The accompanying notes are an integral part of these consolidated financial statements.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
1.
|
NATURE
OF OPERATIONS AND GOING CONCERN
|
Loop
Media, Inc. (“Loop” or the “Company”), a Delaware corporation was incorporated on May 18, 2016. Loop is
an innovative streaming media company focused on premium short-form video for businesses and consumers.
On
December 31, 2018, the Company entered into a Stock Purchase Agreement with the shareholders of ScreenPlay whereby Loop purchased
75.062% equity interest of ScreenPlay for $2,500,000 in cash and 2,794,367 of Loop’s Class A common shares. Upon closing,
the Company owned 100% of ScreenPlay (See Note 3).
ScreenPlay
is a combination of ScreenPlay, Inc. (“SPI”), a Washington corporation incorporated in 1991, and SPE, Inc. (“SPE”),
a Washington corporation incorporated in 2008. ScreenPlay provides customized audiovisual environments that support integrated
brand strategies for clients in the retail, hospitality, and business services markets, and for online content providers.
On
January 1, 2019, SPE merged into SPI.
Going
Concern and Management’s Plans
At
December 31, 2019, the Company had cash of $1,011,445, a working capital deficit of $546,944, recurring net losses and an accumulated
deficit of $26,125,252. These conditions indicate that there is substantial doubt about the Company's ability to continue as a
going concern within one year from the issuance date of the consolidated financial statements.
The
Company's primary source of operating funds since inception has been cash proceeds from debt and equity financing. The ability
of the Company to continue as a going concern is dependent upon its ability to generate sufficient revenue and its ability to
raise additional funds by way of a debt and equity financing.
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. These consolidated financial statements do not
include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on management’s further implementation of the Company’s on-going and strategic plans, which include continuing
to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of the
on-going and strategic plans may require modification.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
a)
|
Basis
of Consolidation
|
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary SPE as of and for the year
ended December 31, 2019.
As
of and for the year ended December 31, 2018, the consolidated financial statements included the accounts of the Company and its
wholly-owned subsidiaries, SPI and SPE, from the date of their acquisition.
All
inter-company transactions and balances have been eliminated on consolidation.
These
consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States (“US GAAP”).
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets, liabilities, stockholders’ equity, and the disclosure
of contingent assets and liabilities, as at the date of the consolidated financial statements, and expenses for the years reported.
Actual results and outcomes may differ from management’s estimates and assumptions.
Significant
estimates made by management affecting the consolidated financial statements include share-based payments, deferred tax assets & liabilities, useful lives of equipment and impairments of intangible assets and discount rates used in shareholder loans
and convertible notes (See Note 12).
The
Company accounts for business combinations in accordance with ASC Topic 805, Business Combinations (“ASC 805”).
ASC 805 established principles and requirements for recognizing the total consideration transferred to and the assets acquired,
liabilities assumed and any non-controlling interest in the acquired target in a business combination. ASC 805 also provides guidance
for recognizing and measuring goodwill acquired in a business combination and requires the acquirer to disclose information that
users may need to evaluate and understand the financial impact of the business combination.
See
Note 3 “Step Acquisition of Screenplay” for further discussion.
Cash
and cash equivalents include all highly liquid monetary instruments with original maturities of three months or less when purchased.
These investments are carried at cost, which approximates fair value. Financial instruments that potentially subject the Company
to concentrations of credit risk consist primarily of cash deposits. The Company maintains its cash in institutions insured by
the Federal Deposit Insurance Corporation (“FDIC”). At times, the Company’s cash and cash equivalent balances
may be uninsured or in amounts that exceed the FDIC insurance limits. The Company has not experienced any loses on such accounts.
At December 31, 2019 and 2018, the Company had no cash equivalents.
