U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended February 28, 2017

 

Commission File Number: 333-153502

 

TOTAL SPORTS MEDIA, INC.

(Exact name of registrant as specified in its charter)

 

Wyoming		26-2589503
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

5662 Calle Real #231

Goleta, California 93117

(Address of principal executive offices)

 

(805) 308-9151

(Registrant’s telephone number, including area code)

 

___________________________________________________________

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

 

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

 

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

 

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

 

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

 

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

 

On November 21, 2017 the registrant had 9,004,564 shares of the Company’s common stock outstanding.

 

TABLE OF CONTENTS

 

			Page
PART I
Item 1.	Financial Statements (unaudited)		F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		20
Item 4.	Controls and Procedures		20
PART II
Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.	Defaults Upon Senior Securities		21
Item 4.	Mine Safety Disclosures		21
Item 5.	Other Information		21
Item 6.	Exhibits		22

 

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Total Sports Media, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

		As of February 28, 2017				As of August 31, 2016
Assets:
Current assets
Cash		$	5,245			$	6,461
Accounts receivable, net of allowances of $6,000 and $6,000, respectively			23,687				64,499
Prepaid expenses			145				931
Total current assets			29,077				71,891
Property and equipment, net			160,069				362,244
Other assets
Other assets			-				27,033
Total other assets			-				27,033
Total assets		$	189,146			$	461,168
Liabilities and Stockholders' Deficit
Current liabilities
Account payable and accrued expenses		$	1,487,251			$	1,255,239
Line of credit			1,079,969				955,320
Capital lease payable - in default			54,704				54,704
Related party payables			346,092				281,291
Convertible notes payable, net of discount of $14,108 and $56,151, respectively			975,290				954,372
Related party convertible notes payable, net of discount of $0 and $67,687, respectively			1,103,964				961,277
Warrant liability			87,500				-
Derivative liabilities embedded within convertible notes payable, Series C and warrant liability			2,482,144				561,374
Total current liabilities			7,616,914				5,023,577
Long term liabilities
Convertible notes payable, net of discount of $0 and $0, respectively			-				75,000
Related party convertible notes payable, net of discount of $0 and $0, respectively			-				75,000
Total long term liabilities			-				150,000
Total liabilities			7,616,914				5,173,577
Series C preferred stock; $0.0001 par value; 20,000 shares authorized; 11,270 shares issued and outstanding as of February 28, 2017 and August 31, 2016			1,690,500				1,690,500
Commitments and contingencies (Note 5)
Stockholders' Deficit:
Series A preferred stock; $0.0001 par value; 100 shares authorized; 0 shares issued and outstanding as of February 28, 2017 and August 31, 2016			-				-
Series B preferred stock; $0.0001 par value; 200,000 shares authorized; 200,000 shares issued and outstanding as of February 28, 2017 and August 31, 2016			20				20
Common stock, $0.0001 par value; 40,000,000 shares authorized; 5,248,150 shares issued and outstanding at February 28, 2017 and August 31, 2016			525				525
Additional paid-in capital			2,915,929				3,761,164
Common stock to be issued			-				87,500
Accumulated deficit			(12,034,742	)			(10,252,118	)
Total stockholders' deficit			(9,118,268	)			(6,402,909	)
Total liabilities and stockholders' deficit		$	189,146			$	461,168

 

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

 

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Total Sports Media, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

		For the Three Months Ended February 28, 2017				For the Three Months Ended February 29, 2016				For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2016
Revenues:
Advertising		$	32,056			$	161,306			$	89,339			$	335,331
Services			-				8,588				-				16,838
Total revenues			32,056				169,894				89,339				352,169
Costs of revenues:
Media network			41,475				87,287				90,529				157,553
Colocation services			-				7,564				-				13,700
Broadcaster commissions			2,840				16,032				10,421				27,562
Other costs			370				851				492				1,125
Total costs of revenues			44,685				111,734				101,442				199,940
Gross profit (loss)			(12,629	)			58,160				(12,103	)			152,229
Operating expenses:
Product development			2,000				138				8,000				210
Officer compensation			25,000				25,000				50,000				50,000
Sales and marketing			2,044				7,050				2,352				12,798
Other expenses			142,163				254,169				349,469				535,664
Total operating expenses			171,207				286,357				409,821				598,672
Loss from operations			(183,836	)			(228,197	)			(421,924	)			(446,443	)
Other income (expense):
Other income (expense)			-				-				940				-
Interest expense (including accretion of debt discount of $14,997, $123,486, $109,728, and $246,976, respectively)			(72,899	)			(204,306	)			(315,278	)			(423,814	)
Gain on sale of co-location and domain			-				175,992				-				175,992
Gain on debt extinguishment			-				-				150,387				-
Loss on disposal of assets			-				-				(69,011	)			-
Change in fair value of derivatives			(548,907	)			368,195				(1,127,738	)			372,077
Total other income (expense)			(621,806	)			339,881				(1,360,700	)			124,255
Income (loss) before provision for income taxes			(805,642	)			111,684				(1,782,624	)			(322,188	)
Provision for income taxes			-				-				-				-
Net income (loss)		$	(805,642	)		$	111,684			$	(1,782,624	)		$	(322,188	)
Basic net loss per common share attributable to common stockholders		$	(0.15	)		$	0.02			$	(0.34	)		$	(0.07	)
Diluted net income (loss) per common share attributable to common stockholders		$	(0.15	)		$	0.00			$	(0.34	)		$	(0.07	)
Weighted-average number of shares used in computing basic per share amounts			5,248,150				4,988,534				5,248,150				4,635,066
Weighted-average number of shares used in computing dilutive per share amounts			5,248,150				31,451,403				5,248,150				4,635,066

 

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

 

