are not guarantees and may involve risks and uncertainties. Our actual results may differ materially from those in the forward-looking statements due to risks facing us or due to actual facts differing from the assumptions underlying our estimates. Some of these risks and assumptions include those set forth in reports and other documents we have filed with or furnished to the United States Securities and Exchange Commission (“SEC”). We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.

 

Presentation of Information

 

As used in this quarterly report, the terms "we", "us", "our" and the “Company” mean VNUE, Inc. and its subsidiaries, unless the context requires otherwise.

 

All dollar amounts in this quarterly report refer to US dollars unless otherwise indicated.

 

Overview

 

We were incorporated as a Nevada corporation on April 4, 2006.

 

Corporate History and Prior Business

 

Effective April 10, 2013, the Company changed its name from Buckingham Exploration Inc. to Tierra Grande Resources Inc. On August 9, 2010, the Company incorporated 0887717 B.C. Ltd., a wholly-owned subsidiary in British Columbia, Canada. On February 28, 2013, the Company acquired a 100% interest in Tierra Grande Resources, S.A.C. ("Tierra"), a company incorporated in Peru, in consideration for $10.

 

Prior to the Merger, our strategy had been to identify, acquire and advance mining assets that present near term cash-flow with the emphasis on creating early cash flow to enable the Company to consider other projects.

 

In July 2013, we entered into a Letter of Intent to acquire the Buldibuyo Gold Project in Peru, South America. We subsequently entered into an updated Letter of Intent to acquire the project in May 2014. It was our intention to acquire 100% of the gold project, which had produced high grade ore in the past, and had engaged in some due diligence to qualify expectations and timelines. However, despite the execution of the Letter of Intent and numerous attempts to accommodate the vendors, the vendors failed to deliver essential information to us required to conduct a thorough technical and legal due diligence on the project and associated holding companies and, accordingly, we terminated negotiations to acquire the project in July 2014.

 

 
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The Company continued to review what we believed to be opportunities with potential in Peru through our strategic alliance with ExploAndes S.A.C. ("ExploAndes"). ExploAndes is a leading firm of geology consultants and project logistics managers located in Peru assisting in the identification, assessment and advancement of projects in South America. ExploAndes has a proven track record of delivering professional services to the South American mining industry from mineral project review and assessment to project management.

 

The Company also continued to review what we believed to be opportunities with potential in Australia through our strategic alliance with Mining Plus Pty Ltd ("Mining Plus"), a leading firm of mining and geoscience consultants with offices in Australia, Canada and Peru that assist in the identification, assessment and advancement of mining projects.

 

Given the Company’s then financial condition and its focus in Peru and Australia, its interests in the Dome, Byng and Tramp claims in Canada were not renewed. See our Annual Report on Form 10-K for the year ended May 31, 2014 for more information regarding our prior business.

 

Agreement and Plan of Merger

 

We entered into an Agreement and Plan of Merger (the "Merger Agreement"), on April 13, 2015 with VNUE, Inc., a company incorporated pursuant to the laws of the State of Washington ("VNUE"), and TGRI Merger Corp., a Nevada corporation and a wholly-owned subsidiary of the Company ("Merger Sub"). 

 

On May 29, 2015, Vnue, Inc. (formerly Tierra Grande Resources Inc.) ("TGRI"), closed the Agreement and Plan of Merger (the "Merger Agreement"), initially entered into on April 13, 2015 with Vnue Washington and all of the stockholders of Vnue Washington.

 

Upon closing of the Merger Agreement, a total of 507,629,872 shares of TGRI common stock were issued as follows: (i) all shares of Vnue Washington stock of any class or series issued and outstanding immediately prior to the closing of the Merger Agreement were automatically converted into and exchanged for an aggregate of 477,815,488 fully paid and non-assessable shares of TGRI common stock; and (ii) an aggregate of 29,814,384 shares of TGRI common stock were issued to Matheau J. W. Stout, Esq. as payment for services performed prior to and in connection with the Merger. The number of TGRI common shares issued to Vnue Washington's stockholders for the acquisition of all shares of Vnue Washington represented approximately 79.0% of the issued and outstanding common stock immediately after the closing of the Merger Agreement. The board of directors and the members of the management of TGRI resigned and the board of directors and the member of the management of Vnue Washington became the board of directors and the member of the management of the combined entities upon closing of the Merger Agreement.

