Attached files
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EX-32.2 - CERTIFICATION - Probility Media Corp | probility_10q-ex3202.htm |
EX-32.1 - CERTIFICATION - Probility Media Corp | probility_10q-ex3201.htm |
EX-31.2 - CERTIFICATION - Probility Media Corp | probility_10q-ex3102.htm |
EX-31.1 - CERTIFICATION - Probility Media Corp | probility_10q-ex3101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2017
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-55074
ProBility Media Corporation | ||
(Exact name of registrant as specified in its charter) | ||
Nevada | 33-1221758 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1517 San Jacinto Street, Houston, TX 77002 | ||
(Address of principal executive offices) | ||
(713) 652-3937 | ||
(Registrant's telephone number, including area code) | ||
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer [_] | Accelerated filer [_] | |
Non-accelerated filer [_] | Smaller reporting company [X] | |
Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of September 27, 2017, there were 51,890,323 shares of the issuer's common stock, par value $0.001, outstanding.
ProBility Media Corporation
(formerly Panther Biotechnology, Inc.)
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2017 AND 2016
PAGE | |||
PART I – FINANCIAL INFORMATION | |||
ITEM 1. | FINANCIAL STATEMENTS | 3 | |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 29 | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 35 | |
ITEM 4. | CONTROLS AND PROCEDURES | 35 | |
PART II – OTHER INFORMATION | |||
ITEM 1. | LEGAL PROCEEDINGS | 36 | |
ITEM 1A. | RISK FACTORS | 36 | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 36 | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 36 | |
ITEM 4. | MINE SAFETY DISCLOSURES | 36 | |
ITEM 5. | OTHER INFORMATION | 36 | |
ITEM 6. | EXHIBITS | 37 | |
SIGNATURES | 37 |
2 |
PART I – FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Company's Form 10-K, filed with the SEC on February 14, 2017. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year ended October 31, 2017.
ProBility Media Corporation
(formerly Panther Biotechnology, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2017 AND 2016
(UNAUDITED)
Page | |
Consolidated Balance Sheets | 4 |
Consolidated Statements of Operations | 5 |
Consolidated Statements of Cash Flows | 6 |
Notes to Consolidated Financial Statements | 7 |
3 |
ProBility Media Corporation
(formerly Panther Biotechnology, Inc.)
(Unaudited)
July 31, | October 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 240,528 | $ | 68,369 | ||||
Accounts receivable, net | 1,063,329 | 54,279 | ||||||
Inventory | 690,502 | 514,795 | ||||||
Other current assets | 16,460 | – | ||||||
Total current assets | 2,010,819 | 637,443 | ||||||
Property, plant, and equipment, net | 172,324 | 98,510 | ||||||
Intangible assets, net | 1,770,395 | 238,608 | ||||||
Security deposit | 8,701 | 7,500 | ||||||
Investment in equity interest, at cost | – | 45,967 | ||||||
Total Assets | $ | 3,962,239 | $ | 1,028,028 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Current portion of acquisition notes payable | $ | 137,974 | $ | 26,311 | ||||
Current portion - lease payable | 12,654 | – | ||||||
Accounts payable and accrued expenses | 1,404,361 | 310,459 | ||||||
Accounts payable – related parties | – | 20,112 | ||||||
Accrued expenses – related parties | 365,801 | 271,704 | ||||||
Stock payable | – | 33,668 | ||||||
Stock payable – related parties | – | 84,562 | ||||||
Current portion of convertible notes payable, net of discount of $505,222 and $0, respectively | 525,778 | 352,000 | ||||||
Notes payable, net of discount of $12,354 and $74,177, respectively | 950,115 | 500,848 | ||||||
Derivative liabilities | – | 218,943 | ||||||
Total current liabilities | 3,396,683 | 1,818,607 | ||||||
Long-term liabilities: | ||||||||
Security deposit | 7,000 | 7,000 | ||||||
Shareholder advance | 93,000 | 88,000 | ||||||
Lease payable | 58,924 | – | ||||||
Contingent liability | 362,000 | – | ||||||
Convertible notes payable, net | 45,000 | – | ||||||
Acquisition notes payable | 387,702 | 343,745 | ||||||
Total long-term liabilities | 953,626 | 438,745 | ||||||
Total liabilities | 4,350,309 | 2,257,352 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding | – | – | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 51,683,173 and 39,784,717 issued and outstanding as of July 31, 2017 and October 31, 2016, respectively | 51,684 | 39,785 | ||||||
Additional paid in capital | 4,566,542 | (498,623 | ) | |||||
Accumulated deficit | (5,006,296 | ) | (770,486 | ) | ||||
Total stockholders' deficit | (388,070 | ) | (1,229,324 | ) | ||||
Total Liabilities and Stockholders' Deficit | $ | 3,962,239 | $ | 1,028,028 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
ProBility Media Corporation
(formerly Panther Biotechnology, Inc.)
Consolidated Statements of Operations
For the Three and Nine Months Ended July 31, 2017 and 2016
(Unaudited)
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 3,043,449 | $ | 627,700 | $ | 5,972,276 | $ | 2,232,990 | ||||||||
Cost of sales | 2,007,006 | 469,156 | 4,019,633 | 1,638,398 | ||||||||||||
Gross profit | 1,036,443 | 158,544 | 1,952,643 | 594,592 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | 1,214,150 | 192,470 | 2,447,046 | 545,723 | ||||||||||||
Stock compensation | 1,353,334 | – | 2,382,834 | – | ||||||||||||
Professional fees | 127,873 | 32,653 | 478,903 | 140,729 | ||||||||||||
Impairment expense | 276,335 | – | 387,696 | – | ||||||||||||
Depreciation and amortization expense | 102,416 | 8,646 | 193,785 | 9,331 | ||||||||||||
Total operating expenses | 3,074,108 | 233,769 | 5,890,264 | 695,783 | ||||||||||||
Operating loss | (2,037,665 | ) | (75,225 | ) | (3,937,621 | ) | (101,191 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Discount amortization | (276,336 | ) | – | (301,601 | ) | – | ||||||||||
Interest expense | (102,260 | ) | (95,092 | ) | (215,531 | ) | (140,717 | ) | ||||||||
Gain on debt extinguishment | – | – | 82,240 | – | ||||||||||||
Change in derivative liability | 250,556 | – | 136,703 | – | ||||||||||||
Total other income (expenses) | (128,040 | ) | (95,092 | ) | (298,189 | ) | (140,717 | ) | ||||||||
Loss before income taxes | (2,165,705 | ) | (170,317 | ) | (4,235,810 | ) | (241,908 | ) | ||||||||
Net loss attributable to non-controlling interests | – | 110,389 | – | 108,995 | ||||||||||||
Net loss attributable to ProBility | $ | (2,165,705 | ) | $ | (59,928 | ) | $ | (4,235,810 | ) | $ | (132,913 | ) | ||||
Net loss per common share, basic and diluted | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.01 | ) | ||||
Weighted average number of common shares outstanding, basic and diluted | 49,127,229 | 23,582,766 | 45,504,292 | 23,582,766 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
Probility Media Corporation
(formerly Panther Biotechnology, Inc.)
Consolidated Statements of Cash Flows
For the Nine Months Ended July 31, 2017 and 2016
(Unaudited)
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (4,235,810 | ) | $ | (241,908 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation and amortization | 193,785 | 9,331 | ||||||
Bad debt expense | 31,305 | 10,407 | ||||||
Share-based compensation | 2,382,834 | – | ||||||
Amortization of debt discount | 301,601 | 62,162 | ||||||
Impairment expense | 387,696 | – | ||||||
Change in derivative liability | (136,703 | ) | – | |||||
Gain on debt extinguishment | (82,240 | ) | – | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (675,013 | ) | 2,461 | |||||
Inventory | 205,649 | 30,656 | ||||||
Other assets | (17,661 | ) | – | |||||
Accounts payable and accrued expenses | 689,258 | (144,979 | ) | |||||
Accounts payable – related parties | 73,985 | 85,282 | ||||||
Net cash used in operating activities | (881,314 | ) | (186,588 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Acquisitions of Premier Purchasing and Marketing Alliance, LLC, One Exam Prep, LLC, W Marketing, Inc. and Cranbury Associates, LLC. | (9,425 | ) | – | |||||
Advances to cost method investee – related party | (123,672 | ) | (43,466 | ) | ||||
PP&E purchases | (19,019 | ) | – | |||||
Net cash used in investing activities | (152,116 | ) | (43,466 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Payments on convertible notes payable | (60,000 | ) | – | |||||
Proceeds from convertible note payable | 606,000 | – | ||||||
Payments on lease payable | (4,832 | ) | – | |||||
Proceeds from sale of common stock | 441,500 | – | ||||||
Payments on acquisition notes payable | (19,380 | ) | – | |||||
Proceeds from notes payable | 2,192,138 | 1,245,707 | ||||||
Payments on notes payable | (1,949,837 | ) | (1,049,904 | ) | ||||
Net cash provided by financing activities | 1,205,589 | 195,803 | ||||||
Net change in cash | 172,159 | (34,251 | ) | |||||
Cash at beginning of period | 68,369 | 74,001 | ||||||
Cash at end of period | $ | 240,528 | $ | 39,750 | ||||
Supplemental Cash Flow Disclosure: | ||||||||
Interest paid | $ | 181,243 | $ | 53,017 | ||||
Taxes paid | $ | – | $ | – | ||||
Common stock issued for stock payable | $ | 60,287 | $ | – | ||||
Common stock issued upon conversion of convertible note payable | $ | 168,626 | $ | – | ||||
Discount on convertible notes from beneficial conversion features | $ | 745,000 | $ | – |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization and Business Activity
ProBility Media Corporation (formerly Panther Biotechnology, Inc.) (the “Company”) was incorporated in the State of Nevada on July 11, 2011. The Company was originally incorporated as New Era Filing Services Inc., changed its name to NEF Enterprises, Inc. on October 4, 2011, changed its name to Panther Biotechnology, Inc. on October 29, 2014 and changed its name to ProBility Media Corporation on February 1, 2017. The Company incorporated a wholly-owned subsidiary, PubCo Reporting Services, Inc., formerly known as New Era Filing Services, Inc., in Florida on November 20, 2012. Effective June 1, 2015, the Company sold PubCo Reporting Services, Inc. to its then management.