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Total Sports Media, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,782,624	)		$	(322,188	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense			-				-
Depreciation and amortization			133,164				155,272
Re-measurement of derivative liabilities			1,127,738				(372,077	)
Accretion of debt discount			109,728				246,976
Gain on sale of co-location and domain			-				(175,992	)
Loss on disposal of assets			69,011				-
Loss on impairment of patents			27,033				-
Gain on extinguishment of debt and accrued interest			(150,387	)			-
Changes in operating assets and liabilities:
Accounts receivable			40,812				9,036
Prepaid expenses			786				(1,153	)
Accounts payable and accrued expenses			259,073				(104,603	)
Related party accrued liabilities			64,801				27,650
Net cash used in operating activities			(100,865	)			(537,079	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase or development of property and equipment			-				(19,503	)
Proceeds from sale of co-location and domain			-				179,980
Net cash provided by investing activities			-				160,477
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on convertible notes			(25,000	)			-
Proceeds from line of credit			124,649				285,934
Proceeds from issuance of convertible promissory notes - related parties			-				85,000
Proceeds from sale of common stock / common stock to be issued			-				12,500
Net cash provided by financing activities			99,649				383,434
Change in cash and cash equivalents			(1,216	)			6,832
Cash and cash equivalents, beginning of period			6,461				7,909
Cash and cash equivalents, end of period		$	5,245			$	14,741
Supplemental disclosures of cash flow information:
Cash paid for interest		$	-			$	5,728
Cash paid for income taxes		$	-			$	-
Non cash investing and financing activities:
Conversion of Series C preferred stock in common stock		$	-			$	79,500
Increase in line of credit for facility fee		$	-			$	2,500
Accretion of Series C derivative liability recorded to additional paid-in capital		$	845,235			$	-

 

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

 

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Total Sports Media, Inc.

Notes to Condensed Consolidated Financial Statements

February 28, 2017

(unaudited)

 

1. Nature of Business

 

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

 

Basis of Presentation

 

The accompanying interim 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 the Company’s Form 10-K for year ended August 31, 2016. In the opinion of management, all adjustments necessary in order for the consolidated financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ended August 31, 2017. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, StreamTrack Media, Inc. and RadioLoyalty, Inc., California corporations. Radio Loyalty, Inc. is in the process of being dissolved with operations being transferred to StreamTrack Media, Inc. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented.

 

Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the six months ended February 28, 2017, the Company recorded an operating loss of $421,924 and a net loss of $1,782,624. As of February 28, 2017, the Company had a working capital deficit of $7,587,837, which excluding the derivative liabilities was $5,105,693. The net loss and negative working capital indicate substantial doubt about the entity’s ability to continue as a going concern.

 

Management is confident but cannot guarantee that the Company will be able to raise additional capital in order to repay debts and continue operations. As of August 31, 2016, and during fiscal 2017, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others. The Company’s normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Since inception and through the date of these financial statements, the Company has successfully raised a significant amount of capital through debt and equity offerings. The Company anticipates launching several new product offerings and initiating certain new partnerships during the fiscal year ending August 31, 2018. The Company anticipates those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. The Company will attempt to have its potential partners pay for the some of these costs but management cannot be certain that it will succeed in entering into such arrangements. Management may potentially make a business decision to move forward, delay, or cancel certain partnerships because of the Company’s overall capital needs. Nonetheless, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan and become profitable. If the Company is unable to become profitable and sustain positive cash flow from operations, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Use of Estimates

 

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

 

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Net Loss Per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. As of February 28, 2017, there were 12,192,426,561 potentially dilutive shares of common stock that were excluded because their effect would be anti-dilutive.

 

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including convertible debt instruments, preferred stock, restricted stock unit grants and detachable stock warrants. Basic and diluted net loss per share was the same as basic for the three and six months ended February 28, 2017 and the six months February 29, 2016 presented as the inclusion of all potential common shares outstanding would have been anti-dilutive.

 

The following is the calculation of dilutive shares for the three months ended February 29, 2016:

 

		For the Three Months Ended February 29, 2016
Weighted-average common shares outstanding used in computing basic net income per share:			4,988,534
Common stock equivalents:
Creditor #2 Notes			8,891,864
Creditor #3 Notes			1,555,833
Convertible promissory notes			15,869,046
Series C Preferred Stock			146,125
Weighted-average common shares outstanding used in computing dilutive net income per share:			31,451,403

 

The following is the reconciliation of net income used in the calculation of the dilutive income per share for the three months ended February 29, 2016:

 

		For the Three Months Ended February 29, 2016
Net income available to common stock holders:		$	111,684
Adjustments:
Accrued interest on convertible notes			28,320
Accretion of discount on convertible notes			123,487
Net income used in the calculation of the dilutive income per share:		$	263,491

 

Recent Accounting Pronouncements

 

The Financial Accounting Standards Board issued Accounting Standard Updates (“ASUs”) to amend the authoritative literature in Accounting Standards Codification (“ASC”). There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

 

2. Composition of Certain Financial Statement Captions

 

Property and Equipment

 

Property and equipment consisted of the following:

 

		February 28, 2017				August 31, 2016
Software		$	1,673,497			$	1,804,257
Servers, computers, and other related equipment			153,824				153,824
Leasehold improvements			1,675				1,675
			1,828,996				1,959,756
Less accumulated depreciation and amortization			(1,668,927	)			(1,597,512	)
Property and equipment, net		$	160,069			$	362,244

 

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Depreciation expense totaled $133,164 and $155,272 for the six months ended February 28, 2017 and February 29, 2016, respectively. During the six months ended February 28, 2017, the Company discontinued the development of their Amped Fantasy products. In connection with this, the Company recorded an impairment loss on disposal of assets of $69,011.