 

As a result of the controlling financial interest of the former stockholders of Vnue Washington, for financial statement reporting purposes, the merger between TGRI and Vnue Washington was treated as a reverse acquisition, with Vnue Washington deemed the accounting acquirer and TGRI deemed the accounting acquiree under the acquisition method of accounting in accordance with Section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction in substance whereas the assets and liabilities of Vnue Washington (the accounting acquirer) are carried forward to TGRI (the legal acquirer and the reporting entity) at their carrying value before the combination and the equity structure (the number and type of equity interests issued) of Vnue Washington is being retroactively restated using the exchange ratio established in the Merger Agreement to reflect the number of shares of TGRI issued to effectuate the acquisition.  The number of common shares issued and outstanding and the amount recognized as issued equity interests in the consolidated financial statements is determined by adding the number of common shares deemed issued and the issued equity interests of Vnue Washington immediately prior to the business combination to the unredeemed shares and the fair value of TGRI determined in accordance with the guidance in ASC Section 805-40-55 applicable to business combinations, i.e. the equity structure (the number and type of equity interests issued) in the consolidated financial statements immediately post the combination reflects the equity structure of TGRI, including the equity interests the legal parent issued to effect the combination.

 

A copy of the Merger Agreement was attached as Exhibit 10.1 to the Company’s 8-K filed on April 14, 2015. The description of the Merger Agreement herein is qualified by the terms of the full text of the agreement attached thereto and the terms thereof are incorporated herein by reference.

 

 
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Overview of our Current Business

 

Through VNUE, Inc., our wholly owned subsidiary, we now carry on business as a live entertainment music technology company which brings bands and fans together by capturing professional quality audio and video recordings of live performances and delivers the experience of a venue to your home and hand.

 

By streamlining the processes of curation, clearing, capturing, distribution and monetization of music performances, VNUE manages and simplifies the complexities of the music ecosystem. 

 

VNUE produces and captures rich content through its Front of House mobile application and provides world-wide distribution and monetization of live concerts and other events through a suite of mobile, web administration applications, allowing an artist to seamlessly deliver and sell their live performances directly to the fans who attend their shows. 

 

While VNUE will primarily be used in live music venues, we are also branching into many other entertainment experiences such as comedy, plays, musicals, university lectures, professional demonstrations and panel discussions, as well as action sports and religious events.

 

VNUE's business model is based on the business to consumer VNUE software application, now in beta testing, as well as business to business monetization of our back end rights clearing system software, which is currently in development with a projected beta some time during the first quarter 2017.

 

We are a relatively new company and to date we have received no revenues from our operations.  VNUE, Inc., our wholly owned subsidiary, only recently commenced operations and we have undertaken only organizational activities and software application development.  Our independent auditors have raised substantial doubts as to our ability to continue as a going concern without significant additional financing.  Accordingly, for the foreseeable future, we will continue to be dependent on additional debt and equity financing in order to maintain our operations and continue with our development activities.

 

Acquisitions will be pursued where the Directors consider that there is clear value through the addition of expertise, customers, monetization potential or geographic footprint.

 

Our principal offices are located at 104 W. 29th Street, 11th Floor, New York, NY 10001.  Our telephone number is 857-777-6190. The live music and entertainment space is constantly searching for new monetization outlets; VNUE has a solution that melds content and technology in almost any venue in the world. This befits not only artist, labels, publishers and live venues but the fan.