As
of December 31, 2019 and 2018, approximately $489,774 and $3,336,273 of cash exceeded the FDIC insurance limits, respectively.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
Accounts
receivable represent amounts due from customers. The Company assesses the collectability of receivables on an ongoing basis. A
provision for the impairment of receivables involves significant management judgement and includes the review of individual receivables
based on individual customers, current economic trends and analysis of historical bad debts. As of December 31, 2019 and 2018,
the Company had recorded an allowance for doubtful accounts of $0.
|
|
g)
|
Concentration
of Credit Risk
|
The
Company grants credit in the normal course of business to their customers. Periodically, the Company reviews past due accounts
and makes decisions about future credit on a customer by customer basis. Credit risk is the risk that one party to a financial
instrument will cause a loss for the other party by failing to discharge an obligation. As of December 31, 2019 and 2018, the
Company is exposed to credit risk to the extent that its clients become unable to meet their payment obligations.
Inventories
are valued at the lower of cost or net realizable value. Cost is determined using the first-in-first-out basis for finished goods.
Net realizable value is determined on the basis of anticipated sales proceeds less the estimated selling expenses. Management
compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to net realizable
value, if lower. As of December 31, 2019 and 2018, the Company has recorded no valuation allowance.
Expenditures
paid in one accounting period which will not be consumed until a future period such as insurance premiums, rents and annual subscription
fees are accounted for on the balance sheet as a prepaid expense. When the asset is eventually consumed, it is charged to expense.
|
|
j)
|
Goodwill
and other Intangible Assets
|
The
Company accounts for goodwill and intangible assets in accordance with the accounting guidance which requires that goodwill be
tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has
decreased below its carrying value.
Goodwill
includes the excess of the purchase price over the fair value of net assets acquired in a business combination. ASC 850 requires
that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment).
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets
and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment
is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate
discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of
fair value and/or goodwill impairment.
When
testing goodwill for impairment, the Company may assess qualitative factors for some or all of our reporting units to determine
whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is
less than its carrying amount, including goodwill. Alternatively, the Company may bypass this qualitative assessment for some
or all of our reporting units and perform a detailed quantitative test of impairment (step 1). If the Company performs the detailed
quantitative impairment test and the carrying amount of the reporting unit exceeds its fair value, the Company would perform an
analysis (step 2) to measure such impairment. Based on the Company’s qualitative assessments at December 31, 2019, the Company
concluded that a positive assertion can be made from the qualitative assessment that it is more likely than not that the fair
value of the reporting units exceeded their carrying values and no impairments were identified.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
Intangible
assets with finite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized
but are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. A $6,350,000 impairment to a finite-lived intangible asset was recorded for the year ended December
31, 2019. See below for estimated useful lives:
|
Brand
name
|
Indefinite
|
|
Customer relationships
|
9 years
|
|
Content library
|
2 years
|
|
|
k)
|
Property
and Equipment
|
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over
the asset's estimated useful life. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise
disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference
less any amount realized from disposition is reflected in earnings. See below for estimated useful lives:
|
Equipment
|
5 years
|
|
Software
|
3 years
|
The
Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and
short-term and long-term lease liabilities are included on the face of the consolidated balance sheet.
ROU
assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date
based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate,
the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments. The Company's lease terms may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over
the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease
component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition
exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
|
|
m)
|
Impairment
of Long-Lived Assets
|
The
Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the
assets’ carrying amounts.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
n)
|
Financial
Instruments and Fair Value Measurements
|
FASB
ASC 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by
the Company. FASB ASC 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy
for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts
reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined
as follows:
|
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities
in active markets.
|
|
|
●
|
Level
2 inputs to the valuation methodology included quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets in inactive markets,
and inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
|
|
|
●
|
Level
3 inputs to the valuation methodology is one or more unobservable inputs which are significant
to the fair value measurement.
|
The
fair value of the Company’s accounts receivable, short-term portion of notes receivable and accounts payable approximate
their carrying value, due to their short-term nature. The fair value of the deposits, long-term portion of notes receivable and
the amount due to stockholders approximate their fair values and are measured using Level 3 of the fair value hierarchy. The Company’s
cash is measured at fair value under the fair value hierarchy based on Level 1 quoted prices in active markets for identical assets
or liabilities.
|
|
o)
|
Convertible
Debt and Beneficial Conversion Features
|
The
Company evaluates embedded conversion features within convertible debt under ASC 815, Derivatives and Hedging
to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require
derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options"
for consideration of any beneficial conversion features.