 

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following:

 

		February 28, 2017				August 31, 2016
Accounts payable		$	897,841			$	814,707
Accrued interest			423,771				87,661
Accrued broadcaster commissions			90,881				301,883
Credit card			74,758				50,989
Accounts payable and accrued expenses		$	1,487,251			$	1,255,239

 

3. Fair Value

 

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

 

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

 

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

 

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

 

When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available. Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2017 and August 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, prepaids, accounts payable, accrued liabilities, notes payable, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short term in nature or they are payable on demand.

 

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

 

		Fair Value Measurement Using
		Quoted Prices in Active Markets for Identical Instruments (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Fair values as of February 28, 2017
Liabilities:
Derivative liabilities		$	-			$	2,482,144				-			$	2,482,144
Total liabilities measured at fair value		$	-			$	2,482,144				-			$	2,482,144
Fair values as of August 31, 2016
Liabilities:
Derivative liabilities			-			$	561,374				-			$	561,374
Total liabilities measured at fair value		$	-			$	561,374				-			$	561,374

 

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

 

4. Asset Acquisition / Disposition

 

Asset Disposition

 

On February 19, 2016, the Company, entered into and closed an Asset Purchase Agreement with Electric Lightwave, LLC (“Electric Lightwave”), a wholly owned subsidiary of Integra Telecom Holdings, Inc. pursuant to which, Electric Lightwave purchased from the Company certain assets related to the Company’s data center located in Santa Barbara, including equipment and inventory, for a purchase price of $150,000. As of the date of the sale all the assets were fully depreciated. In connection with the transaction, the Company recorded a gain of $146,012, as rent deposit of $3,988 was transferred as part of the sale, which is recorded within gain on sale of co-location and domain on the accompanying statement of operations.

 

On February 2, 2016, the Company sold the watchthis.com domain name for $30,000, which is recorded within gain on sale of co-location and domain on the accompanying consolidated statement of operations.

 

5. Commitments and Contingencies

 

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

 

(a) In one or more tranches as necessary, 4,675 shares of common stock (the “Initial Issuance”) and an additional 250 shares of common stock as a settlement fee.

 

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

 

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

 

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

 

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

 

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

 

There were no shares issued to ASC during the six months ended February 28, 2017 and February 29, 2016. The remaining amount on the settlement of liabilities owed by the Company to ASC is in the aggregate amount of $151,290 as of February 28, 2017 and August 31, 2016. The Company cannot reasonably estimate the amount of proceeds ASC expects to receive from the sale of these shares which will be used to satisfy the liabilities. Thus, the Company accounts for the transaction as the shares are sold and the liabilities are settled. All amounts are included within accounts payable. Shares which are held by ASC at each reporting period are accounted for as issued but not outstanding, of which there are none as of period end.

 

Legal Proceedings

 

The Company is potentially subject to various legal proceedings and claims arising in the ordinary course of its business. There are no pending legal proceedings against the Company as of the date of these financial statements. See Note 11 for a subsequent event related to a legal proceeding.

 

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6. Capital Lease

 

On March 22, 2013, the Company reached a settlement and release agreement with IBM Credit, LLC, (“IBM”) the lessor associated with the Company’s computer servers and software classified under capital lease. The balance owed to IBM as of March 22, 2013 was agreed to be $108,704. The Company agreed to make payments of $9,000 per month, with a final payment of $9,704 on March 1, 2014, in order to satisfy this balance. As of February 28, 2017 and August 31, 2016, the Company was in default of this agreement and the amount outstanding of $54,704 is reflected as a current liability on the accompanying consolidated balance sheets.

 

7. Related Party Transactions

 

The related party payable as of February 28, 2017 and August 31, 2016 consists of unpaid compensation, cash advances and charges on personal credit lines made on behalf of the Company by the Executives. The balances owed to the Executives are not secured and are due on demand. The Company is required to pay the interest charges on personal credit cards. Interest will be charged on these credit line balances based upon effective credit card rates. During the period from December 1, 2014 to May 31, 2015, the Executives agreed to a temporary reduction in their annual salary from $240,000 to $50,000 per annum. As of June 1, 2015 the effective rate of pay should be $240,000 per year but subsequently the executives verbally agreed to continue the moratorium until May 31, 2017. Subsequent to May 31, 2017, the annual salary due to the executives was reinstated to the $240,000 per annum. As of February 28, 2017 and August 31, 2016, amounts due to these Executive related to accrued compensation and advances were $346,092 and $281,291, respectively.

 

See Notes 8 and 10 for additional related party transactions.

 

8. Debt Instruments

 

Line of Credit

 

On April 11, 2013, the Company executed a non-dilutive asset-based debt financing (the “Lender Financing”) with a third party (the “Lender”). The Lender Financing for a line of credit, secured by all of the Company’s assets. The Company’s management also executed limited recourse guarantees with the Lender. Interest is payable monthly based on a floating interest rate determined based on a formula outlined in detail within the financing agreement. The Company anticipates the effective monthly interest rate charged on the outstanding balance owed to the third party will be approximately 9.75%.

 

On January 22, 2016, the Company executed an addendum to the Lender Financing agreement whereby the maturity date has been extended to December 15, 2016 with interest calculated at Prime plus 15.25% per annum. In the event the facility is below $750,000 prior to March 15, 2016 the interest rate shall be Prime plus 12.5%; below $500,000 prior to June 15, 2016 the interest rate shall be Prime plus 10%.

 

On September 6, 2016, the Company executed an addendum to this agreement whereby the maturity date has been extended to November 16, 2017. The line of credit was also increased to $1,055,000.