 

The History of VNUE

 

VNUE was founded in August of 2013 by Matthew Carona and Louis Mann with the vision of creating a collective network of connected venues that empower and assist bands, artist, and entertainers to monetize their performance (audio & video) in the venue using mobile technologies. VNUE has developed its business and technology in tandem to enter into deals with venues, artists and labels across the United States using this initial launch strategy. The collective venue network effect, whereby each deal makes the offer more compelling to other potential customers, has been a key driver of VNUE’s growth to date. The initial focus of the business in early 2014 as a YouTube certified company, to create a Multi-Channel Network (MCN) specifically focused on live streaming and monetization of content through the google display network. VNUE’s first customer being the HipHopGods (HHG), a collective organization that manages hip-hop, rap, and emerging artists. Their initiative was to monetize all content across the digital and social landscape and create live streams through all HHG YouTube channels. Through VNUE’s current platform, network and services, HHG is working on unlocking new revenue streams. Through VNUE’s artist dashboard artists and publishers can simplify the processes of curation, clearing, capturing, distribution and monetization in venues and across the digital landscape.

 

In 2014, VNUE acquired Lively LLC a Seattle based music technology company and direct-to-fan mobile platform that brings artists, fans and brands together by capturing the live performance. As a result of the acquisition, VNUE has grown its platform, expanded into enabled venues and enhanced its platform offering to approve the monetization model and further evangelize the creation of the collective network of connected venues that empower artists to create content and monetize it.

 

 
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Markets and Opportunity

 

It is estimated that there are over 400,000 Indie bands performing in the US domestic market alone, and while a handful of them will get produced under a label, even less will be big enough to attempt to utilize today’s current methods to capture and deliver live performance audio from a given show. Currently artist, bands and performers are missing a simple capture and immediate sell tool kit to deliver high quality audio and video to their fans for each of their live shows.

 

VNUE’s goal first and foremost is to empower artists - not only in serving their fans, but generating a monetary footprint, which can foster the continued creation of their art.

 

VNUE intends to strategically align an economically viable in-house digital solution during a golden era of live music by creating a platform and connected network that is extremely complex and resource-intensive. Through a suite of applications and with a dashboard centered at the heart of the software platform, a connected network of partners, labels, publishers, right management, artist, bands and venues and a range of advanced 3rd party distributors is created. VNUE allows distribution of content to all types of digital and social focused sites as well as within its own sandbox, with a range of revenue models and centralized reporting that the artists, labels and publishers get to keep. By using the VNUE platform, artists are allowed to create, market and distribute their shows while creating new revenue streams from digital sources. Fans are able to connect with their favorite performers in a new way, discover new performances and listen to and watch their live performances on their mobile devices, computer, gaming consoles, OTT services and connected home televisions.

 

Serving multiple customers on one platform enables VNUE to cost-effectively invest significant amounts in innovation to drive continuous product iterations that evolve as digital technology evolves.

 

Monetization and Business Model

 

In today’s social media world, fans want to be able to immediately share with their friends the fact they were at a concert and how great the performance was that they just attended. Fans do not want to wait for a post-tour, live show CD to be produced from some other show on the tour months after the fact. They want the performance they witnessed and they want it now. VNUE intends to provide the solution.

 

Artists, music industry executives, record labels, music publishers and live performance venues will access VNUE’s solution as a service, through which they are able to benefit from a range of different revenue models to optimize the value of their live and on-demand content across a majority of digital ecosystems. The Company’s primary revenue model is to take a share of the revenue from sales of concert performances both audio and video or audio separately. In addition, the revenue stream can also include an advertising or sponsorship component that was integrated into tours. This revenue share aligns business outcomes for all parties and means that costs are primarily baked into the software and delivery agent. Typical revenue shares are expected to range from 15-60 percent and vary based on the level of service allocated to each artist, label, music publisher, and performance venue and the scale of the business opportunity. Secondary revenue streams include fees for storage, usage, licensing and software upgrades (design or social advertising distribution). VNUE’s revenue share is reported as net revenue (i.e. gross transaction revenues minus any revenue share due to third parties).

 

As a software-focused business, VNUE can take advantage of a single technology platform to continuously acquire users at low marginal cost leveraging artist promotion, in venue marketing and mobile notifications. Further automation and self-service tools are intended to allow VNUE to provide more advanced services to the industry and artist without adding significantly to the cost base or headcount.