The
Company expenses all advertising costs as incurred. Advertising and marketing costs for the year ended December 31, 2019 and 2018
were $44,977 and $58,305, respectively.
Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”),
became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting
policies that are affected by this new standard. The Company applied the “modified retrospective” transition method
for open contracts for the implementation of Topic 606. As sales are and have been primarily from delivery of streaming
services, delivery of subscription content services in customized formats, and delivery of hardware and ongoing content delivery
through software and the Company has no significant post-delivery obligations, this new standard did not result in a material
recognition of revenue on the Company’s consolidated financial statements for the cumulative impact of applying this new
standard, therefore there was no cumulative effect adjustment required. The Company made no adjustments to its previously-reported
total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic
605, Revenue Recognition.
The
Company recognize revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue
is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final
acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues
are recognized under Topic 606 in a manner that reasonably reflects the delivery of the Company’s products and services
to customers in return for expected consideration and includes the following elements:
|
|
●
|
executed
contracts with the Company’s customers that it believes are legally enforceable;
|
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
●
|
identification
of performance obligations in the respective contract;
|
|
|
●
|
determination
of the transaction price for each performance obligation in the respective contract;
|
|
|
●
|
allocation
the transaction price to each performance obligation; and
|
|
|
●
|
recognition
of revenue only when the Company satisfies each performance obligation.
|
Performance
Obligations and Significant Judgments
The
Company’s revenue streams can be categorized into the following performance obligations and recognition patterns:
|
|
●
|
Delivery
of streaming services including content encoding and hosting. The Company recognizes
revenue over the term of the service based on bandwidth usage.
|
|
|
●
|
Delivery
of subscription content services in customized formats. The Company recognizes revenue
over the term of the service.
|
|
|
●
|
Delivery
of hardware for ongoing subscription content delivery through software. The Company recognizes
revenue at the point of hardware delivery.
|
Transaction
prices for performance obligations are explicitly outlined in relevant agreements; therefore, the Company does not believe that
significant judgments are required with respect to the determination of the transaction price, including any variable consideration
identified.
Disaggregation
of Revenue
The
Company's revenues are disaggregated into the following revenue streams. The content and streaming services revenue including
content encoding and hosting are recognized over the term of the service based on bandwidth usage. The content subscription services
revenue in customized formats is recognized over the term of the service. The hardware for ongoing subscription content delivery
is recognized at the point of hardware delivery. The following table represents revenue by category for the year ended December
31, 2019:
|
|
|
December
31, 2019
|
|
|
Content and Streaming Services
|
|
$
|
1,693,921
|
|
|
Content Subscription Services
|
|
|
1,498,663
|
|
|
Hardware for Ongoing Subscription Content Delivery
|
|
|
188,537
|
|
|
Total revenue
|
|
$
|
3,381,121
|
|
Customer
Acquisition Costs
The
Company records commission expense associated with subscription revenue. The Company has elected the practical expedient that
allows the Company to recognized the incremental costs of obtaining a contract as an expense when incurred if the amortization
period of the asset that the Company otherwise would have recognized is one year or less.
The
Company bills subscription services in advance of when the service period is performed. The deferred income recorded at December
31, 2019 and 2018, represents the Company’s accounting for the timing difference between when the subscription fees are
received and when the performance obligation is satisfied.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
s)
|
Net
Loss and Net loss Per Share of Common Stock
|
Basic
net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding
during the period without consideration for common stock equivalents. Diluted earnings per share is based on the treasury stock
method and includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the conversion
of convertible debentures to common stock, exercise of warrants to purchase common stock, exercise of stock options.