On October 31, 2016 (the “Closing Date”), we consummated the transactions contemplated by a Share Exchange Agreement (the “Exchange Agreement” or the “Business Combination”), by and between the Company and Brown Technical Media Corporation (“Brown”). In connection with the closing of the Exchange Agreement, we issued 32,000,000 restricted shares of our common stock, to the shareholders of Brown, which included Evan M. Levine, our Chief Executive Officer and director (6,600,000 shares of common stock beneficially owned by Mr. Levine, when including minor children and affiliates, who received shares in the exchange), Noah I. Davis, our President and Chief Operating Officer (7,175,522 shares of common stock beneficially owned by Mr. Davis), and Steven M. Plumb, our Chief Financial Officer (11,469,785 shares of common stock beneficially owned by Mr. Plumb, when including shares held by his minor children and affiliates, who received shares in the exchange) in consideration for 100% of the outstanding capital stock of Brown, and Brown became our wholly-owned subsidiary. This transaction has been accounted for as a reverse merger with Brown as the surviving entity. The assets of the Company that existed prior to the transaction have been recorded at their historical value as of the closing of the transaction and has been added to the historical cost basis of the assets of Brown.
Brown was incorporated on January 21, 2014 and is a provider of codes, standards, training materials and related materials in print and electronically to small, medium and large businesses, government, and non-profit organizations in the United States.
Brown acquired a 51% interest on January 31, 2014 in Brown Book Shop, Inc., (“Brown Books”) a Texas corporation that was formed as Brown Book Shop, a sole-proprietorship, in 1946, and on June 8, 1976 was incorporated in Texas as Brown Book Shop, Inc. The Company operates a number of e-commerce websites, including www.browntechnical.org, www.1examprep.com, www.CranburyInternational.com, www.New-Providers.com, and www.WMarketingOnline.com. On October 31, 2016, Brown acquired the remaining 49% of Brown Books.
On August 6, 2014, Brown formed Pink Professionals, LLC (“Pink”) to develop and market social networking software aimed at female managers and professionals in certain targeted professions, such as Oil and Gas, Finance and Information Technology. At the time of formation, Brown owned 75% of the membership units of Pink. On October 31, 2014, Brown sold the rights to the use of the software in the Oil and Gas industry to the 25% owner of Pink in exchange for cash consideration and the cancelation of such 25% owner’s membership units. Accordingly, Brown now owns 100% of the equity in Pink.
On January 19, 2017, the Company acquired 100% of the membership units of Premier Purchasing and Marketing Alliance LLC, a New York limited liability company, also known as National Electrical Wholesale Providers (“NEWP”). The acquisition of NEWP was effective January 1, 2017.
On January 26, 2017, the Company acquired 100% of the membership units of One Exam Prep, LLC, (“One Exam”) a Florida limited liability company. The acquisition of One Exam was effective January 1, 2017.
On June 22, 2017, the Company acquired 100% of the outstanding shares of W Marketing Inc. (“W Marketing”) a New York corporation. The acquisition of W Marketing was effective May 1, 2017.
On July 31, 2017, the Company acquired 100% of the outstanding shares of Cranbury Associates, LLC (“Cranbury”) a Vermont limited liability company. The acquisition of Cranbury was effective May 1, 2017.
7 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its majority owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Business Combinations
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
Cash
Cash and cash equivalents include short-term investments with original maturities of 90 days or less. The recorded value of our cash and cash equivalents approximates their fair value.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration the overall quality of the receivable portfolio along with specifically-identified customer risks. The Company has an allowance for doubtful accounts of $27,901 and $19,635 as of July 31, 2017 and October 31, 2016, respectively.
8 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost is determined using the average cost method. Price protection is recorded when earned as a reduction to the cost of inventory. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and a realizable selling price less normal costs of disposal, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has no allowance as of July 31, 2017 and October 31, 2016.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. The Company calculates depreciation expense using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their useful lives or the initial lease term. Expenditures for major renewals and improvements that extend the useful life of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. The estimated useful lives of property and equipment are as follows:
Classification | Estimated Useful Lives | |
Equipment | 5 to 7 years | |
Leasehold improvements | 4 to 5 years | |
Furniture and fixtures | 4 to 7 years | |
Websites | 3 years |
Fair Value Measurements
Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.
Revenue Recognition
The Company records revenue from sales transactions when title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, shipment has occurred and/or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. The Company’s shipping terms typically specify F.O.B. origination, at which time title and risk of loss have passed to the customer.
9 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses, thereby increasing efficiency and reducing costs. The Company recognizes revenue for drop-shipment arrangements upon shipment to the customer with contract terms that typically specify F.O.B. shipping point.
The Company records freight billed to its customers as revenue and the related freight costs as a cost of sales.
Sales Taxes
The State of Texas imposes a sales tax on the Company’s sales to nonexempt customers. The Company collects that sales tax from customers and remits the entire amount to the State. The Company’s accounting policy is to exclude the tax collected and remitted to the State from revenue and cost of sales.
Leases
All leases are reviewed for capital or operating classification at their inception under the guidance of Accounting Standards Codification Topic 840, “Leases” (“ASC 840”). We conduct operations primarily under operating leases. For leases that contain rent escalations, we record the total rent payable during the lease term, as defined above, on a straight-line basis over the term of the lease and record the difference between the rents paid and the straight-line rent as a deferred rent liability.
Advertising Costs
We expense advertising costs as incurred and recorded $661,033 and $142,194 during the nine months ended July 31, 2017 and 2016, respectively.
Income Taxes
Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts in the Financial Statements using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company performs an evaluation of the realizability of deferred tax assets on a quarterly basis. This evaluation requires management to make use of estimates and assumptions and considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies.
The Company accounts for unrecognized tax benefits based upon its assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits resulting from unrecognized tax benefits taken or expected to be taken in a tax return and recognizes interest and penalties, if any, related to its unrecognized tax benefits in income tax expense.
Intangible Assets
Intangible assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. The Company recognized impairment expense of $218,058 related to the Faulk patents during the nine months ended July 31, 2017.
10 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset should no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value.
Investments in Equity Interest
The Company reviews its investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the investment. The determination of fair value of the investment involves considering factors such as current economic and market conditions, the operating performance of the companies including current earnings trends and forecasted cash flows, and other company and industry specific information.
Share-based Expenses
ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Fair Value of Financial Instruments
The Company believes that the fair value of its financial instruments comprising cash, accounts receivable, cost investments, accounts payable, and convertible notes approximate their carrying amounts. As of July 31, 2017 and October 31, 2016, the Company had no Level 1 or Level 2 financial assets or liabilities, and Level 3 financial liabilities consisted of the Company’s derivative liability.
There are no level 3 fair value measurements as of July 31, 2017 since the convertible note was modified and no derivative liability exists as of July 31, 2017:
Carrying Amount |
Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative liability | $ | – | $ | – | $ | – | $ | – |
The following table presents the fair value measurement information for the Company as of October 31, 2016:
Carrying Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative liability | $ | 218,943 | $ | – | $ | – | $ | 218,943 |
11 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Loss per Share
Basic loss per common share equals net loss divided by weighted average common shares outstanding during the period. Diluted loss per share includes the impact on dilution from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method. The Company incurred net losses for the three and nine months ended July 31, 2017, and therefore, basic and diluted loss per share for those periods are the same as all potential common equivalent shares would be antidilutive. For the nine months ended July 31, 2017, the Company had 33,000 common stock warrants outstanding, at an exercise price of $6.00 per share, expiring on August 31, 2020, that were excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive.
Recent Accounting Pronouncements
Balance Sheet Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, simplifying the balance sheet classification of deferred taxes by requiring all deferred taxes, along with any related valuation allowance, to be presented as noncurrent. This ASU is effective for the Company beginning in the first quarter of 2017, allows for early adoption and may be applied either prospectively or retrospectively. This ASU is not expected to have a material impact on the Company’s Financial Statements.
Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, amending the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value instead of the lower of cost or market value. This ASU is effective for the Company beginning in the first quarter of 2017, allows for early adoption and must be applied prospectively after the date of adoption. The Company has adopted ASU 2015-11 and the implementation had no material impact on the Company’s Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), replacing most existing revenue recognition guidance under GAAP and eliminating industry specific guidance. The core principal of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date by one year. This ASU will be effective for the Company beginning in the first quarter of 2018, allows for early adoption in the first quarter of 2017 and may be applied using either a full retrospective approach or a modified retrospective approach. The Company is currently analyzing the impacts of the guidance including the increased footnote disclosures.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
12 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 – GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a cumulative net loss since inception of $5,006,296, negative working capital of $1,385,864 and has required additional capital raises and credit card advances to support its operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving capital from shareholders and other related parties and obtain financing from third parties. No assurance can be given that the Company will be successful in these efforts.
The consolidated financial statements do not include any adjustments relating 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.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment consists of the following:
July 31, 2017 | October 31, 2016 | |||||||
Equipment | $ | 68,182 | $ | 68,182 | ||||
Web sites | 44,600 | 32,956 | ||||||
Leasehold improvements | 19,002 | 19,002 | ||||||
Office equipment | 89,318 | 5,533 | ||||||
Property and equipment | 221,102 | 125,673 | ||||||
Less: accumulated depreciation | (48,778 | ) | (27,163 | ) | ||||
Property and equipment, net | $ | 172,324 | $ | 98,510 |
Depreciation expense for the nine months ended July 31, 2017 and 2016, is $21,615 and $1,659, respectively.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following as of July 31, 2017 and October 31, 2016:
Useful life | July 31, 2017 | October 31, 2016 | ||||||||
Faulk Patents | 10 | $ | – | $ | 274,000 | |||||
Customer Lists | 3 | 671,327 | – | |||||||
Copyrights | 5 | 1,250,688 | – | |||||||
Accumulated amortization and impairment | (151,620 | ) | (35,392 | ) | ||||||
Intangible assets, net | $ | 1,770,395 | $ | 238,608 |
Amortization expense for the nine months ended July 31, 2017 and 2016 is $172,169 and $0, respectively. The amortization included amortization of $20,550 on the Faulk Patents and the Company recognized impairment of $218,058 related to the Faulk assets during the quarter ending July 31, 2017.
13 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6 – RELATED PARTY TRANSACTIONS
On November 7, 2016, the Company agreed to issue 500,000 shares of its restricted common stock to the Vice Chairman of the Board, Richard Corbin. The fair market value of the common stock was $395,000 on the date of issuance.
On December 23, 2016, the Company sold 333,334 shares of restricted common stock to the Vice Chairman of the Board of Directors, Richard Corbin, for gross proceeds of $50,000.
On January 30, 2017, the Company borrowed $70,000 from Richard Corbin, the Vice Chairman of the Board. The loan was originally due on February 10, 2017, at which time the Company was to repay the loan and $1,000 of interest. The loan has been amended and the maturity date was extended to June 2020. As of July 31, 2017, the outstanding balance was $45,000.
As of July 31, 2017 and October 31, 2016, total advances from certain officers, directors and shareholders of the Company were $88,000, which were used for payment of general operating expenses. The related parties advances have no conversion provisions into equity, have no paperwork associated with them and do not incur interest.