 

VNUE intends to deliver a technology suite to accompany the publisher that allows them to source and then generate a wide swath of reports down to granular level in venue streams and conversions. VNUE looks to commercialize the in venue sales components that is currently missing and expand these efforts globally and embed live and on-demand content from the VNUE audience network efficiently and cost-effectively. These features, such as its real time audio sweating tools, are designed to significantly reduce the manual effort required to display music content and, therefore, increase the efficiency of content distribution and the revenue yield per performance sold.

 

 
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Products, Services and Intellectual Property

 

The company’s cloud-based software platform, contains four major pieces of intellectual property, based on a full stack Amazon Web Services deployment on which we support our mobile app, our Cross Platform Desktop Player, our VNUE Front of House (FOH) (for capturing soundboard audio), and the Artist Admin Portal for digital rights clearing and management of all artists, shows, and content. This technology is based on current languages and technologies and has been designed to be easily deployed and maintained. Currently, our software is being held as a proprietary trade secret and there are no current intentions to formally file documents with the United State Patent and Trademark Office; however, we may do so in the future.

 

VNUE’s Audio Manager is called Front of House. Sound Engineers at a music venue can use the Front of House application to capture performances for a band on any given night and immediately distribute digitally to patrons. The VNUE Front of House (FOH) is a mobile audio capture/upload tool that allows the user to capture a stereo feed from a live performance, split it into individual tracks, and upload m4a files of each track directly to the VNUE server for distribution through the VNUE Platform (Web, Mac, mobile applications). In addition, VNUE software associates the newly created live recording with its master track ID, automating publishing while the fans are still in the venue. Additionally, the system has an automated backend process anchored into a separate dashboard to handle the clearing and publishing aspects associated with the audio/video distribution and sale.

 

The Venue Artist Admin portal, an enterprise level content management system with administration features, allows VNUE to oversee all content and copyright clearances for artists, venues, labels and publishers. Each artist, label and publisher will receive a custom dashboard for their respective industry need.

 

Using VNUE’s suite of consumer focused products fans can relive a life-changing show from the night before, or catch up on their favorite band’s recent show on tour across the world. Shortly after a show’s conclusion, it is available for purchase on VNUE’s web, mac and mobile applications. In addition, 24 hours post show the audio and or video will also be syndicated for sale across our distribution network for all fans to enjoy.

 

Moments after the show is done, the Front of House compiles the file for sale at the venue. All of a sudden your phone buzzes with a notification from VNUE, telling you the venue you’re still standing in, is now and exclusively offering the audio or video for a price determined before the show.

 

VNUE partners with artists to record and quickly deliver live shows to fans in studio-quality audio and video. Content is purchased and downloaded in the app moments after the show so fans can stay connected to the band even when they aren't looking up.

 

VNUE Artist Admin

 

Our Venue Artist Admin suite works this way: an artist signs up on www.vnue.com, uploads their tracks for the next show and then uses the FOH application for Audience Point of Sale for their Audio or Video recorded show. That is our definition of a "VNUE Enabled Artist". Our simple audio options let artists easily connect with their fans without losing quality. Using our Front of House software and a stereo audio interface (ex. Apogee Duet), artist can capture their live shows at any venue. The shows are then cleared, managed, and distributed through the VNUE Audience Platform and Artist Admin.

 

VNUE Admin

 

VNUE Admin is a collective network of connected Venues. Enabled with VNUE Front of House Technology, Customized Audience Admin Account and a content publishing hub made up of HD cameras and location based software to collect various points of consumer related data prior, during and post the performance. VNUE believes this is the definitive technology and product for live events, venues and music festivals.

 

Enabled Venues

 

The sound engineer or designated management at the venue will have access to a customized web administration system to align their bookings, artists, and revenue from in venue sales. We call these Venues, Enabled. VNUE partners directly with venues to give them the tools they need to record live shows. We invest upfront in audio and video capture equipment or sync with current video services at venues. An on-site promotional partnership with the venue encourages app downloads at the show for new members and repeat customers. The result is a cost effective customer acquisition model for Artists as well as VNUE.