The
following outstanding common stock equivalents were excluded from the computations of diluted net loss per shares of common stock
attributable to common stockholders for the periods presented as the effect of including such securities would be anti-dilutive.
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Convertible debentures
|
|
|
9,770,166
|
|
|
|
8,272,713
|
|
|
Warrants to purchase common stock
|
|
|
8,326,064
|
|
|
|
32,358,272
|
|
|
Options to purchase common stock
|
|
|
8,718,460
|
|
|
|
9,260,127
|
|
|
Total common stock equivalent
|
|
|
26,814,690
|
|
|
|
49,891,112
|
|
Cost
of revenue represents the cost of delivered hardware and bundled software and is recognized at the time of sale. For ongoing licensing
and hosting fees, cost of sales is recognized over time based on usage patterns.
|
|
u)
|
Shipping
and handling costs
|
A
shipping and handling fee is charged to customers and recorded as revenue at the time of sale. The associated cost of shipping
and handling is recorded as a cost of revenue at the time of service.
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the
asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting
periods presented.
|
|
w)
|
Stock-Based
Compensation
|
Share-based
compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an
expense over the requisite service period. The Company measures the fair value of the share-based compensation issued to non-employees
using the stock price observed in the trading market (for stock transactions) or the fair value of the award (for non-stock transactions),
which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The
measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments
is reached, or (2) the date at which the counterparty's performance is complete.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
x)
|
Recently
adopted accounting pronouncements
|
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842),
which requires lessees to recognize a right-of-use (“ROU assets”) asset and a lease liability for all leases with
terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of
cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs;
hereinafter the collection of lease guidance is referred to as “ASC 842”.
On
January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all lease arrangements at the beginning
of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior
period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under
ASC 840, Leases. The standard had a material impact on the Company’s consolidated balance sheet but did not have a significant
impact on the Company’s consolidated net income and cash flows. The most significant impact was the recognition of ROU assets
and lease liabilities for operating leases. For leases that commenced before the effective date of ASC 842, the Company elected
the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases;
(ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.
The Company also elected to exclude leases with a term of 12 months or less in the recognized ROU assets and lease liabilities,
when the likelihood of renewal is not probable.
In
June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07.
ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based
payments to employees, with certain exceptions. The Company adopted ASU 2018-07 prospectively as January 1, 2019. The adoption
of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
In
February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to address a specific consequence of
the Tax Cuts and Jobs Act by allowing a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Act’s reduction of the U.S. federal corporate income tax rate. The Company adopted
this ASU on January 1, 2019 on a prospective basis.
|
|
y)
|
Accounting
Standards Issued but not yet Effective
|
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosures
on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level
2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level
3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income
(loss). The ASU is effective for public entities for fiscal years beginning after December 15, 2019. The Company has not
historically had any transfers between Level 1 and Level 2 or assets or liabilities measured at fair value under Level 3. The
Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In
September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets
held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance
also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance
is effective for fiscal years beginning after December 15, 2022. While the Company is currently evaluating the impact that
the adoption of this guidance will have on its consolidated financial statements, it does not expect the adoption to have a material
impact on its consolidated financial statements.
Other
accounting standards and amendments to existing accounting standards that have been issued and have future effective dates are
not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
3.
|
STEP
ACQUISITION OF SCREENPLAY
|
On
October 11, 2016, the Company acquired a 24.938% equity interest in ScreenPlay for a total consideration of $2,000,000, of which
$1,000,000 was in cash and $1,000,000 was in Class A common shares (1,761,494 shares at $0.5677 per share). The Company accounted
for its investment in Screenplay using the cost method as the Company was not able to exercise significant influence over the
operating and financial policies of SPE and SPI.
On
December 31, 2018, the Company acquired the remaining 75.062% equity interest in ScreenPlay with Class A common shares and $2,500,000
cash. Upon closing, the Company issued $1,274,620 of Class A common shares (2,794,367 shares at $0.45614 per share) and paid $100,000
cash to the former owners of ScreenPlay. As of December 31, 2018, $2,400,000 of the cash consideration had not been paid. As of
December 31, 2019, $250,125 is owed to one of the former owners of ScreenPlay.