The Company uses credit cards of related parties to pay for certain operational expenses. The Company has agreed to pay the credit card balances, including related interest. As of July 31, 2017 and October 31, 2016, the Company has outstanding balances on these credit cards of $365,801 and $271,704, respectively.
During the nine months ended July 31, 2017, the Company advanced $123,672 to an urgent care center that is managed by the President and CFO of the Company, who collectively own 6% of the equity of the urgent care center. The Company owns 5% of the equity in the urgent care center. In August 2017, the urgent care center’s assets were sold and the buyer assumed certain liabilities including relieving our officers of certain financial responsibilities; therefore, we have recognized the original investment and advances totaling $169,638 as compensation to our officers, which is included in impairment expense for the three and nine months ended July 31, 2017.
Officer Compensation
In November 2015, the board of directors authorized compensation for Mr. Levine, the Chief Executive Officer of the Company, as follows:
· | A $25,000 lump sum payment; |
· | 2016 salary established at $15,000 per month commencing January 15, 2016; |
· | Healthcare reimbursement of $1,000 per month; and |
· | 2016 bonus, if warranted, will be determined at the discretion of the compensation committee of the Board of Directors and paid in a lump sum in November or December 2016. The bonus was not paid. |
In April 2016, the Company retained Steven M. Plumb, CPA as Chief Financial Officer, through a contract with his consulting firm, Clear Financial Solutions, Inc. (“Clear Financial”). Clear Financial is paid $6,000 per month for Mr. Plumb’s services. In February 2014, Brown entered into consulting agreements with Mr. Davis and Mr. Plumb. The agreements were modified on May 1, 2016 such that Mr. Davis, the President and Chief Operating Officer is paid $11,000 per month by Brown and Mr. Plumb, the Chief Financial Officer, is paid $4,500 per month by Brown. The contracts expire on December 19, 2017.
During the nine months ended July 31, 2017, Mr. Levine, Mr. Davis, and Mr. Plumb were paid $105,000, $93,500 and $126,000, respectively, which is current period compensation and liquidation of amounts owed from prior periods.
14 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 – NOTES PAYABLE
Notes payable consists of the following:
As of, | ||||||||
July 31, 2017 | October 31, 2016 | |||||||
Note payable dated September 9, 2016, bearing interest at 14.9% per annum, due November 2017 | $ | 52,000 | $ | 49,799 | ||||
Note payable dated May 14, 2015, bearing interest at 18% per annum, due September 2018, guaranteed by the officers of the Company. | 100,983 | 100,496 | ||||||
Note payable dated May 19, 2015, bearing interest at 33% per annum, due September 14, 2017, and guaranteed by the officers of the Company. The effective interest rate is 35.6% per annum. This note was paid in full at maturity. | 86,269 | 241,770 | ||||||
Note payable dated October 23, 2014, bearing interest at 10% per annum and due in August 2017. This note was renewed at maturity and the due date was extended to February 2018 | 78,614 | 131,960 | ||||||
Note payable dated March 16, 2015 bearing interest at 9%, due June 30, 2017. The note is in default at July 31, 2017 which had no impact on the interest rate. | 51,000 | 51,000 | ||||||
Note payable dated January 1, 2017, bearing interest at 8%, due September 30, 2017. The note is secured by the membership interest of Premier Purchasing and Marketing Alliance, LLC held by the Company | 50,000 | – | ||||||
Non-interest bearing note payable dated January 1, 2017, due on March 1, 2017. The note is secured by the membership interest of Premier Purchasing and Marketing Alliance, LLC held by the Company. The note is in default; however no notice of default received at the date of filing. | 36,830 | – | ||||||
Note payable dated January 17, 2017, bearing interest at 7%, due on January 17, 2018, and guaranteed by the officers of the Company. | 158,466 | – | ||||||
Note payable dated March 14, 2017 bearing interest at 9%, due March 14, 2018 | 66,318 | – | ||||||
Note payable dated July 26, 2017 bearing interest at 16.216%, due on July 26, 2018 | 229,908 | – | ||||||
Line of credit with a maximum value of $125,000 dated January 4, 2008 bearing interest at the prime rate plus 2%. | 52,081 | – | ||||||
Total notes payable | 962,469 | 575,025 | ||||||
Less original issue discount | (156,240 | ) | (156,240 | ) | ||||
Amortization of discount | 143,886 | 82,063 | ||||||
Notes payable, net of discount | 950,115 | 500,848 | ||||||
Less, current portion | (950,115 | ) | – | |||||
Long term portion of notes payable | $ | – | $ | – |
15 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 – NOTES PAYABLE (CONT’D)
Notes payable related to certain acquisitions consists of the following:
As of, | ||||||||
July 31, 2017 | October 31, 2016 | |||||||
Notes payable dated June, 22, 2017, bearing interest at 8% per annum, due August 22, 2018 with monthly principal and interest payments totaling $3,306 beginning August 22, 2017. The notes are to the former owners of W Marketing. | $ | 75,000 | $ | – | ||||
Note payable dated July, 31, 2017, bearing interest at 6% per annum, due November 30, 2019 with monthly principal and interest payments totaling $4,153 beginning November 1, 2017. The notes are to the former owner of Cranbury. | 100,000 | – | ||||||
Notes payable dated January 31, 2014 bearing interest at 8%, due February 1, 2019 with monthly principal and interest payments totaling $4,629. The notes are due to the former owners of Brown Book Store. | 350,676 | 370,056 | ||||||
Total notes payable | 525,676 | 370,056 | ||||||
Less, current portion | (137,974 | ) | (26,311 | ) | ||||
Long term portion of notes payable | $ | 387,702 | $ | 343,745 |
Years ending July 31, | Future Principal Payments | |||
2018 | $ | 137,974 | ||
2019 | 387,702 | |||
2020 | – | |||
2021 | – | |||
2022 | – | |||
Thereafter | – | |||
$ | 525,676 |
The fair values approximate the related carrying values of the Company’s long-term debt, including current maturities.
NOTE 8 – STOCK PAYABLE
As of October 31, 2016, the Company has 324,000 shares of its restricted common stock that were fully vested and have not been issued. The shares have a fair market value of $118,230 as of October 31, 2016, of which 300,000 shares valued at $84,562 is owed to related parties. The 324,000 common shares were issued during the nine months ended July 31, 2017 and the stock payable balance was $0 on July 31, 2017.
16 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 – CONVERTIBLE NOTES PAYABLE
July 31, | October 31, | |||||||
Description | 2017 | 2016 | ||||||
On August 20, 2015, the Company executed a convertible note payable to Typenex Co-Investment, L.LC. in the original principal amount of $247,000 for net proceeds of $220,000, payable on March 31, 2018 bearing interest at 10% per annum. This note is convertible into the Company’s common stock at $7.50 per share unless the market capitalization of the Company falls below $15,000,000, at which point the conversion price will equal the market price of the Company’s common stock on the date of conversion. On October 29, 2015, the market capitalization of the Company fell below $15,000,000 and the variable conversion feature became permanent. The note is unsecured. On May 12, 2017 the note holder sold this note to an unrelated third party. See additional information below. | $ | 125,000 | $ | 265,000 | ||||
During the year ended October 31, 2016, the Company sold convertible promissory notes in aggregate amount of $87,000 to three investors. During the six months ending April 30, 2017, the Company sold an additional note with a face value of $50,000. The notes bear interest at 10% per annum and may be converted into the common stock of the Company upon the completion of a capital raise of $500,000 by December 31, 2016 (a “Qualified Raise”). The notes may be converted into common stock at 75% of the price of the capital raised in the Qualified Raise. On December 31, 2016, notes with a principal and accrued interest balance of $88,626 were converted into 709,008 shares of the Company’s common stock. The remaining note is due on December 31, 2017. | 50,000 | 87,000 | ||||||
On January 20, 2017, the Company executed a non-interest bearing convertible note in the original principal amount of $300,000, payable on January 20, 2018. The note is convertible into the Company’s common stock at $0.50 per share, no earlier than one year from the date of the note. The note is secured by the membership units of One Exam Prep, LLC held by the Company. | 300,000 | – | ||||||
In June 2017, the Company sold convertible notes payable of $356,000 to 8 investors. The notes bear interest at 15%, are due in one year and are convertible at $0.15 per share. In connection with the issuance, the company recorded a discount of $356,000 from the beneficial conversion feature that will be amortized over the life of the note. | 356,000 | – | ||||||
In June 2017, the Company sold a convertible note payable of $200,000 to an investor. The note bears interest at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest payments of $2,000 per month to the note holder. In connection with the issuance, the company recorded a discount of $184,000 from the beneficial conversion feature that will be amortized over the life of the note. | 200,000 | |||||||
On June 18, 2017, the Vice Chairman of the Board, who holds a $45,000 note dated January 30, 2017, with the Company agreed to convert the principal balance on his note into a convertible note that bears interest at 12% and is due in June 2020 and is convertible at $0.25 per share. The Company is obligated to make monthly principal and interest payments of $500 per month to the note holder. | 45,000 | – | ||||||
Total convertible notes payable, net | $ | 1,076,000 | $ | 352,000 | ||||
Less: net discount on convertible notes payable | (505,222 | ) | – | |||||
Less, current portion | (525,778 | ) | (352,000 | ) | ||||
Long term portion of convertible notes payable | 45,000 | – |
17 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONT’D)
On October 11, 2016, the Company entered into a Settlement Agreement with Typenex Co-Investment, LLC (“Typenex”), whereby the Company and Typenex agreed to modify the terms of the Secured Convertible Promissory Note dated August 20, 2015 (the “Note”) between the Company and Typenex. Under the terms of the Settlement Agreement, the parties agreed that the Company will repay $265,000 plus accrued interest (the “Settlement Amount”) in fourteen payments. The first thirteen payments will be in the amount of $20,000 and the fourteenth payment will be in the amount of the unpaid balance of the Settlement Amount. The first payment was due and paid on October 21, 2016. Subsequent payments are due on the fifth day of each month thereafter. The Company will make the first thirteen payments as follows: (i) $10,000 in cash, and (ii) if elected by Typenex in its sole discretion, up to $10,000 in shares of Company’s common stock. The conversion price of the portion of the payment to be made in the Company’s common stock will be based upon the market price which shall mean 60% multiplied by the average of the three (3) lowest Closing Bid Prices in the ten (10) Trading Days immediately preceding the applicable payment date.
On May 12, 2017, Typenex sold the Note to an unrelated third party. In connection with the sale of the Note, the Company and the purchaser agreed to modify the terms of the Note so as to change the conversion price from a variable conversion rate to a fixed conversion price of $0.04 per share. In connection with the change to fixed conversion terms the Company no longer has a derivative liability and recorded a beneficial conversion feature of $205,000 which is included with interest expense. The note bears interest at 10% per annum and is due on demand.
On June 21, 2017, the debt holder converted $80,000 in accordance with the conversion terms for 2,000,000 shares of common stock.