 

 
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The VNUE Proposition

 

VNUE provides an enterprise level solution to its partners through a software enabled service. The VNUE approach is focused on high quality content digital production and acquiring rights prior to the performance. VNUE seeks to distribute back to publishers and work with licensing to increase revenue and build a long tail value proposition for every performance captured. VNUE provides customers with audience network information and support for distribution of content to all types of destination sites including content owner sites, platforms and the business network of music publishers, streaming music services and "over the top" devices. 

 

Management believes its enterprise level solution drives the following benefits to customers:

 

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VNUE Super Admin – Proprietary Rights management software that enables granular control of content distribution, including by geography, personality types and publishers.

 

 

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Long Term Investment – VNUE primarily takes a share of customers’ revenue, with VNUE taking the majority of its fees when the revenue is delivered.

 

 

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iOS Focused– VNUE’s software enables customers to take advantage of enhance for iOS features, that greatly increase the probability of purchase.

 

 

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Flexible Revenue Models – Labels, Venues, and Artists work with us to adapt their deal based on different revenue models including licensed, ad-funded, and direct to consumer or sponsorship.

 

 

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Keep the Data – Performance data is collated from the FOH, Mobile Sandbox, Super Admin and Artist Admin into one dashboard. Financial data can be downloaded anytime for any reason. Full transparency of VNUE data is extremely important.

 

 

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VNUE Audience reach – VNUE’s distribution to a pre-connected network of publishers enables access to potentially larger audiences.

 

License Agreement with Universal Music Corp.

 

On November 2, 2015, the Company entered into a License Agreement with Universal Music Corp. ("Universal"). The License Agreement is effective September 8, 2015, and has a term of Two (2) Years from the Effective Date. Under the terms of the License Agreement, Universal is granting to VNUE a non-exclusive, non-transferable, non-sub-licensable license to create and distribute content using certain Universal compositions, more specified in the Grant of Right’s section of the License Agreement.

 

The Company will then market and sell this content via the VNUE Service at certain agreed upon price points more specifically described in the Business Model and Price Points Section of the License Agreement, and the Company shall pay Universal royalties for each sale of the content as specified in the Royalty Rates section of the License Agreement.

 

In accordance with the Minimum Guarantee provision of the License Agreement, the Company was required to pay Universal a minimum first year fee of Fifty Thousand Dollars ($50,000), which is due within 10 days of execution and a second year minimum fee of Fifty Thousand Dollars ($50,000), which is due upon the commencement of the second year of the Term. The Company paid the minimum first year fee of Fifty Thousand Dollars ($50,000) to Universal on November 10, 2015.

 

Now that the Company has paid the minimum first year fee to Universal, the Company’s plan is to continue raising capital through the sales of its common stock in order to complete the development of its VNUE Service. Once development of the VNUE Service is complete, the Company plans to concentrate on the marketing and sales of content created under the Licensing Agreement with Universal, as well as identifying strategic opportunities with other music industry leaders.

 

 
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Results of Operations

 

The following discussion and analysis of our results of operations and financial condition for the six months ended June 30, 2016 should be read in conjunction with our audited consolidated financial statements and related notes included in our most recent annual report on Form 10-K for the year ended December 31, 2015 filed with the SEC. We are in the process of completing development of our products and services and therefore do not have material revenues or income.

 

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

 

Acquisition Related Costs

 

Our acquisition related costs for the Three-Months Ended June 30, 2016 amounted to $0 compared to $906,462 for the Three-Months Ended June 30, 2015. The decrease is due to no acquisitions taking place during the quarter. 

 

Software Development

 

Our software development expenses for the Three-Months Ended June 30, 2016 amounted to $139,593 compared to $1,554,324 for the Three-Months Ended June 30, 2015. The decrease represents the slower pace of development of our software that is the basis for our products and services that we plan to offer as we implement our business plan. 