In
connection with the acquisition, the former owners of ScreenPlay agreed to return 4,042,027 shares they owned in Loop with a fair
value of $0.44 per share, based on then fair value of Loop shares, for a total value of $1,791,426. The original $2,000,000 investment
in ScreenPlay was determined to have a fair value of $658,880, resulting in a loss on acquisition of $1,341,120.
The
acquisition of ScreenPlay is considered as a business combination and the net assets acquired from the acquisition were recorded
at their estimated fair values in accordance with ASC 805 – Business Combinations. The Company accounted for the acquisition
prospectively from the date of acquisition December 31, 2018; therefore, the Company did not recognize any of the revenues of
ScreenPlay for the year ended in the December 31, 2018 financial statements. The allocation of the purchase consideration is as
follows:
|
|
|
|
|
|
Fair value of shares issued
|
|
$
|
1,274,620
|
|
|
Cash consideration
|
|
|
2,500,000
|
|
|
Fair value of Loop shares returned by the former owners ScreenPlay
|
|
|
(1,791,426
|
)
|
|
Fair value of prior investment in ScreenPlay
|
|
|
658,880
|
|
|
Total consideration paid
|
|
|
2,642,074
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
Cash
|
|
|
765,159
|
|
|
Accounts receivable
|
|
|
618,868
|
|
|
Inventory
|
|
|
12,572
|
|
|
Prepaid expenses
|
|
|
70,381
|
|
|
Deposits
|
|
|
9,385
|
|
|
Note receivable
|
|
|
118,127
|
|
|
Equipment
|
|
|
7,051
|
|
|
|
|
|
|
|
|
Intangible assets acquired:
|
|
|
|
|
|
ScreenPlay brand
|
|
|
130,000
|
|
|
Customer relationship – Music Videos
|
|
|
344,000
|
|
|
Customer relationship – Movie Trailers
|
|
|
668,000
|
|
|
Content library – Music Videos
|
|
|
79,000
|
|
|
Content library – Movie Trailers
|
|
|
119,000
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(415,156
|
)
|
|
Deferred income
|
|
|
(154,968
|
)
|
|
Due to shareholders
|
|
|
(312,431
|
)
|
|
Net assets acquired
|
|
|
2,058,988
|
|
|
Goodwill
|
|
$
|
583,086
|
|
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
2018
Income statement pro forma
The
following pro forma disclosure shows a condensed version of what the income statement would have been, for the year ended December
31, 2018, if the acquisition had occurred on 1/1/2018:
|
|
|
Loop Media
|
|
|
Screenplay
|
|
|
Combined
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
3,543,498
|
|
|
$
|
3,543,498
|
|
|
Cost of revenue
|
|
|
—
|
|
|
|
(793,480
|
)
|
|
|
(793,480
|
)
|
|
Gross Profit
|
|
|
—
|
|
|
|
2,750,018
|
|
|
|
2,750,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(6,781,599
|
)
|
|
|
(2,402,844
|
)
|
|
|
(9,184,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
(6,781,599
|
)
|
|
|
347,174
|
|
|
|
(6,434,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(1,426,735
|
)
|
|
|
(39,705
|
)
|
|
|
(1,466,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(800
|
)
|
|
|
(14,519
|
)
|
|
|
(15,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,209,134
|
)
|
|
$
|
292,950
|
|
|
$
|
(7,916,184
|
)
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Computers
|
|
$
|
8,623
|
|
|
$
|
4,124
|
|
|
Hasp keys
|
|
|
2,240
|
|
|
|
8,448
|
|
|
Loop player
|
|
|
17,532
|
|
|
|
—
|
|
|
Total inventory
|
|
$
|
28,395
|
|
|
$
|
12,572
|
|
LOOP
MEDIA, INC.