NOTE 10 – CAPITALIZED LEASES
The Company has an obligation under a capitalized lease for certain equipment with a lease term of five years, expiring through May 2021. The capital lease obligation totaled $71,578 at July 31, 2017, and require monthly payments of $2,044. Interest is imputed at an average rate of approximately 18.00%. At July 31, 2017, the cost of rental equipment under capital leases amounted to $76,410 and related accumulated depreciation amounted to $9,905. The rental equipment may be repurchased at favorable prices by the Company upon expiration of the lease term (generally at the fair market value of the equipment at the expiration of the lease). The liability under each lease is secured by the underlying equipment on the lease.
At July 31, 2017, future minimum lease payments by year and the present value of future minimum capital lease payments are as follows:
Years ending July 31, | Amount | |||
2018 | $ | 24,528 | ||
2019 | 24,528 | |||
2020 | 24,528 | |||
2021 | 24,528 | |||
2022 | 4,171 | |||
Total minimum payments | $ | 102,283 | ||
Less amount representing interest | (30,705 | ) | ||
Present value of minimum lease payments | 71,578 | |||
Less: current portion | (12,654 | ) | ||
Total long-term portion | $ | 58,924 |
18 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 11 – DERIVATIVE LIABILITIES
On August 20, 2015, the Company issued a convertible note agreement with a variable conversion feature that gave rise to an embedded derivative instrument. The derivative feature has been valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company’s business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and small-cap companies. Increases or decreases in the Company’s share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impact the value of the derivative instrument. The Company re-values the derivative instrument at the end of each reporting period and any changes are reflected as changes in derivative liabilities in the consolidated statements of operations. Beginning in May 2017 the Company no longer had any derivative liabilities due to a modification in the convertible feature of certain notes. See note 9 for a discussion of the convertible note. The assumptions used are as follows:
July 31, 2017 | October 31, 2016 | |||||||
Market value of common stock on measurement date (1) | $ | n/a | $ | 0.56 | ||||
Adjusted conversion price (2) | $ | n/a | $ | 0.2304 | ||||
Risk free interest rate (3) | n/a | 0.68% | ||||||
Life of the note in years | n/a | 1.726 years | ||||||
Expected volatility (4) | n/a | 360.57% | ||||||
Expected dividend yield (5) | – | – |
(1) | The market value of common stock is based on closing market price as of initial valuation date. | |
(2) | The adjusted conversion price is calculated based on conversion terms described in the note agreement. | |
(3) | The risk-free interest rate was determined by management using the 2 year Treasury Bill as of the respective offering or measurement date. | |
(4) | The volatility factor was estimated by management using the historical volatilities of the Company’s stock. | |
(5) | Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future. |
There was no derivative liability as of July 31, 2017. The valuation of the derivative liability was $218,943 on October 31, 2016. During the nine months ended July 31, 2017, the Company recognized derivative expense of $136,703 related to the change in fair value and gain on debt extinguishment of $82,240 as a result of principal payments totaling $60,000.
NOTE 12 – STOCKHOLDERS’ EQUITY
On November 7, 2016, the Company agreed to issue 500,000 shares of its restricted common stock to the Vice Chairman of the Board, Richard Corbin. The fair market value of the common stock was $395,000 on the date of issuance.
On November 7, 2016, the Company agreed to issue 75,000 shares of restricted common stock to James Sapirstein, a former director of the Company, for his service as a director. The fair market value of the common stock was $59,250 on the date of issuance.
On November 7, 2016, the Company formed a Scientific Advisory Board (“SAB”) comprised of David Barshis, John Norton, and Heinz-Josef Lenz. The Company agreed to issue 150,000 shares of its restricted common stock to each member of the SAB or a total of 450,000 shares of common stock as compensation for their service on the SAB. The fair market value of the common stock was $355,500 on the date of issuance.
On November 8, 2016, the Company issued 23,187 shares of restricted common stock to the former Chairman of the Board for the settlement of stock payable. The fair market value of the common stock was $60,287 on the date of issuance.
19 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 12 – STOCKHOLDERS’ EQUITY (CONT’D)
On November 8, 2016, the Company issued 25,317 shares of restricted common stock to a consultant as compensation. The fair market value of the common stock was $20,000 on the date of issuance.
On November 8, 2016, the Company issued 180,000 shares of restricted common stock to Steven Plumb, the Company’s Chief Financial Officer, as compensation. These shares had been authorized by the board of directors in March 2016 and were vesting on a monthly basis. In November 2016, the board of directors agreed to accelerate the vesting of the shares and issue all of the shares originally granted. The fair market value of the common stock was $150,505 on the date of grant.
On November 22, 2016, the Company sold 566,666 shares of restricted common stock for gross proceeds of $85,000.
On December 23, 2016, the Company sold 333,334 shares of restricted common stock to the Vice Chairman of the Board of Directors, Richard Corbin, for gross proceeds of $50,000.
On December 31, 2016, investors holding convertible notes with a face value of $87,000 converted their notes into 709,008 shares of restricted common stock according to the terms of the agreement.
In December 2016 and January 2017, the Company sold an aggregate of 1,256,667 shares of restricted common stock for gross proceeds of $188,500.
On January 19, 2017, the Company issued 25,253 shares of restricted common stock to a consultant for services rendered. The fair market value of the shares on the date of issuance was $25,000.
On January 19, 2017, the Company issued 645,000 shares of restricted common stock under the terms of an Exchange Agreement with the owners of Premier Purchasing and Marketing Alliance, LLC. The fair market value of the shares on the date of issuance was $370,875.
On January 30, 2017, the Company sold 53,333 shares of restricted common stock for gross proceeds of $8,000.
On February 6, 2017, the Company issued 12,500 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on February 15, 2017. The fair market value of the common stock was $7,188 on the date of issuance.
On February 10, 2017, the Company sold 166,667 shares of restricted common stock for gross proceeds of $25,000.
On March 1, 2017, the Company sold 500,000 shares of restricted common stock to two investors for gross proceeds of $75,000.
On March 7, 2017, the Company issued 27,778 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18, 2017. The fair market value of the common stock $25,000 on the date of issuance.
On March 20, 2017, the Company issued 48,077 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18, 2017. The fair market value of the common stock $25,000 on the date of issuance.
On April 20, 2017, the Company issued 47,170 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18, 2017. The fair market value of the common stock $25,000 on the date of issuance.
20 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 12 – STOCKHOLDERS’ EQUITY (CONT’D)
On April 14, 2017, the Company sold 66,667 shares of restricted common stock to an investor for gross proceeds of $10,000.
On May 1, 2017, the Company authorized the issuance of 670,000 shares of common stock to Evan Levine, CEO of the Company, and has agreed to issue 670,000 shares of common stock to both Noah Davis, COO and Steven Plumb, CFO, and 223,000 shares of common stock to Rich Corbin, Jr., Chairman of the Board of Directors, as compensation. The fair market value of the grants to Levine, Davis, and Plumb on the date of grant was $368,500, for a total of $1,105,500. The fair market value of the grant to Corbin was $122,833 on the date of grant.
On May 1, 2017, the Company issued 40,744 shares to two consultants for services. The fair market value of the common stock was $24,949 on the date of issuance.
On May 18, 2017 and June 18, 2017, the Company issued 58,548 and 53,442 shares of restricted common stock to a consultant for services rendered pursuant to a consulting agreement entered on January 18, 2017. The fair market value of each issuance of the common stock was $25,000 on the date of issuance.
On June 1, 2017, the Company issued 62,552 shares to two consultants for services. The fair market value of the common stock was $24,937 on the date of issuance.
On June 21, 2017, a debt holder of the Company converted $80,000 of debt in accordance with the conversion terms for 2,000,000 shares of common stock at $0.04 per share. See Note 9.
On June 22, 2017 the Company issued 900,000 shares of common stock related to the acquisition of W Marketing. See Note 13.
On July 1, 2017, the Company issued 53,900 shares to two consultants for services. The fair market value of the common stock was $24,946 on the date of issuance.
On July 31, 2017, the Company issued 784,313 shares of common stock related to the acquisition of Cranbury. See Note 13.
NOTE 13 – ACQUISITIONS
Premier Acquisition
On January 19, 2017, the Company executed a Share Exchange Agreement (the “Premier Exchange Agreement”), by and between the Company, Premier Purchasing and Marketing Alliance LLC (“Premier”), and the sole member of Premier, Scott Schwartz. In connection with the closing of the transactions contemplated by the Premier Exchange Agreement (the “Premier Exchange”), we acquired 100% of the outstanding membership interests of Premier from Mr. Schwartz in consideration for $557,705 in consideration as follows:
· | $50,000 cash; |
· | $136,830 in notes payable; |
· | $370,875 of common stock - 645,000 shares of restricted common stock (the “Premier Shares”). |
The amounts owed under the First Note, Second Note and Hill Note are secured by a Security Agreement, providing Mr. Schwartz a first priority security interest in all of the membership interests of Premier. The Premier Exchange has an effective date of January 1, 2017.
21 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The Premier Share Exchange included standard and customary representations, warranties and indemnification rights. Premier, also known as National Electrical Wholesale Providers (NEWP), is in the business of servicing electrical wholesalers throughout the United States with electrician related study material including the National Electrical Code. Premier provides a complete line of printed reference materials in addition to eBooks, downloadable digital formatting, and mobile applications to all distributors.
Premier has significant corporate accounts with electrical wholesale conglomerates making them one of the largest wholesalers of National Electrical Codes in the United States. Premier also covers HVAC, Plumbing, Industrial and Residential trade reference materials with online training for product education, certification and current code practices.
Premier services several multibillion dollar companies such as Consolidated Electrical Distributors and Home Depot reaching thousands of accounts in locations throughout the United States.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date:
Amount | ||||
Cash and cash equivalents | $ | – | ||
Inventory | 58,524 | |||
Customer list | 55,702 | |||
Copyrights | 443,479 | |||
Total identifiable assets | 557,705 | |||
Less: liabilities assumed | – | |||
Total purchase price | $ | 557,705 |
The following table summarizes the costs of amortizable intangible assets related to the Premier acquisition:
Estimated Cost | Useful life (years) | |||||
Customer list | $ | 55,702 | 3 | |||
Copyrights | 443,479 | 5 | ||||
Total | $ | 499,181 |
One Exam Prep Acquisition
On January 26, 2017, the Company executed a Share Exchange Agreement (the “One Exam Exchange Agreement”), by and between the Company, One Exam Prep LLC (“One Exam”), and the sole member of One Exam, Rob Estell. In connection with the closing of the transactions contemplated by the One Exam Exchange Agreement (the “One Exam Exchange”), we acquired 100% of the outstanding membership interests of One Exam from Mr. Estell in consideration for the Non-Recourse Secured Convertible Promissory Note (the “Secured Note”).