 

General and Administrative Expenses

 

Our general and administrative expenses for the Three-Months Ended June 30, 2016 amounted to $654,821 compared to $248,776 for the Three-Months Ended June 30, 2015. The increase in general and administrative expenses relative to last year is due primarily to the increased salaries for full time personnel and contract labor.  

 

Other (Income) Expenses, Net

 

We recorded net other expenses for the Three-Months Ended June 30, 2016 of $62,377 compared to $49,578 for the Three-Months Ended June 30, 2015. The change in net other expenses was primarily due to the change in fair value of derivative liability of $13,595 and financing costs of $48,742.

 

Net Loss from Operations

 

As a result of the foregoing software development expenses, general and administrative expenses, and other income, our net loss for the Three-Months Ended June 30, 2016 was $856,791 compared to our net loss for the Three-Months Ended June 30, 2015 of $2,759,140. The decrease in our net loss was primarily due to the decrease in expenditures for software development and acquisition related costs.

  

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

 

Acquisition Related Costs

 

Our acquisition related costs for the Six-Months Ended June 30, 2016 amounted to $0 compared to $906,462 for the Six-Months Ended June 30, 2015. The decrease is due to no acquisitions taking place during the Six-Months Ended June 30, 2016. 

 

 
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Software Development

 

Our software development expenses for the Six-Months Ended June 30, 2016 amounted to $906,369 compared to $1,578,181 for the Six-Months Ended June 30, 2015. The decrease represents a slower paced development of our software that is the basis for our products and services that we plan to offer as we implement our business plan. 

 

General and Administrative Expenses

 

Our general and administrative expenses for the Six-Months Ended June 30, 2016 amounted to $837,562 compared to $303,794 for the Six-Months Ended June 30, 2015. The increase in general and administrative expenses relative to last year is due primarily to the increased salaries for full time personnel and contract labor.  

 

Other (Income) Expenses, Net

 

We recorded net other expenses for the Six-Months Ended June 30, 2016 of ($121,551) compared to ($26,115) for the Six-Months Ended June 30, 2015. The change in net other expenses was primarily due to the gain in fair value of derivative liability of $218,257.

 

Net Loss from Operations

 

As a result of the foregoing software development expenses, general and administrative expenses, and other income, our net loss for the Six-Months Ended June 30, 2016 was $1,622,380 compared to our net loss for the Six-Months Ended June 30, 2015 of $2,762,322.

 

Liquidity and Capital Resources 

 

Since our inception, we have funded our operations primarily through private offerings of our equity securities and loans.

 

As of June 30, 2016, we had cash and cash equivalents of $1,791.

 

We had negative cash flows from operating activities of $125,163 for the Six-Months Ended June 30, 2016, compared with negative cash flows from operating activities of $406,087 for the Six-Months Ended June 30, 2015. The improvement in our negative cash flows for operating activities for the period is primarily due to costs associated with the issuance of common stock for the merger and for services and financing activities for the Six-Months Ended June 30, 2015.

 

We had positive cash flows from financing activities of $119,166 for the Six-Months Ended June 30, 2016 as compared to $583,329 for the Six-Months Ended June 30, 2015. The cash flows from financing activities for the Six-Months Ended June 30, 2016 was primarily due to $100,000 in proceeds from a convertible note. The cash flows from financing activities for the Six-Months Ended June 30, 2015 was due to proceeds from the issuance of common stock.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

 
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Going Concern

 

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the condensed consolidated financial statements, the Company had a stockholders’ deficit of $1,067,501 at June 30, 2016, and incurred a net loss of $1,622,380, and used net cash in operating activities of $125,163 for the reporting period then ended. Certain of the Company’s notes payable are also past due and in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern

 

Management estimates that the current funds on hand will be sufficient to continue operations through December 2016. The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and on its ability to raise additional funds. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

We have not generated significant revenues, have incurred losses since our inception, and rely upon the sale of our common stock and loans from related and other parties to fund our operations. We do not anticipate generating any revenues in the foreseeable future, and if we are unable to raise equity or secure alternative financing, we may not be able to pursue our plans and our business may fail.