Notes
to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Current portion
|
|
$
|
10,215
|
|
|
$
|
10,215
|
|
|
Long-term portion
|
|
|
102,318
|
|
|
|
107,913
|
|
|
Total note receivable
|
|
$
|
112,533
|
|
|
$
|
118,128
|
|
On
December 23, 2014, SPI entered into a promissory note receivable whereby it advanced $137,860 to Lodestar Entertainment, LLC.
This note bears interest at 4% per annum and is collected in monthly installments of $851, including both interest and principal
and has a maturity date of December 23, 2028. Interest earned for the years ended December 31, 2019 and 2018 was $4,802 and $4,846,
respectively.
|
|
6.
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Equipment
|
|
$
|
456,610
|
|
|
$
|
430,837
|
|
|
Software
|
|
|
53,450
|
|
|
|
53,450
|
|
|
Less Accumulated Depreciation
|
|
|
(482,033
|
)
|
|
|
(472,264
|
)
|
|
Total Property and Equipment, net
|
|
$
|
28,027
|
|
|
$
|
12,023
|
|
Depreciation
expense charged to operations amounted to $9,769 and $3,172, for the years ended December 31, 2019 and 2018, respectively.
|
|
7.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Goodwill
consisted of the following:
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Beginning Balance
|
|
$
|
583,086
|
|
|
$
|
—
|
|
|
Acquired during the year (See Note 3)
|
|
|
—
|
|
|
|
583,086
|
|
|
Total Goodwill
|
|
$
|
583,086
|
|
|
$
|
583,086
|
|
Other
intangible assets consisted of the following:
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Software acquired as intellectual property
|
|
$
|
6,350,000
|
|
|
$
|
—
|
|
|
Screenplay brand
|
|
|
130,000
|
|
|
|
130,000
|
|
|
Customer relationships
|
|
|
1,012,000
|
|
|
|
1,012,000
|
|
|
Content library
|
|
|
198,000
|
|
|
|
198,000
|
|
|
Impairment of intangible assets acquired in 2019
|
|
|
(6,350,000
|
)
|
|
|
—
|
|
|
Less Accumulated Amortization
|
|
|
(211,445
|
)
|
|
|
—
|
|
|
Total Other intangible assets, net
|
|
$
|
1,128,555
|
|
|
$
|
1,340,000
|
|
During
2019, the Company acquired intellectual property valued at $6,350,000 for issuance of Class B Shares (See Note 14). As of year-end
December 31, 2019, the Company fully impaired the intellectual property and recognized a loss on impairment of $6,350,000. The
Company recorded amortization expense of $211,445 and $0 for the years ended December 31, 2019 and 2018, respectively.
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
The Company has operating leases
for office space and office equipment. Many leases include one or more options to renew, some of which include options to extend
the leases for a long-term period, and some leases include options to terminate the leases within 30 days. In certain of the Company’s
lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance,
utilities, inflation and/or changes in other indexes.
On January 1, 2019, upon adoption
of ASC Topic 842, the Company recorded ROU assets of $444,112, and a lease liability of $444,112.
The Company entered into a lease
agreement for office space in Glendale, California commencing in November 2019 and expiring in June 2023. The Company recorded
ROU assets of $211,429 for the real estate components of the lease and a corresponding lease liability of $211,429 upon
lease commencement.
The Company entered into a lease
agreement for an apartment, used by business associates and employees as accommodations when in town, in Burbank, California commencing
on February 2019 and expiring in April 2020. The Company recorded ROU assets of $75,274 for the real estate components
of the lease and a corresponding lease liability of $75,274 upon lease commencement.
Lease liability is summarized
below:
|
|
|
December
31,
2019
|
|
|
Total lease liability
|
|
$
|
507,827
|
|
|
Less: short term portion
|
|
|
(147,458
|
)
|
|
Long term portion
|
|
$
|
360,369
|
|
Maturity analysis under these
lease agreements are as follows:
|
|
|
|
|
|
2020
|
|
$
|
191,144
|
|
|
2021
|
|
|
180,420
|
|
|
2022
|
|
|
185,834
|
|
|
2023
|
|
|
37,584
|
|
|
2024
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
Total undiscounted cash flows
|
|
|
594,982
|
|
|
Less: 10% present value discount
|
|
|
(87,155
|
)
|
|
Total lease liabilities
|
|
$
|
507,827
|
|
As of December 31, 2019, the Company had no additional
significant operating or finance leases that had not yet commenced.