 

On June 1, 2017, the Company executed an addendum to this agreement whereby the maturity date has been extended to May 15, 2018 with interest calculated at Prime plus 6.25%. The line of credit was also increased to $1,123,642

 

Creditor #2 Convertible Promissory Notes

 

In April 2014, the Creditor entered into an exchange agreement with another lender (the “Creditor #2”) whereby the Creditor transferred the Creditor’s notes and accrued interest to Creditor #2. In April, the Company entered into i) a note agreement for $284,560 representing amounts transferred from the Creditor; ii) two $125,000 notes in which the proceeds were received on the same date (collectively referred to as the “Creditor #2 Notes”) with Creditor #2. The Creditor #2 Notes bear interest per annum at 10.0%, payable six months after the issuance date and are convertible on the date of issuance based upon based upon a 45% discount to lowest trading price, for the 15 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #2 converts the Creditor #2 Notes, the more common shares the Creditor #2 will receive. There were no conversions during the six months ended February 28, 2017 and February 29, 2016. The remaining principal balance was $391,242 as of February 28, 2017 and August 31, 2016. The convertible notes were due October 2014, however, as of the date of this filing there have been no demands or notifications of default received from the holder. Based upon the agreements, at the time of default the Company was potentially liable for $90,000 in additional penalties. During the six months ended February 28, 2017, the Company recorded $90,000 in penalties as accrued interest and interest expense. The impact of the penalty wasn’t significant to previously issued financial statements as well as the current six month period being reported on. The penalty doesn’t incur interest and isn’t convertible into shares of the Company’s common stock.

 

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

 

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Creditor #3 Convertible Promissory Note

 

In December 2014, a convertible promissory note holder (“Holder”) entered into an exchange agreement with another lender (the “Creditor #3”) whereby the Holder transferred the Holder’s notes and accrued interest to Creditor #3. In December 2014, the Company entered into i) a note agreement for $150,000 representing the principal amount transferred from the Holder. The Creditor #3 Note bears interest per annum at 10.0%, due on August 22, 2015 and is convertible on the date of issuance based upon based upon a 25% discount to lowest trading price, for the 5 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #3 converts the Creditor #3 Notes, the more common shares the Creditor #3 will receive. There were no conversions during the six months ended February 28, 2017 and February 29, 2016. In September 2016, the Creditor #3 note and accrued interest was satisfied by the Company for $25,000. The Company recorded a gain on extinguishment of $150,387 during the six months ended February 28, 2017. The gain consisted of forgiven principal and accrued interest of $98,184 and removal of the derivative liability of $52,203. The remaining principal balance was $93,350 as of August 31, 2016.

 

Convertible Promissory Notes

 

As of February 28, 2017 and August 31, 2016, in addition to the notes owing to Creditors #2 and #3 (above) the Company has outstanding 35 convertible promissory notes respectively issued between December 2011 and September 2015. The convertible promissory notes bear interest at either 4% or 8% per year and are due in full, including principal and interest, two-three years from the issuance date ranging from August 2014 to February 2018. The convertible promissory notes also include a conversion option whereby the holders may elect at any time to convert any portion or the entire balance into the Company’s common stock at conversion prices ranging from $0.0001 to $0.50. There were no transactions in which impacted these 35 convertible notes payable during the six months ended February 28, 2017 and February 29, 2016, other than the accrual of interest. As of February 28, 2017 and August 31, 2016, the balance of convertible notes payable was $1,704,895 and $1,704,895, respectively.

 

As of February 28, 2017 and August 31, 2016, 26 of the above mentioned 35 convertible promissory notes with outstanding balances totaling $1,103,964 and $1,103,964 respectively, are held by related parties. These related parties consist of the Company’s officers, Directors, significant shareholders or entities controlled by these individuals.

 

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

 

The discounts are amortized over the term of the convertible promissory note using the straight line method. The amortized value for each period is recorded as an offset against the debt discount on the balance sheet, classified as interest expense. During the six months ended February 28, 2017 and February 29, 2016, $109,728 and $246,976 of the discounts were amortized to interest expense, respectively. As of February 28, 2017, $14,108, all of which is on non-related party notes discounts remained which will be expensed in fiscal 2017 through 2018.

 

9. Derivatives

 

In connection with convertible notes payable, Series C preferred stock and warrant liability, the Company records derivative liabilities for the conversion features within these instruments. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. During the six months ended February 28, 2017, the Company recorded additional derivative liabilities related to the Series C preferred stock and warrant liability due to the Company being potentially in excess of their authorized shares if all convertible instruments were converted. During the six months ended February 29, 2016, the Company didn’t record any additional derivative liabilities as no new convertible notes were issued.

 

On December 6, 2016, the Company calculated the derivative liability in connection with the Series C preferred stock conversion feature to be $845,235. The offset of the derivative liability was recorded as a debit to additional paid-in capital. The Company used the following assumptions within the Black-Scholes pricing model to value derivative liability: exercise price of $0.08, the closing stock price of the Company’s common stock on the date of valuation of $0.04, an expected dividend yield of 0%, expected volatility of 260%, risk-free interest rate of 1.12% and an expected term of 2.0 years. See Note 10 for additional information.

 

On December 6, 2016, the Company calculated the derivative liability in connection with the warrant liability conversion feature to be $51,273. The offset of the derivative liability was recorded as a debit to the change in fair value of derivatives as the warrant is currently exercisable into common stock. The Company used the following assumptions within the Black-Scholes pricing model to value derivative liability: exercise price of $0.068, the closing stock price of the Company’s common stock on the date of valuation of $0.04, an expected dividend yield of 0%, expected volatility of 322%, risk-free interest rate of 1.12% and an expected term of 3.39 years. See Note 10 for additional information.