 

Application of Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which were prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this prospectus, we believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations.See Note 2 - Significant and Critical Accounting Policies and Practices page F-7 herein.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

 
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Internal Software Development Costs

 

Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company considers technological feasibility to be established when all planning, designing, coding and testing has been completed according to design specifications. After technological feasibility is established, any additional costs are capitalized. Through June 30, 2016, technological feasibility of the Company’s software had not been established; and, accordingly, no costs have been capitalized to date.

   

Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Stock-Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

Selected Financial Data

 

Not applicable.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

 

Not applicable.

 

 
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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of this quarterly report, an evaluation was carried out by our management, with the participation of our principal executive officer and principal accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2016. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

 

Based on that evaluation, and the material weaknesses outlined below under Internal Control Over Financial Reporting, our principal executive officer and principal accounting officer concluded, as of the end of the period covered by this annual report, that, due to weaknesses in our internal controls described below, our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting information required to be disclosed, within the time periods specified in the SEC’s rules and forms, and that such information may not be accumulated and communicated to our principal executive officer and principal accounting officer to allow timely decisions regarding required disclosures.

 

Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our principal executive officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2016 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of June 30, 2016, the Company determined that there were deficiencies that constituted material weaknesses, as described below.

 

1.

Lack of proper segregation of duties due to limited personnel.

 

2.

Lack of a formal review process that includes multiple levels of review.

 

3.

Lack of adequate policies and procedures for accounting for financial transactions.

 

4.

Lack of independent board member(s)

 

5.

Lack of independent audit committee

 

Management is currently evaluating remediation plans for the above control deficiencies.

 

In light of the existence of these material weaknesses, management concluded that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2016 based on criteria established in Internal Control—Integrated Framework issued by COSO.

 

Weinberg & Company, an independent registered public accounting firm, is not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of June 30, 2016 pursuant to rules of the SEC.

 

Changes in Internal Control

 

During the quarter ended June 30, 2016, there were no other changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than described herein, neither the Company, nor its officers or directors are involved in, or the subject of, any pending legal proceedings or governmental actions the outcome of which, in management’s opinion, would be material to our financial condition or results of operations. 

 

On December 11, 2015, Hughes Media Law Group, Inc. filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,552.78 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with VNUE Washington, for legal work performed by HMLG for VNUE Washington prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue VNUE Washington, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. The lawsuit was amended by HMLG, and now includes VNUE Media, Inc. and VNUE Technology, Inc. as additional parties. On July 25, 2016, the court issued judgment awarding HLMG $133,482.12 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying condensed consolidated balance sheet as of March 31, 2016.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

There were no defaults upon senior securities during the period ended June 30, 2016.

 

ITEM 4. MINING SAFETY DISCLOSURES  

 

N/A

 

ITEM 5. OTHER INFORMATION

 

In May 2016 Vnue. Inc. changed its legal representation from Matthew Stout to Kane Russell Coleman & Logan PC. In addition on May 17, 2016 we filed a current report on Form 8-K and due to a miscommunication between the Company and the director it was erroneously reported that Collin Howard as a member of the Board of Directors of the Company executed certain resolutions of the Board of Directors.

 

 
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ITEM 6. EXHIBITS

 

Exhibits

 

Exhibit Number

 

Description of Exhibits

 

 

 

3.1

 

Articles of Incorporation (1)

 

 

 

3.2

 

Bylaws (2)

 

 

 

31.1*

 

Certification of the Chief Executive Officer and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

 

 

 

32.1*

 

Certification of the Chief Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Schema

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Definition Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase

___________

*

Filed herein

(1)

Included as an exhibit with our Form SB-2 filed October 13, 2006.

(2)

Included as an exhibit with our Form 8-K filed February 1, 2011.

 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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. 

 

 

VNUE, Inc.  

Registrant  

 

Date: December 15, 2016

By:

/s/ Zach Bair

 

Zach Bair

 

Chief Executive Officer and Principal Accounting Officer

 
 

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