22 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The amount owed under the Secured Note is secured by a Security and Pledge Agreement, providing Mr. Estell a first priority security interest in all of the membership interests of One Exam, and allowing him to take over control and ownership of One Exam if we default in our obligations under the Secured Note. The One Exam Exchange has an effective date of January 1, 2017. The One Exam Share Exchange included standard and customary representations, warranties and indemnification rights.
As additional consideration for agreeing to the terms of the transaction, we agreed to issue Mr. Estell up to 1,000,000 shares of restricted common stock of the Company, as an earn-out, with shares being issued in fiscal 2017 and/or fiscal 2018 (up to a maximum of 1,000,000 in aggregate for both years (the “Earn-Out Shares”)), based on the following calculation: (a) total annual revenue of One Exam (for the years ended December 31, 2017 and 2018, as applicable) minus $1,000,000, divided by three, (b) plus total net profit of One Exam minus $100,000, multiplied by three, multiplied by (c) 0.30. For example:
Annual revenue of One Exam | $ | 4,000,000 | ||
Less: $1,000,000 | (1,000,000 | ) | ||
Sub-total | 3,000,000 | |||
Divided by 3 | Divided by 3 | |||
Sub-total | 1,000,000 | |||
Net profit of One Exam | 200,000 | |||
Less: $100,000 | (100,000 | ) | ||
Sub-total | $ | 1,100,000 | ||
Times .30 | Times 0.30 | |||
Common shares up to 1,000,000 | 330,000 |
One Exam is in the business of exam preparation with a focus on construction training and certification. One Exam offers eLearning courses and weekly training classes and certification in a wide variety of topics for contractors with continuing education in 22 states with a goal of servicing all 50 states. One Exam owns over 70 domains pertaining to contractor licensing and continuing education throughout the United States. One Exam has written dozens of courses which are offered both in an online e-learning setting or in a classroom.
The Non-Recourse Secured Convertible Promissory Note (the “Secured Note”) provided to Mr. Estell at closing evidences the principal amount of $300,000 owed to Mr. Estell, which does not accrue interest. Beginning on the first business day which falls thirty days after the earlier of (a) January 20, 2018; and (b) the date we determine in our sole discretion, and continuing month to month thereafter, a portion of the principal amount of the Secured Note equal to the lesser of (A) ten percent (10%) of the total trading volume of our common stock for the thirty (30) days prior to such applicable date; and (B) such number of shares of common stock as equals 4.99% of our then outstanding shares of common stock, multiplied by $0.50 per share, automatically converts into common stock. Additionally, on the first business day following January 20, 2019, the remaining balance of the Secured Note converts into common stock at a conversion price of $0.50 per share. If we fail to comply with any of the provisions of the Secured Note, Mr. Estell’s sole remedy is to take back ownership of the membership interests representing 100% of the ownership of One Exam. The Secured Note contains standard and customary events of default and may be prepaid at any time without penalty. Mr. Estell also entered into a Lock-Up Agreement with us in connection with the closing.
23 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
As part of the One Exam Exchange, we entered into a Consulting Agreement with Mr. Estell. The Consulting Agreement continues until December 31, 2020, terminable by either party with 90 days prior notice at any time, or 10 days’ notice by us upon the material breach of any term of the Consulting Agreement by Mr. Estell. We agreed to pay Mr. Estell compensation of $1,500 per week during the first year of the term; $1,575 per week during the second year of the term; and $1,654 per week during the third year of the term and Mr. Estell agreed to customary confidentiality and work made for hire terms in the agreement. We also agreed that Mr. Estell would be paid a $60,000 signing bonus, payable in four installments of $15,000 each on April 30, 2017, May 30, 2017, June 30, 2017 and July 30, 2017, and that Mr. Estell could earn a bonus on June 30th and December 31st, of each year during the term of the agreement, beginning with periods after January 1, 2017 equal to (a) total revenue generated by One Exam and other related companies and assets we may acquire in the future, less (i) $500,000, less (ii) 50% of the total revenue for the prior annual period of any related companies and assets we may acquire in the future, (b) divided by 100 (rounded down to the nearest $250,000 increment); plus (x) total gross profit generated by One Exam and other related companies and assets we may acquire in the future, less (i) $37,500, less (ii) 50% of the total gross profit for the prior annual period of any related companies and assets we may acquire in the future; (y) divided by 100 (rounded down to the nearest $25,000 increment) (the “ Bonus ”). We are required to calculate the Bonus as soon as practicable after each June 30th and December 31st, and pay the Bonus due promptly after such calculation is made. In the event that the revenue or gross profit calculation above is negative, we shall decrease the applicable Bonus, provided that the Bonus may not be less than $0, provided further that any negative Bonus calculation for any period ending June 30th, carries over and adjusts downward any positive Bonus for any period ending December 31st.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date:
Amount | ||||
Cash and cash equivalents | $ | 14,232 | ||
Inventory | 159,961 | |||
Property and equipment | 76,410 | |||
Copyrights | 443,091 | |||
Total identifiable assets | 693,694 | |||
Less: liabilities assumed | (121,694 | ) | ||
Less: contingent consideration and bonus consideration | (272,000 | ) | ||
Total purchase price (less contingent and bonus consideration) | $ | 300,000 |
The following table summarizes the costs of amortizable intangible assets related to the One Exam acquisition:
Estimated Cost | Useful life (years) | |||||
Copyrights | $ | 443,091 | 5 | |||
Total | $ | 443,091 |
24 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
W Marketing Acquisition
On June 22, 2017, we consummated the transactions contemplated by a Share Exchange Agreement (the “W Marketing Exchange Agreement”), by and between the Company, W Marketing Inc. (“W Marketing”), and the two shareholders of W Marketing (the “W Marketing Shareholders”). In connection with the closing of the transactions contemplated by the W Marketing Exchange Agreement (the “W Marketing Exchange”), we acquired 100% of the outstanding shares of capital stock of W Marketing from the W Marketing Shareholders in consideration for 900,000 shares of restricted common stock (the “W Marketing Shares”), the assumption of an outstanding promissory note in the amount of $70,000 owed by W Marketing to Citibank and $75,000 in W Marketing Notes (defined below). The W Marketing Exchange has an effective date of May 1, 2017. The W Marketing Share Exchange Agreement included standard and customary representations, warranties and indemnification rights.
As additional consideration for agreeing to the terms of the transaction, we agreed to issue the W Marketing Shareholders an additional $50,000 of shares of restricted common stock (based on the closing sales price of the Company’s common stock on July 31, 2018), in the event the revenue generated by W Marketing exceeds $1.5 million during the 12 calendar months ended July 31, 2018 (the “W Marketing Earn-Out” and the “W Marketing Earn-Out Shares”).
W Marketing, located in Hauppauge, New York, provides the latest National Electrical Code (NEC) through its nationwide network of electrical distributors, which includes bookstores, trade/vocational schools, universities, retail chains, specialty retailers, and independent hardware stores. The NEC is a regionally adoptable standard for the safe installation of electrical wiring and equipment in the United States. It is part of the National Fire Codes series published by the National Fire Protection (NFPA), a private association. First published in 1897, the NEC is updated and published every three years. W Marketing’s library of published products includes courses and exam preparation materials.
We provided Promissory Notes (the “W Marketing Notes”) to each of the two W Marketing Shareholders at closing, which each evidence the principal amount of $37,500 ($75,000 in aggregate) owed to such W Marketing Shareholders. The W Marketing Notes accrue interest at the rate of 8% per annum (12% upon the occurrence of an event of default), beginning June 22, 2017, and are payable at the rate of $3,306 per month, beginning August 22, 2017, through the maturity date of such notes, August 22, 2018. The W Marketing Notes contain standard and customary events of default and may be prepaid at any time without penalty.
As part of the W Marketing Exchange, on June 22, 2017, and effective June 23, 2017, we entered into an employment agreement with Jeffrey S. Spellman, one of the employees of W Marketing (“Employment Agreement”). Pursuant to the Employment Agreement, we agreed to pay Mr. Spellman, $50,000 per year, pay Mr. Spellman a commission of 4% of the net profit originated through his personal direct sales efforts, issue him $1,000 worth of shares of restricted common stock of the Company at the end of each calendar quarter during the term of the agreement (beginning September 30, 2017)(the “Employment Agreement Shares”), and pay him one month of salary as severance pay in the event the agreement is terminated by Mr. Spellman with good reason or terminated by the Company without cause. The agreement includes standard and customary indemnification, work for hire, confidentiality, arbitration and trade secret provisions.
In the event that Mr. Spellman’s employment with the Company is terminated by Mr. Spellman, terminated by the Company for cause, or terminated due to Mr. Spellman’s death or disability (a “Triggering Termination”), prior to September 20, 2017, the principal amount of the W Marketing Notes are each automatically decreased by the lesser of (a) $7,500; or (b) the then principal amount of such notes. In the event that Jeffrey S. Spellman’s employment with the Company is terminated due to a Triggering Termination prior to December 19, 2017, the W Marketing Earn-Out is deemed terminated and no Earn-Out Shares are due whatsoever to the W Marketing Shareholders.
25 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
The shares issued pursuant to the W Marketing Exchange Agreement are subject to a lock-up agreement (the “Lock-Up Agreement”), which prohibits the sale of any such shares for a period of one year and restricts the sale of any of the shares in any thirty day period, for an additional one year thereafter, to 10% of the total volume of our common stock which traded in the prior 30 days, on a rolling basis.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date:
Amount | ||||
Cash and cash equivalents | $ | 26,343 | ||
Accounts receivable | 46,245 | |||
Inventory | 162,871 | |||
Copyrights | 462,847 | |||
Total identifiable assets | 698,306 | |||
Less: liabilities assumed | (123,306 | ) | ||
Less: contingent consideration and bonus consideration | (50,000 | ) | ||
Total purchase price (less contingent and bonus consideration) | $ | 525,000 |
The following table summarizes the costs of amortizable intangible assets related to the One Exam acquisition:
Estimated Cost | Useful life (years) | |||||
Copyrights | $ | 462,847 | 5 | |||
Total | $ | 412,847 |
Cranbury Acquisition
On July 31, 2017, we consummated the transactions contemplated by a Share Exchange Agreement (the “Cranbury Exchange Agreement”), by and between the Company, Cranbury Associates, LLC (“Cranbury”), and the sole member of Cranbury (the “Cranbury Member”). In connection with the closing of the transactions contemplated by the Cranbury Exchange Agreement (the “Cranbury Exchange”), we acquired 100% of the outstanding membership interests of Cranbury from the Cranbury Member in consideration for 784,313 shares of restricted common stock, valued at $400,000 on the closing date (the “Cranbury Shares”), and a promissory note in the amount of $100,000 (described below). The Cranbury Exchange has an effective date of May 1, 2017. The Cranbury Share Exchange Agreement included standard and customary representations, warranties and indemnification rights. The Cranbury Shares are to be held in escrow in order to secure the indemnification requirements of the Cranbury Member pursuant to the terms of the Cranbury Exchange Agreement, until January 1, 2018.