 

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On February 28, 2017, the derivative liabilities were revalued at $2,482,144 resulting in a loss of $1,127,738 related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: exercise prices ranging from of $0.0017 to $0.0041, the closing stock price of the Company’s common stock on the date of valuation $0.003, an expected dividend yield of 0%, expected volatility ranging from 343% to 579%, risk-free interest rates ranging from 0.49% to 1.22%, and an expected term ranging from 0.5 to 3.16 years. On February 29, 2016, the derivative liabilities were revalued at $526,779 resulting in a gain of $372,077 related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: exercise prices ranging from of $0.04 to $0.072, the closing stock price of the Company’s common stock on the date of valuation $0.08, an expected dividend yield of 0%, expected volatility ranging from 90% to 189%, risk-free interest rates ranging from 0.49% to 0.62%, and an expected term ranging from 0.5 to 1.17 years.

 

10. Stockholders’ Equity

 

Series A Preferred Stock

 

Each share of Series A Preferred Stock has voting rights equal to the voting equivalent of the common stock into which it is convertible at the time of the vote. The holders of the Series A Preferred Stock are not entitled to dividends. The Series A Preferred Stock has no preferential rights to the Company’s common stock and will share in any liquidation proceeds with the common stock on an as converted basis. No shares of Series A Preferred Stock are outstanding as of February 28, 2017.

 

Series B Preferred Stock

 

On October 25, 2013, the Company filed a Certificate of Designation of Series B Preferred Stock (the “Series B Certificate of Designation”) with the Secretary of State of Wyoming. Pursuant to the Series B Certificate of Designation, the Company designated 200,000 shares of its blank check preferred stock as Series B Preferred Stock. The Series B Preferred Stock will rank senior to the common stock, Series A Preferred Stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series B Preferred Stock (the “Junior Stock”). The Series B Preferred Stock will not be entitled to dividends. In the event of a liquidation, the Series B Preferred Stock will be entitled to a payment of the Stated Value of $1.00 per share prior to any payments being made in respect of the Junior Stock. Each share of Series B Preferred Stock will entitle the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series B Preferred Stock will entitle the holder to cast such number of votes equal to 0.000255% of the total number of votes entitled to be cast in other words, 51% of the voting interest for the entire Series B. Effective upon the closing of a Qualified Financing, all issued and outstanding shares of Series B Preferred Stock will automatically convert into common stock in an amount determined by dividing the product of the number of shares being converted and the Stated Value by the Conversion Price. The Conversion Price will be equal to the price per share of the common stock sold under the Qualified Financing (or, if the Qualified Financing involves the sale of securities convertible into common stock, by the conversion price of such convertible securities). A “Qualified Financing” is defined as the sale by the Company in a single offering of common stock or securities convertible into common stock for gross proceeds of at least $5,000,000.

 

Series C Preferred Stock

 

Effective December 29, 2014, the Company filed a Certificate of Designation of Series C Convertible Preferred Stock (the “Series C”) with the Secretary of State of Wyoming. Pursuant to the Series C, the Company designated 20,000 shares of its blank check preferred stock as Series C Preferred Stock. Each share of Series C is convertible into $150 in fair market value of the Company’s common stock, which fair market value will be equal to the average closing price of the common stock on the over-the-counter market during the 10 trading days immediately prior to the delivery to the Company of a conversion notice. The Series C will share in any liquidation proceeds with the common stock on an as-converted basis, will not have voting rights prior to being converted to common stock, and in the event of any payment of dividends by the Company, will be entitled to dividends on an as-converted basis with the common stock. The Company has presented the Series C outside of stockholders’ equity due to the variable conversion price. As discussed below, on December 6, 2016, the Company decreased their authorized common shares to 40 million. Upon this reduction, if all dilutive instruments, including the Series C, were to convert into common stock the Company would be in excess of their authorized shares. In connection with this, the conversion feature related to the Series C is no longer warranted equity classification and must be reflected as a derivative liability. See Note 9 for additional information including the valuation of the derivative.

 

Common Stock

 

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

 

On October 26, 2015, the Company filed a 14C with the Securities and Exchange Commission indicating their intent to amendment the Articles of Incorporation to: (i) change the Company’s name from StreamTrack, Inc. to Total Sports Media, Inc., (ii) effect a 1-for 800 reverse split of the Company’s common stock and (iii) decrease the authorized number of shares of common stock from an unlimited number to 40,000,000. The Company received approval to these actions on December 6, 2016 and will reflect under the new ticker TSMI, after 20 days. The 1-for 800 reverse split has been retroactively reflected within these consolidated financial statements.

 

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Common Stock to be Issued / Warrant Liability

 

On April 27, 2015, the Company entered into an Investment Agreement with RTV Media Corp. (“RTV”) pursuant to which RTV initially invested $75,000 into the Company in consideration for $75,000 of worth of warrants. On December 3, 2015, the Company issued RTV additional warrants in consideration of $12,500. The warrants have an exercise price which is equal to the higher of (i) $0.001 or (ii) 85% of the average closing price of the Company’s common stock as quoted on the public securities trading market for the ten (10) consecutive trading days immediately prior to the Holder’s exercise of this warrant. RTV has up to five years to exercise the warrants. In addition, RTV agreed to invest up to an additional $412,500 of capital into the Company in consideration for which additional warrants will be granted upon investment. Prior to December 6, 2016, the Company has accounted for the warrants as common stock to be issued as there are no provisions within the agreement in which will require the Company to return the capital provided. As discussed above, on December 6, 2016, the Company decreased their authorized common shares to 40 million. Upon this reduction, if all dilutive instruments, including the warrants, were to convert into common stock the Company would be in excess of their authorized shares. In connection with this, the $87,500 in proceeds from the warrants and the conversion feature related to the warrants are no longer warranted equity classification and must be reflected as liabilities. See Note 9 for additional information including the valuation of the derivative. As of February 28, 2017, if exercised, the Company has the obligation to issue approximately 25 million shares of common stock. Subsequent to February 28, 2017, the Company has received an additional $25,000 under the terms of the investment agreement with RTV.