As additional consideration for agreeing to the terms of the transaction, we agreed to issue the Cranbury Member an additional $100,000 of shares of restricted common stock (based on the closing sales price of the Company’s common stock on July 31, 2018), in the event the revenue generated by Cranbury exceeds $2.0 million during the 12 calendar months ended July 31, 2018 (the “Cranbury Earn-Out” and the “Cranbury Earn-Out Shares”).
Cranbury, established in 2010, sells training and educational materials to governmental institutions and private sector markets in Brazil, Mexico, Columbia, Trinidad, and other international regions. The Company markets and represents approximately 40 major publishers in international markets.
26 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
We provided a Promissory Note (the “Cranbury Note”) to the Cranbury Member at closing, which evidences the principal amount of $100,000 owed to such Cranbury Member. The Cranbury Note accrues interest at the rate of 6% per annum (10% upon the occurrence of an event of default), beginning August 31, 2017, and is payable at the rate of $4,153 per month, beginning November 1, 2017, through the maturity date of such note, November 30, 2019. The Cranbury Note contains standard and customary events of default and may be prepaid at any time without penalty.
As part of the Cranbury Exchange, on and effective July 31, 2017, we entered into a Consulting Agreement with Ethan Atkin, the Cranbury Member (the “Consulting Agreement”). Pursuant to the Consulting Agreement, which has a term of one year, we agreed to pay Mr. Atkin, $3,750 per month and Mr. Atkin agreed to provide us 120 hours of services for each of the first three months of the term and 100 hours per month thereafter, in connection with the integration of Cranbury’s operations into those of the Company, the training of a new head of international sales at the Company, and introductions to contacts of Mr. Atkin and Cranbury in connection with Cranbury’s operations and the change in control and management. The agreement includes standard and customary work for hire, confidentiality, and trade secret provisions. In the event that the Consulting Agreement is terminated by Mr. Atkin, terminated by the Company for cause, or terminated due to Mr. Atkin’s death or disability, prior to 180 days after the closing date, the earn-out is terminated and no earn-out Shares are due.
The Cranbury Shares issued pursuant to the Cranbury Exchange Agreement are subject to a lock-up agreement (the “Lock-Up Agreement”), which prohibits the sale of any such shares for a period of one year and restricts the sale of any of the shares in any thirty day period, for an additional one year thereafter, to 10% of the total Cranbury Shares, on a rolling basis.
The following preliminary information summarizes the allocation of the fair values assigned to the assets at the purchase date:
Amount | ||||
Cash and cash equivalents | $ | – | ||
Accounts receivable | 319,097 | |||
Property and equipment | – | |||
Customer list | 516,896 | |||
Total identifiable assets | 835,993 | |||
Less: liabilities assumed | (235,993 | ) | ||
Less: contingent consideration and bonus consideration | (100,000 | ) | ||
Total purchase price (less contingent and bonus consideration) | $ | 500,000 |
The following table summarizes the costs of amortizable intangible assets related to the One Exam acquisition:
Estimated Cost | Useful life (years) | |||||||
Customer list | $ | 516,896 | 5 | |||||
Total | $ | 516,896 |
27 |
ProBility Media Corp.
(formerly Panther Biotechnology, Inc.)
Notes to Consolidated Financial Statements
(Unaudited
NOTE 13 – ACQUISITIONS (CONT’D)
Combined Proforma
The results of One Exam and Premier are included in the consolidated financial statements effective January 1, 2017.
The results of W Marketing and Cranbury are included in the consolidated financial statements effective May 1, 2017.
The following schedule contains pro-forma consolidated results of operations for the nine months ended July 31, 2017 and 2016 as if the acquisitions occurred on November 1, 2015. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on November 1, 2015, or of results that may occur in the future.
Nine months ended July 31, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
As Reported | Pro Forma | As Reported | Pro Forma | |||||||||||||
Revenue | $ | 5,972,276 | $ | 7,986,698 | $ | 2,232,990 | $ | 4,362,853 | ||||||||
Income (loss) from operations | (3,937,621 | ) | (3,809,111 | ) | (101,191 | ) | (188,204 | ) | ||||||||
Net income (loss) | $ | (4,235,810 | ) | $ | (4,115,689 | ) | $ | (241,908 | ) | $ | (341,611 | ) | ||||
Earnings (loss) per common share-Basic | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Earnings (loss) per common share-Diluted | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
NOTE 14 – SUBSEQUENT EVENTS
In September 2017, the Company issued 207,150 shares of stock to consultants for professional services. The fair market value of the common stock on the date of issuance was $113,375.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition, or state other “ forward- looking” information. The words “ believe, ” “ intend, ” “ plan, ” “ expect, ” “ anticipate, ” “ estimate, ” “ project, ” “ goal, ” and similar expressions identify such a statement was made, although not all forward-looking statements contain such identifying words. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the risks discussed in this and our other SEC filings. We do not promise to or take any responsibility to update forward-looking information to reflect actual results or changes in assumption or other factors that could affect those statements except as required by law. Future events and actual results could differ materially from those expressed in, contemplated by, or underlying such forward-looking statements.
All forward-looking statements speak only at the date of the filing of this Quarterly Report. The reader should not place under reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “ Risk Factors ” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and elsewhere in this Quarterly Report and our Annual Report on Form 10-K filed with the SEC on February 14, 2017 and amended on February 15, 2017. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.
The following is management’s discussion and analysis of the significant factors that affected the Company’s financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. You should read this is conjunction with the discussion under “ Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2016, as amended, and the unaudited consolidated financial statements included in this quarterly report.
Certain capitalized terms used below but not otherwise defined in, and shall be read along with the meanings given to such terms in, the notes to the unaudited financial statements of the Company for the three and nine months ended July 31, 2017, above.
Unless the context requires otherwise, references to the “ Company, ” “ we, ” “ us, ” “ Probility ” and “ Probility Media ” refer specifically to Probility Media Corporation and its wholly and majority owned subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this report only:
· | “ Exchange Act ” refers to the Securities Exchange Act of 1934, as amended; | |
· | “ SEC ” or the “ Commission ” refers to the United States Securities and Exchange Commission; and | |
· | “ Securities Act ” refers to the Securities Act of 1933, as amended. |
Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
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Results of Operations
The following summary of our results of operations, for the three months ended July 31, 2017 and 2016 are as follows:
For the Three Months Ended July 31, | Increase | |||||||||||
Statement of Operations Data: | 2017 | 2016 | (Decrease) | |||||||||
Revenue | $ | 3,043,449 | $ | 627,700 | $ | 2,415,749 | ||||||
Cost of sales | 2,007,006 | 469,156 | 1,537,850 | |||||||||
Gross profit | 1,036,443 | 158,544 | 877,899 | |||||||||
Total operating expenses | 3,074,108 | 233,769 | 2,841,339 | |||||||||
Other income (expense) | (128,040 | ) | (95,092 | ) | (32,948 | ) | ||||||
Net loss | $ | (2,165,705 | ) | $ | (170,317 | ) | $ | (1,995,388 | ) |
For the three months ended July 31, 2017 compared to the three months ended July 31, 2016
Revenue
The revenue increased $2,415,749 from $627,700 for the three months ended July 31, 2016 to $3,043,449 for the three months ended July 31, 2017. The increase was due to an increase in web site sales from increased marketing during the period, and the acquisitions completed during the quarters ending January 31, 2017 and July 31, 2017 (effective May 1, 2017). Sales of online training courses were $359,059 during the three months ended July 31, 2017, compared to zero for the three months ended July 31, 2016. During the three months ended July 31, 2017, the Company recognized revenues from One Exam Prep, Premier, W Marketing and Cranbury of $411,921, $98,510, $382,725 and $648,048, respectively, which includes the online training course sales.
Cost of sales
Cost of sales increased $1,537,850, from $469,156 for the three months ended July 31, 2016 to $2,007,006 for the three months ended July 31, 2017. Cost of sales are variable with sales. The increase was due to the increased sales during the period. Our costs as a percentage of sales decreased during this period from 75% during the three months ended July 31, 2016 to 66% during the three months ended July 31, 2017, as a result of higher margins from the newest acquisitions of W Marketing and Cranbury offset from online training courses due to the One Exam Prep LLC acquisition. During the three months ended July 31, 2017, the Company recognized cost of sales from One Exam Prep, Premier, W Marketing and Cranbury of $146,245, $120,934, $345,298 and $417,016, respectively.
Gross profit
Gross profit increased $877,899, from $158,544 for the three months ended July 31, 2016 to $1,036,443 for the three months ended July 31, 2017. Our gross margin as a percentage of sales increased 9%, from 25% during the three months ending July 31, 2016 to 34% during the three months ended July 31, 2017. The increase in gross margins was due to the acquisitions completed in the first and third quarters of fiscal 2017. Gross margins for One Exam Prep, W Marketing and Cranbury were 64%, 10% and 36%, respectively, for the three months ended July 31, 2017. Gross loss for Premier was 23% for the three months ended July 31, 2017.
General and administrative expenses
General and administrative expenses increased $1,021,680, from $192,470 for the three months ended July 31, 2016 to $1,214,150 for the three months ended July 31, 2017. The increase was due to the following increases: salaries increased $487,904 due to expanding operations and acquisitions; advertising increased by $387,232 due to expanding operations and acquisitions; credit card fees increased by $47,318 as a result of increased sales; travel increased by $33,856 due to Cranbury International, which incurred international travel related to sales efforts in the ordinary course of operations; legal expense increased by $25,690 due to the costs incurred for SEC compliance and acquisition related legal fees; shareholder costs increased by $25,000 due to the costs of SEC compliance; bad debt expense increased by $12,674 due to increased sales; and, other expense increased by $2,006.
Stock compensation
Share based compensation increased due to the granting of 2,502,519 shares of common stock to consultants, officers and directors as stock compensation for consulting services valued at $1,353,334.
30 |
Impairment expense
Impairment expense increased $276,335 due to the write off of the Faulk Patents and the investment and advances in the urgent care center. In August 2017, the urgent care center’s assets were sold and the buyer assumed certain liabilities including relieving our officers of certain financial responsibilities; therefore, we have recognized the original investment and advances totaling $169,638 as compensation to our officers, which is included in impairment expense for the three months ended July 31, 2017.
Professional fees
Professional fees for the three months ended July 31, 2017 increased $95,220, from $32,653 for the three months ended July 31, 2016 to $127,873 for the three months ended July 31, 2017. The increase was due to legal fees paid in connection with our acquisitions and SEC filings during the current fiscal year.
Depreciation and amortization
Depreciation and amortization for the three months ended July 31, 2017 increased $93,770, from $8,646 for the three months ended July 31, 2016 to $102,416 for the three months ended July 31, 2017 due to the amortization of intangible assets that arose as a result of acquisitions completed during the current fiscal year.
Other income and expense
Interest expense increased $7,168, from $95,092 for the three months ended July 31, 2016 to $102,260 for the three months ended July 31, 2017 due to higher levels of borrowing during the three months ended July 31, 2017. Change in derivative liability increased $250,556, from $0 during the three months ended July 31, 2016 to derivative income of $250,556 during the three months ended July 31, 2017 due to the variable conversion debt assumed as a result of the Share Exchange Agreement entered into on October 31, 2016. Amortization of note discount increased $276,336, from $0 for the three months ended July 31, 2016 to $276,336 for the three months ended July 31, 2017 due to the amortization of original issued discounts recognized during the three months ended July 31, 2017.
Net loss
Net loss for the period increased $1,995,388, from $170,317 for the three months ended July 31, 2016 to $2,165,705 for the three months ended July 31, 2017 due to higher stock compensation of $1,353,334, increased amortization of debt discount of $276,336, increased other operating expenses of $1,487,005 offset by an increased gross margin of $877,899 and derivative income of $250,556.
The following summary of our results of operations, for the nine months ended July 31, 2017 and 2016 are as follows:
For the Nine Months Ended July 31, | Increase | |||||||||||
Statement of Operations Data: | 2017 | 2016 | (Decrease) | |||||||||
Revenue | $ | 5,972,276 | $ | 2,232,990 | $ | 3,739,286 | ||||||
Cost of sales | 4,019,633 | 1,638,398 | 2,381,235 | |||||||||
Gross profit | 1,952,643 | 594,592 | 1,358,051 | |||||||||
Total operating expenses | 5,890,264 | 695,783 | 5,194,481 | |||||||||
Other expense | (298,189 | ) | (140,717 | ) | (157,472 | ) | ||||||
Net loss | $ | (4,235,810 | ) | $ | (241,908 | ) | $ | (3,993,902 | ) |
For the nine months ended July 31, 2017 compared to the nine months ended July 31, 2016
Revenue
Revenue increased $3,739,286 from $2,232,990 for the nine months ended July 31, 2016 to $5,972,276 for the nine months ended July 31, 2017. The increase was due to sales from companies that were acquired during the current fiscal year, and an increase in web site sales during the period, which were the result of increased advertising, marketing and sales efforts. Sales of online training courses were $620,427 during the nine months ended July 31, 2017, compared to zero for the nine months ended July 31, 2016. During the nine months ended July 31, 2017, the Company recognized revenues from One Exam Prep, Premier, W Marketing and Cranbury of $965,134, $331,979, $382,725 and $648,048, respectively, which includes the online training courses sales.
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Cost of sales
Cost of sales increased $2,381,235, from $1,638,398 for the nine months ended July 31, 2016 to $4,019,633 for the nine months ended July 31, 2017. Our costs as a percentage of sales decreased during this period from 73% during the nine months ended July 31, 2016 to 67% during the nine months ended July 31, 2017. The decrease was a result of the higher margins from online training courses due to the One Exam Prep LLC acquisition. During the six months ended July 31, 2017, the Company recognized cost of sales from One Exam Prep, Premier, W Marketing and Cranbury of $370,840, $300,823, $345,298 and $417,016, respectively.
Gross profit
Gross profit increased $1,358,051, from $594,592 for the nine months ended July 31, 2016 to $1,952,643 for the nine months ended July 31, 2017. The increase in gross margins was due to increased sales from promotions during the nine months ended July 31, 2017 and from companies that were acquired in January and May 2017. Gross margins increased from 27% for the nine months ended July 31, 2016 to 33% for the nine months ended July 31, 2017. Gross margins for One Exam Prep, Premier, W Marketing and Cranbury were 62%, 9%, 10% and 35%, respectively, for the nine months ended July 31, 2017.
General and administrative expenses
General and administrative expenses increased $1,901,323, from $545,723 for the nine months ended July 31, 2016 to $2,447,046 for the nine months ended July 31, 2017. The increase was due to a decrease in other costs of $1,503 and the following increases: salaries increased $937,652 due to expanding operations and acquisitions; advertising increased by $547,117 due to expanding operations and acquisitions; credit card fees increased by $64,745 as a result of increased sales; office supplies increased by $58,520 due to expanded operations; travel expense increased by $57,246 due to the acquisition of Cranbury International, which incurred international travel related to sales efforts in the ordinary course of operations; rent expense increased $45,148 due to new offices in Florida, New York, and Vermont as a result of acquisitions; dues and subscriptions increased by $38,240 due to fees paid to standards development organizations; edgarization fees increased by $37,719 as a result of the increased cost of compliance with SEC reporting requirements subsequent to the completion of our reverse merger in October 2016; legal fees increased by $25,690 due to SEC compliance requirements and acquisition related legal expenditures; bad debt expense increased by $20,898 as a result of sales increases; meals and entertainment increased by $19,960 as a result of sales related travel and entertainment as sales increased; royalties increased by $12,302 due to increased sales of titles published by the Company; information technology costs increased by $11,074 as a result of new computing resources and support brought online as a result of acquisitions; insurance expense increased by $11,031 due to expanded operations; public relations costs increased by $9,897 due to the hiring of a public relations firm and the issuance of more press releases during the period when compared to the prior period; and, utilities expense increased by $5,587 due to additional offices added as a result of acquisitions during the period.
Stock compensation
Share based compensation increased due to the granting of 1,025,000 shares of common stock to former members of the board, the accelerated vesting of a grant of 180,000 shares previously made to the Company’s Chief Financial Officer and the payment of $69,245 in consulting services by way of the issuance of 186,095 shares of the Company’s common stock and due to the granting of 2,502,519 shares of common stock to consultants, officers and directors for services. The fair market value of these stock grants, $2,382,834, was recorded during the nine months ended July 31, 2017 as stock compensation.
Impairment expense
Impairment expense increased $387,696 due to the write off of the Faulk Patents and the investment and advances in the urgent care center. In August 2017, the urgent care center’s assets were sold and the buyer assumed certain liabilities including relieving our officers of certain financial responsibilities; therefore, we have recognized the original investment and advances totaling $169,638 as compensation to our officers, which is included in impairment expense for the nine months ended July 31, 2017.
Professional fees
Professional fees for the nine months ended July 31, 2017 increased $338,174, from $140,729 for the nine months ended July 31, 2016 to $478,903 for the nine months ended July 31, 2017. The increase was due to legal and consulting fees paid in connection with our acquisitions during the nine months ended July 31, 2017.
Depreciation and amortization
Depreciation and amortization for the nine months ended July 31, 2017 increased $184,454, from $9,331 for the nine months ended July 31, 2016 to $193,785 for the nine months ended July 31, 2017 due to the amortization of intangible assets that arose as a result of acquisitions completed during the nine months ended July 31, 2017.
Other income and expense
Interest expense increased $74,814, from $140,717 for the nine months ended July 31, 2016 to $215,531 for the nine months ended July 31, 2017 due to higher levels of borrowing during the nine months ended July 31, 2017. Change in derivative liability increased $136,703, from $0 during the nine months ended July 31, 2016 to derivative income of $136,703 during the nine months ended July 31, 2017 due to the variable conversion debt assumed as a result of the Share Exchange Agreement entered into on October 31, 2016. The derivative liability was removed when the note was restructured to a fixed conversion price. Gain on debt extinguishment increased $82,240, from $0 during the nine months ended July 31, 2016 to $82,240 during the nine months ended July 31, 2017 due to the principal payments totaling $60,000 on the Typenex convertible note. Amortization of note discount increased $301,601, from $0 for the nine months ended July 31, 2016 to $301,601 for the nine months ended July 31, 2017 due to the amortization of original issued discounts during the nine months ended July 31, 2017.
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Net loss
Net loss for the period increased $3,993,902, from $241,908 for the nine months ended July 31, 2016 to $4,235,810 for the nine months ended July 31, 2017 primarily due to increased operating expenses of $5,194,481, offset by increased gross margin of $1,358,051, gain on debt extinguishment of $82,240 and income from derivative liability of $136,703.
Plan of Operations
The Company is currently comprised of two divisions, (1) an online aggregator of eLearning, standards, and codes for professional industries (Brown) and (2) a owner of Transferrin Doxorubicin, a conjugate of Transferrin Glycoproteins and Doxorubicin for the treatment of cancer (ProBility). The management team will manage both divisions concurrently with the intent of maximizing overall shareholder value. The Company is considering adding additional divisions in different industries to grow into a global conglomerate as discussed below.
Moving forward the Company intends to grow the Company into one of the leading eLearning companies through both organic growth and strategic acquisitions. Organic growth is expected through efforts of:
· | increasing the online footprint, | |
· | increasing eLearning offerings, | |
· | improving efficiencies in staffing, process, inventory management and margins, | |
· | publishing original content, and | |
· | private labeling additional content. |
Management is currently pursuing acquisitions, strategic partnerships, new dedicated synergistic web site launches, new titles and content, new training opportunities and new online services. Management is also actively seeking a financial partner to continue the development of Transferrin Doxorubicin.
We are a public entity, subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses for annual reports and proxy statements. We estimate that these accounting, legal and other professional costs to be a minimum of $150,000 in the next year and will be higher, in the following years, if our business volume and activity increases. Increased business activity could greatly increase our professional fees for reporting requirements, and this could have a significant impact on future operating costs. The difference between having the ability to sustain our cash flow requirements over the next twelve months and the need for additional outside funding will be dependent upon whether we can sustain and/or increase our sales revenue and raise the appropriate amount of capital.
Liquidity and Capital Resources
The Company had total assets of $3,962,239 as of July 31, 2017, including $2,010,819 of current assets, $1,770,395 of intangible assets, net, relating to the fair market value of the intangibles relating to the various acquisitions, and $172,324 of net property and equipment.
Our increase in cash of $172,159 can be attributed to recent sales of securities and the proceeds from debt, offset by the payment of debt. Our total liabilities increased $1,766,957 due to the issuance of notes payable, recognition of a contingent liability of $362,000 that arose from the acquisitions, accrued expenses related party of $94,097 in connection with credit cards of related parties used to pay for certain operational expenses, and acquisition notes payable that arose from the purchase of One Exam Prep, LLC and Premier Purchasing and W Marketing Alliance, LLC.
The Company had total liabilities of $4,350,309 as of July 31, 2017, which included $3,396,683 of current liabilities. Included in current liabilities was $365,801 owed to related parties and $950,115 owed in notes payable, net. The amount owed to related parties consists of costs for the reimbursements for the purchase of inventory that were paid for with the personal credit cards of one of the shareholders. Notes payable are discussed in greater detail under “Note 7 – Notes Payable” and “Note 9 – Convertible Notes Payable” of our financial statements included herein under “Part I – Financial Information” – “Item 1. Financial Statements”.