 

11. Subsequent Events

 

On January 20, 2017, a lawsuit was filed against one of our subsidiaries StreamTrack Media, Inc. by Prodedge, LLC for $80,500 plus attorney fees for breach of contract, covenant of good faith and fair dealing, which has been recorded in accounts payable as of August 31, 2016 and February 28, 2017. The settlement reached stipulated a payment schedule of $2,000 per month for twelve months starting June 15, 2017 and $4,708 per month for twelve months starting June 15, 2018. As of October 31, 2017, $76,500 is still owed under the settlement.

 

On June 1, 2017, the Company executed an addendum to the Lender Financing agreement, see Note 8, whereby the maturity date has been extended to May 15, 2018 with interest calculated at Prime plus 6.25%. The line of credit was also increased to $1,123,642.

 

On November 10, 2017, the Company entered into an agreement with a third party to sell a website in exchange for 10 million shares of restricted shares of the third party’s common stock. The Company is still evaluating the accounting treatment.

 

See Notes 7 and 8 for additional subsequent events.

 

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

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our Form 10-K for the fiscal year ended August 31, 2016 filed with the Securities and Exchange Commission March 7, 2017 and all subsequent filings.

 

Overview

 

Total Sports Media, Inc. (“Total Sports Media,” or the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through the RadioLoyalty^TM Platform (the “Platform”) to a global group of over 5,000 internet and terrestrial radio stations and other broadcast content providers. We are also developing Robot Fruit, which is intended to be a powerful marketing tool that combines a mobile app creation platform, customer loyalty program, and content management system into an instant and measurable marketing engine for businesses. The Company is also continuing development of StreamTrak, designed to enable fans, artists, bands, music publishers and record labels to distribute, discover, create and share content. Through sportsalert.com the Company owns a subscriber based alert system for various sports with over 100,000 registered users. Users can choose whether they want score updates sent to their mobile phone or email, customizable by sport and events.

 

	Our streaming business model is focused on the following core principles:
	1.	We barter with audio content providers, namely internet and terrestrial radio stations, to obtain control and management of their desktop advertising opportunity (“Ad Inventory”). We also routinely purchase any Ad Inventory the content providers have not previously transferred to us by barter.
	2.	In exchange for the Ad Inventory, we pay for all internet and mobile streaming costs associated with the broadcaster’s content that is streamed through our platform. We barter in order to scale our business. The end result of the barter is that we aggregate Ad Inventory from broadcasters that management believes can reach substantial size while maintaining a primarily fixed cost structure for our hardware, content delivery, labor and other costs, respectively.
	3.	We re-broadcast original audio broadcast content through the Platform in a streaming media format in desktop and mobile environments. By re-broadcasting we ensure that we do not pay any royalties. Royalties are the responsibility of our broadcasters. This is a substantial advantage for us as many of our competitors pay royalties of up to 70% of revenues generated from licensed broadcast content.
	4.	We serve advertisements (“Ads”) within the Platform in audio, display and video formats in a desktop environment and display ads in a mobile environment using our RadioLoyaltyTM Apps.
	5.	Ads are served by our automated systems based on geography and demographics data, among others.
	6.	The primary technology that makes our Platform unique in the industry is that we are able to re-broadcast audio content with geographically targeted Ads that replace Ads served within an original broadcast targeting a listener in a certain geography. By having this capability we can also choose to replace audio Ads that do not generate as high of Ad revenues with video-based Ads that generate much higher Ad revenues. In effect, we make the broadcaster’s original broadcast capable of delivering Ads that are geographically targeted throughout a global broadcast marketplace while also utilizing video Ads and our proprietary video in-stream technology to increase advertising rates.
	7.	All of our primary technology that supports the Platform is automated and capable of operating in a live environment. Audio content is streamed, Ads are targeted and served, audio Ads are replaced as needed and video Ads replace audio Ads, as desired and when possible.

 

Advertising revenue constitutes the majority of our total revenue, representing 100% of total revenue for the six months ended February 28, 2017. We anticipate this trend will continue and our revenues will be generated primarily from advertising. Our advertising revenue for the six months ended February 28, 2017 was almost entirely derived from advertising delivered on desktop devices.

 

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

 

In June 2015, the Company received an Office Action where the examiner laid out new grounds of rejection addressed to the new claim language from our previous amendment to U.S. App No.: 12/146,922 - WATCH THIS - RAD-00330. Claims 20, 22-27, 36, and 38-43 were rejected under 35 U.S.C. 103(a) as being unpatentable over US 2006/0089843 filed 10/26/2004 by Flather in view of US 2008/0307454 filed 6/6/08 by Ahanger et al in view of US 2008/0109844 filed 11 /2/06 by Baldeschwieler et al. in view of US 2013/0061262 with priority to 1 /30/0S, filed by Briggs et al. The Company had until June 19, 2015 to respond to this decision, and while the Company believes that its claims are patentable, it choose not to pursue the claims further because it would have been cost prohibitive.

 

The Company is exploring alternative options as it relates to the WatchThis technology. On February 2, 2016 the Company sold the domain name www.watchthis.com for $30,000. While the USPTO has rejected our claims put forth, management believes that the viability of the technology is still feasible. Currently we have stopped development of this product until management identifies all of the options that are available for the business to potentially pursue.

 

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

 

In April 2015, we completed an asset purchase of Amped Fantasy and SportsAlert™, a daily fantasy sports and alert platform. The company ceased development of Amped Fantasy in the first quarter of 2016 due to uncertain regulatory changes and a lack of funding to continue development. SportsAlert is an alert messaging platform that allows subscribers to obtain current stats and scores relating to teams or individual players performances.