The Company has negative working capital of $1,385,864 as of July 31, 2017, and had net cash used in operations of $881,314 for the nine months ended July 31, 2017.
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The Company has funded operations through short term credit card debt and advances against future credit card receipts. During the nine months ended July 31, 2017, the Company raised $441,500 from the private placement of equity. We plan to raise additional capital by the end of calendar year 2017 to fund ongoing operations and planned acquisitions. We intend to fund acquisitions primarily through the sale of our common stock and other convertible securities.
Cash flows
The Company had $881,314 of net cash used in operating activities for the nine months ended July 31, 2017, which mainly included net loss of $3,909,810, share based compensation of $2,382,834, gain on debt extinguishment of $82,240, impairment expense of $387,696, which consists of the write off of the Faulk patents and the impairment of the investment and advances to our cost method investee, change in derivative liability of $136,703, depreciation and amortization of $193,785, an increase in accounts payable of $363,258, a $675,013 increase in accounts receivable, and a decrease in inventory of $205,649.
The Company had $152,116 of net cash used in investing activities for the nine months ended July 31, 2017, which was due to the net acquisitions during the nine months ended July 31, 2017 (as described in greater detail in Note 15 to the unaudited financial statements contained herein), and $123,672 relating to advances to a related party.
The Company had $1,205,589 of net cash provided by financing activities for the nine months ended July 31, 2017, which was mainly due to $2,798,138 of proceeds from notes payable and convertible notes and $441,500 from the sale of common stock in the Company offset by $2,014,669 of repayments of notes payable, convertible notes, and capitalized leases.
Working Capital
As of | Increase | |||||||||||
July 31, 2017 | October 31, 2016 | (Decrease) | ||||||||||
Current assets | $ | 2,010,819 | $ | 637,443 | $ | 1,373,376 | ||||||
Current liabilities | 3,396,683 | 1,818,607 | 1,578,076 | |||||||||
Working capital (deficit) | $ | (1,385,864 | ) | $ | (1,181,164 | ) | $ | (204,700 | ) |
Equity
On June 21, 2017, a debt holder of the Company converted $80,000 of debt in accordance with the conversion terms for 2,000,000 shares of common stock at $0.04 per share.
On June 22, 2017 the Company issued 900,000 shares of common stock related to the acquisition of W Marketing.
On July 1, 2017, the Company issued 53,900 shares to two consultants for services. The fair market value of the common stock was $24,946 on the date of issuance.
On July 31, 2017, the Company issued 784,313 shares of common stock related to the acquisition of Cranbury.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Recent Accounting Pronouncements
The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Item 4A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports 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 the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, has concluded that our disclosure controls and procedures were not effective and that material weaknesses described below exists in our internal control over financial reporting based on his evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
Based on our evaluation under the frameworks described above, our management concluded that as of April 30, 2017, that our internal controls over financial reporting were not effective and that material weakness exists in our internal control over financial reporting. The material weaknesses consists of controls associated with segregation of duties, no audit committee, and a lack of written policies and procedures for internal controls. To address the material weaknesses we performed additional analyses and other post-closing procedures to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Notwithstanding this material weakness, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to an exemption provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the nine months ended July 31, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
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We know of no material, existing or pending legal proceedings against our company. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
As a "smaller reporting company", we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 21, 2017, a debt holder of the Company converted $80,000 of debt in accordance with the conversion terms for 2,000,000 shares of common stock at $0.04 per share.
On June 22, 2017 the Company issued 900,000 shares of common stock related to the acquisition of W Marketing.
On July 1, 2017, the Company issued 53,900 shares to two consultants for services. The fair market value of the common stock was $24,946 on the date of issuance.
On July 31, 2017, the Company issued 784,313 shares of common stock related to the acquisition of Cranbury.
The issuances of the above securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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Exhibit | |||
Number | Description of Exhibit | Filing | |
2.1 | Share Exchange Agreement by and among the Company, Brown Technical Media Corporation and the shareholders of Brown Technical Media Corporation dated November 8, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
2.2 | Share Exchange Agreement by and among the Company, Premier Purchasing and Marketing Alliance LLC and the sole member of Premier Purchasing and Marketing Alliance LLC, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
2.3 | Share Exchange Agreement by and among the Company, One Exam Prep LLC and the sole member of One Exam Prep LLC dated January 24, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
2.4 | Share Exchange Agreement by and among the Company, Cranbury Associates, LLC and the member of Cranbury Associates, LLC, dated July 31, 2017 and Effective May 1, 2017 | Filed with the SEC on August 25, 2017, as Exhibit 2.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
3.1 | Articles of Incorporation and Amendments | Filed with the SEC on February 6, 2013, as part of our Registration Statement on Form S-1, and incorporated herein by reference | |
3.2 | Amendment to Articles of Incorporation | Filed with the SEC on February 10, 2017, as part of our Current Report on Form 8- K filed on the same date, and incorporated herein by reference | |
3.3 | Bylaws | Filed with the SEC on February 6, 2013, as part of our Registration Statement on Form S-1, and incorporated herein by reference | |
10.1 | Form of Stock Subscription Agreement (September, October and November 2016 sales of common stock) | Filed with the SEC on November 15, 2016, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.2 | Form of Convertible Note Payable (relating to notes sold in August and October 2016) | Filed with the SEC on November 15, 2016, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.3 | Employment agreement of Plumb dated April 8, 2013 | Filed with the SEC on November 15, 2016, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.4 | Employment agreement of Davis dated February 1, 2014 | Filed with the SEC on November 15, 2016, as Exhibit 10.4 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.5 | Amendment No. 1 to employment agreement of Plumb dated July 9, 2013 | Filed with the SEC on November 15, 2016, as Exhibit 10.5 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.6 | Amendment No. 2 to employment agreement of Plumb dated February 1, 2014 | Filed with the SEC on November 15, 2016, as Exhibit 10.6 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.7 | Amendment No. 3 to employment agreement of Plumb dated May 1, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.7 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.8 | Amendment No. 1 to employment agreement of Davis dated May 1, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.8 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.9 | Consulting agreement with Levine dated September 30, 2016 | Filed with the SEC on November 15, 2016, as Exhibit 10.9 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.10 | Form of Note Payable issued in conjunction with the purchase of Brown Book Shop, Inc. | Filed with the SEC on November 15, 2016, as Exhibit 10.10 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.11 | Form of subscription agreement for May, June and July 2016 sales of common stock. | Filed with the SEC on January 23, 2017, as Exhibit 10.13 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.12 | Asset Purchase Agreement between Faulk Pharmaceuticals, Inc. and the Company dated April 6, 2015 | Incorporated by reference and previously filed as an exhibit with Form 10-K for the year ended May 31, 2014 dated June 15, 2015 |
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10.13 | Loan agreement with Delta S Ventures, LLP dated March 16, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.13 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.14 | Loan agreement with Business Financial Services, Inc., DBA BFS Capital, dated November 12, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.14 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference. | |
10.15 | Loan agreement with Business Financial Services, Inc., DBA BFS Capital, dated June 14, 2016 | Filed with the SEC on January 23, 2017, as Exhibit 10.15 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.16 | Loan agreement with American Express Bank, FSB, dated July 14, 2014 | Filed with the SEC on January 23, 2017, as Exhibit 10.16 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.17 | Loan agreement with Celtic Bank, dated May 14, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.17 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.18 | Loan agreement with Amazon Capital Services, Inc., dated September 17, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.18 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.19 | Form of Copyright License Agreement | Filed with the SEC on January 23, 2017, as Exhibit 10.19 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.20 | Reseller agreement with IHS Markit dated July 2, 2014 | Filed with the SEC on January 23, 2017, as Exhibit 10.20 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.21 | Amendment No. 1 to IHS Reseller Agreement, dated March 1, 2015 | Filed with the SEC on January 23, 2017, as Exhibit 10.21 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.22 | First Promissory Note in the amount of $50,000, owed by the Company to Scott Schwartz, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.23 | Second Promissory Note in the amount of $50,000, owed by the Company to Scott Schwartz, dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.24 | Hill Promissory Note in the amount of $36,830.20, owed by the Company to Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.25 | Security Agreement by the Company in favor of Scott Schwartz and Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.4 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.26 | Novation Agreement between the Company, Scott Schwartz, Premier Purchasing and Marketing Alliance LLC and Hill Electric Supply, Co., Inc., dated January 19, 2017 | Filed with the SEC on January 25, 2017, as Exhibit 10.5 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.27 | Form of Lock-Up Agreement with Scott Schwartz | Filed with the SEC on January 25, 2017, as Exhibit 10.6 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.28 | Non-Recourse Secured Convertible Promissory Note in the amount of $300,000, owed by the Company to Rob Estell, dated January 20, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference |
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10.29 | Security and Pledge Agreement by the Company in favor of Rob Estell, dated January 20, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.30 | Consulting Agreement with Rob Estell, dated January 24, 2017 | Filed with the SEC on January 31, 2017, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.31 | Form of Lock-Up Agreement with Rob Estell | Filed with the SEC on January 31, 2017, as Exhibit 10.4 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.32 | Promissory Note dated July 31, 2017, in the amount of $100,000, issued to Ethan Atkin, as Trustee of the Ethan Atkin Revocable Trust dated February 22, 2007 | Filed with the SEC on August 25, 2017, as Exhibit 10.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.33 | Consulting Agreement with Ethan Atkin, dated July 31, 2017 | Filed with the SEC on August 25, 2017, as Exhibit 10.2 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
10.34 | Lock-Up Agreement with Ethan Atkin, dated July 31, 2017 | Filed with the SEC on August 25, 2017, as Exhibit 10.3 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
14.1 | Code of Ethics | Incorporated by reference and previously filed as an exhibit with the Company’s Form 10-K for the year ended May 31, 2013, filed on August 29, 2013 | |
21.1 | Subsidiaries | Filed with the SEC on November 15, 2016, as Exhibit 21.1 to our Current Report on Form 8-K filed on the same date, and incorporated herein by reference | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer. | Filed herewith. | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer. | Filed herewith. | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer. | Filed herewith. | |
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer. | Filed herewith. | |
101 | Interactive Data File (Form 10-K for the year ended October 31, 2015 furnished in XBRL). | Filed herewith. | |
101.INS | XBRL Instance Document | Filed herewith. | |
101.SCH | XBRL Taxonomy Extension Schema Document | Filed herewith. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed herewith. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROBILITY MEDIA CORPORATION | |
Dated: September 27, 2017 | |
/s/ Evan Levine | |
Evan Levine, | |
President and Chief Executive Officer |
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