 

The Company received a Final Office Action rejecting the company’s claims to U.S. App No.: 13/559,503 - Ads with Media Streams - RAD-0045.

 

Key Metrics:

 

We track listener hours because we believe it is the best key indicator of the growth of our Platform business. Revenues from advertising through our Platform represented substantially all of our revenues for the six months ended February 28, 2017. We also track the number of active users on our Platform as well as the RadioLoyalty^TM app as indicators of the size and quality of our audience, which are particularly important to potential advertisers.

 

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

 

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

 

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

 

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

 

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

 

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

 

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Comparison of the Three Months Ended February 28, 2017 and February 29, 2016

 

		For the Three Months Ended February 28, 2017				For the Three Months Ended February 29, 2016
Revenue:
Advertising		$	32,056			$	161,306
Services			-				8,588
Total revenue		$	32,056			$	169,894

 

Revenues for the three months ended February 28, 2017 and February 29, 2016, totaled $32,056 and $169,894, respectively. The period over period decline can be attributed to several factors. Video revenue decreased for the three month period year over year by $54,754 attributable to reduced listening time, overall industry technical changes and ad related errors including Vpaid errors, ad response times, increased latency, creative errors and creative load time. Display revenue decreased for the three month period year over year by $73,639. Tighter buying criteria by Customers as a result of quality scoring from companies such as Integral Ad Science, Doubleverify and ForensIQ also reduced buys from some Customers.

 

		For the Three Months Ended February 28, 2017				For the Three Months Ended February 29 2016
Costs of revenues:
Media network		$	41,475			$	87,287
Colocation services			-				7,564
Broadcaster commissions			2,840				16,032
Other			370				851
Total costs of revenue		$	44,685			$	111,734

 

Costs of revenues for the three months ended February 28, 2017 and February 29, 2016 totaled $44,685 and $111,734, respectively. We incurred substantial media network costs associated with the distribution of our content across a variety of advertising networks. Our costs of distributing our content will proportionally decrease dramatically as we reach scale. In order to operate the RadioLoyaltyTM online broadcasting platform, RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we primarily utilize ASW’s cloud. We refer to these costs as streaming services. Our advertising sales arrangements with over 5,000 RadioLoyaltyTM stations facilitate us paying the broadcasters a monthly revenue sharing fee or license fee in exchange for advertising inventory around their content and listenership. We refer to these costs as broadcaster commissions in the event that we purchase the ad inventory. Other costs of sales include streaming services, depreciation associated with computer servers, streaming costs, adserving costs, and various application technologies that support our primary product offerings.

 

		For the Three Months Ended February 28, 2017				For the Three Months Ended February 29, 2016
Operating expenses
Product development		$	2,000			$	138
Officer compensation			25,000				25,000
Sales and marketing			2,044				7,050
Other			142,163				254,169
Total operating expenses		$	171,207			$	286,357

 

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Operating expenses for the three months ended February 28, 2017 and February 29, 2016 totaled $171,207 and $286,357, respectively. We have a broad-based business strategy to acquire more broadcasters directly, enter into joint ventures, revenue sharing arrangements or similar contracts with internet radio station guides (aggregators), and consider mergers and acquisition targets on an ongoing basis. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio including the Robot Fruit, StreamTrak, SportsAlert and mobile technology. We expect these costs to increase in the current fiscal year. Marketing and sales costs included compensation for our sales staff and various internet marketing-related costs. Officer compensation related to a variety of accruals to the two primary executives that operate our business. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

 

		For the Three Months Ended February 28, 2017				For the Three Months Ended February 29, 2016
Other income (expenses)
Other income (expense)		$	-			$	-
Interest expense			(72,899	)			(204,306	)
Gain on sale of co-location and domain			-				175,992
Change in fair value of derivatives			(548,907	)			368,195
Total other income (expenses)		$	(621,806	)		$	339,881

 

Other income (expense) for the three months ended February 28, 2017 and February 29, 2016, totaled $(621,806) and $339,881, respectively. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit, among others. We recorded the amortization of various debt discounts associated with our convertible promissory notes. The discounts are the result of derivative liabilities in which are recorded due to the variability of the notes conversion price. The derivative liabilities have to be re-measured as of each reporting date. For the three months ended February 28, 2017 and February 29, 2016, the re-measurement resulted in a gain (loss) on change in fair value of derivative liabilities of $(548,907) and $368,195, respectively.

 

We did not generate taxable profits for the three months ended February 28, 2017 and February 29, 2016. As a result, no provision for income taxes was recorded during either period.

 

Comparison of the Six Months Ended February 28, 2017 and February 29, 2016

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2016
Revenue:
Advertising		$	89,339			$	335,331
Services			-				16,838
Total revenue		$	89,339			$	352,169

 

Revenues for the six months ended February 28, 2017 and February 29, 2016, totaled $89,339 and $352,169, respectively. The period over period decline can be attributed to several factors. Video revenue decreased for the six month period year over year by $114,669 attributable to reduced listening time, overall industry technical changes and ad related errors including Vpaid errors, ad response times, increased latency, creative errors and creative load time. Display revenue decreased for the six month period year over year by $129,682. Tighter buying criteria by Customers as a result of quality scoring from companies such as Integral Ad Science, Doubleverify and ForensIQ also reduced buys from some Customers.

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29 2016
Costs of revenues:
Media network		$	90,529			$	157,553
Colocation services			-				13,700
Broadcaster commissions			10,421				27,562
Other			492				1,125
Total costs of revenue		$	101,442			$	199,940

 

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Costs of revenues for the six months ended February 28, 2017 and February 29, 2016 totaled $101,442 and $199,940, respectively. We incurred substantial media network costs associated with the distribution of our content across a variety of advertising networks. Our costs of distributing our content will proportionally decrease dramatically as we reach scale. In order to operate the RadioLoyaltyTM online broadcasting platform, RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we primarily utilize ASW’s cloud. We refer to these costs as streaming services. Our advertising sales arrangements with over 5,000 RadioLoyaltyTM stations facilitate us paying the broadcasters a monthly revenue sharing fee or license fee in exchange for advertising inventory around their content and listenership. We refer to these costs as broadcaster commissions in the event that we purchase the ad inventory. Other costs of sales include streaming services, depreciation associated with computer servers, streaming costs, adserving costs, and various application technologies that support our primary product offerings.

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2016
Operating expenses
Product development		$	8,000			$	210
Officer compensation			50,000				50,000
Sales and marketing			2,352				12,798
Other			349,469				535,664
Total operating expenses		$	409,821			$	598,672

 

Operating expenses for the six months ended February 28, 2017 and February 29, 2016 totaled $409,821 and $598,672, respectively. We have a broad-based business strategy to acquire more broadcasters directly, enter into joint ventures, revenue sharing arrangements or similar contracts with internet radio station guides (aggregators), and consider mergers and acquisition targets on an ongoing basis. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio including the Robot Fruit, StreamTrak, SportsAlert and mobile technology. We expect these costs to increase in the current fiscal year. Marketing and sales costs included compensation for our sales staff and various internet marketing-related costs. Officer compensation related to a variety of accruals to the two primary executives that operate our business. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2016
Other income (expenses)
Other income (expense)		$	940			$	-
Interest expense			(315,278	)			(423,814	)
Gain on sale of co-location and domain			-				175,992
Gain on debt extinguishment			150,387				-
Loss on disposal of assets			(69,011	)			-
Change in fair value of derivatives			(1,127,738	)			372,077
Total other income (expenses)		$	(1,360,700	)		$	124,255

 

Other income (expense) for the six months ended February 28, 2017 and February 29, 2016, totaled $(1,360,700) and $124,255, respectively. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit, among others. We recorded the amortization of various debt discounts associated with our convertible promissory notes. The discounts are the result of derivative liabilities in which are recorded due to the variability of the notes conversion price. The derivative liabilities have to be re-measured as of each reporting date. For the six months ended February 28, 2017 and February 29, 2016, the re-measurement resulted in a gain (loss) on change in fair value of derivative liabilities of $(1,127,738) and $372,077, respectively.

 

We did not generate taxable profits for the six months ended February 28, 2017 and February 29, 2016. As a result, no provision for income taxes was recorded during either period.

 

Liquidity and Capital Resources

 

As of February 28, 2017, we had cash totaling $5,245. We had a net working capital deficit of $7,587,837 as of February 28, 2017, compared to a net working capital deficit of $4,951,686 as of August 31, 2016. Our principal uses of cash during the six months ending February 28, 2017 were funding our operations.

 

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Going Concern

 

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the six months ended February 28, 2017, the Company recorded an operating loss of $421,924 and a net loss of $1,782,624. As of February 28, 2017, the Company had a working capital deficit of $7,587,837, which excluding the derivative liability was $5,105,693, indicating substantial doubt regarding the Company’s ability to continue as a going concern.

 

Management is confident but cannot guarantee that the Company will be able to raise in order to repay debts and continue operations. During the year ending August 31, 2017, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others. The Company’s normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Additionally, the Company is currently in default on its capital lease. If the Company defaults on this capital lease, the lessor may decide to take back its equipment. The Company has replaced its use of the equipment with ASW’s cloud so if the lessor decides to take back its equipment the impact operational impact would be minimal. Since inception and through February 28, 2017, the Company has successfully raised a significant amount of capital. However, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan in order to become profitable. If the Company is unable to become profitable or sustain its cash flow, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Working Capital Related Party Financing

 

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

 

Capital Expenditures

 

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

 

Historical Trends

 

The following table summarizes our cash flow data for the six months ended February 28, 2017 and February 29, 2016.

 

		For the Six Months Ended February 28, 2017				For the Six Months Ended February 29, 2017
Net cash used in operating activities		$	(100,865	)		$	(537,079	)
Net cash provided by investing activities			-				160,477
Net cash provided by financing activities			99,649				383,434

 

Cash flow used in operating activities totaled $(100,865) for the six months ended February 28, 2017, compared to $(537,079) used for the six months ended February 29, 2016. Operating cash flow was negative as we continued operations and a focused effort on product development and efforts towards certain potential significant partnerships with third parties within the digital media industry.

 

Cash flow provided by investing activities totaled $0 for the six months ended February 28, 2017, compared to $160,477 the six months ended February 29, 2016. The decrease is due to the limited capital on hand for the continued development of new products. In addition, in 2016 the Company sold their co-location and various domains.

 

Cash flow provided by financing activities totaled $99,649 for the six months ended February 28, 2017, compared to $383,434 for the six months ended February 29, 2016. We raised substantial capital through net proceeds from the line of credit, and advances from related our primary executive officers during the six months ended February 28, 2017 and February 29, 2016, respectively.

 

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

Not required for a smaller reporting company.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (Principal Executive and Financial Officer); of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer (Principal Executive and Financial Officer) concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and which also are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (Principal Executive and Financial Officer), to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

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

 

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PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

The Company is not party to any legal proceeding.

 

Item 1A. RISK FACTORS.

 

Not required for a smaller reporting company.

 

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

 

None

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

Item 5. OTHER INFORMATION

 

None

 

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Item 6. EXHIBITS

 

(a) Exhibits:

 

Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

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

 

	TOTAL SPORTS MEDIA, INC.
Date: November 29, 2017	By:	/s/ Michael Hill
	Name:	Michael Hill
	Title:	Chairman of the Board of Directors, Chief Executive Officer, President, and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)

 

 

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