Lease expense for the year ended December 31, 2019
was comprised of the following:
|
|
|
December 31,
2019
|
|
|
Operating lease expense
|
|
$
|
237,206
|
|
|
Short-term lease expense
|
|
|
17,656
|
|
|
Total
|
|
$
|
254,862
|
|
|
|
|
|
|
|
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
Operating lease expense is included in selling, general
administration expenses in the consolidated statement of operations.
For the year ended December
31, 2019, cash payments against lease liabilities totaled $263,694, accretion on lease liability of $40,706 and non-cash transactions
totaled $286,703 to recognize operating lease right-of-use assets and operating lease liabilities.
Weighted average remaining lease term and discount
rate for operating leases are as follows:
|
Weighted average remaining lease terms
|
|
|
|
3.06 years
|
|
Weighted average discount rate
|
|
|
|
10%
|
|
|
9.
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Trade payables
|
|
$
|
357,982
|
|
|
$
|
284,320
|
|
|
Accrued liabilities
|
|
|
566,696
|
|
|
|
529,594
|
|
|
Payroll liabilities
|
|
|
26,048
|
|
|
|
98,018
|
|
|
Interest payable
|
|
|
94,069
|
|
|
|
24,637
|
|
|
Total accounts payable and accrued liabilities
|
|
$
|
1,044,795
|
|
|
$
|
936,569
|
|
On December 18, 2019, the Company
entered into a loan agreement with a lender for $1,000,000. The loan provided an interest rate of 5% compounded annually and calculated
on a 360-day basis. The principal and accrued unpaid interest were due on June 30, 2020. The loan is secured by a secondary interest
in all assets of both Loop and ScreenPlay. This loan was exchanged as part of the lender’s purchase of 300,000 shares of
Series B Convertible preferred stock effective February 5, 2020. For the year ended December 31, 2019, the Company accrued interest
of $1,597.
The loans were assumed as part
of the ScreenPlay acquisition. The loans outstanding as of December 31, 2018 were $312,431. The loans were due on October 11, 2021,
and had an annual interest rate of 6%, compounded monthly. The loans were settled on January 9, 2019, which resulted in a loss
on settlement of $35,855 due to the fair value of the liability was less than the face amount of the liability.
|
|
|
December 31,
2019
|
|
|
December
31,
2018
|
|
Convertible Debentures issued to a related party, amended October 1, 2019, interest at 10% per annum, interest accrues through May 2020, beginning June 1, 2020, monthly payments of unpaid accrued interest will be made through December 1, 2020, beginning January 1, 2021, the company will pay equal monthly installments of principal and interest through December 1, 2023 and any unpaid principal and interest outstanding will be immediately due and payable on December 1, 2023
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debenture issued to a founder and former officer of the Company in conjunction with redemption of 20,000,000 shares of Class A common stock, interest at 10% per annum, interest accrues through September 1, 2019, beginning October 1, 2019 monthly payments of unpaid accrued interest will be made through May 1, 2020, beginning June 1, 2020, the Company will pay equal monthly installments of principal and interest through December 1, 2023, secured by 5,000,000 shares of Class A common stock owned by the Company’s CEO
|
|
|
287,000
|
|
|
|
287,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured(1)
convertible debenture, interest at 11% per annum,, accrued monthly and the outstanding principal and unpaid accrued
interest is due January 8, 2021
|
|
|
326,143
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures payable
|
|
$
|
3,613,143
|
|
|
$
|
3,287,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Debt Discount
|
|
|
(2,385,189
|
)
|
|
|
(2,991,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible debentures payable
|
|
$
|
1,227,954
|
|
|
$
|
295,943
|
|
|
|
(1)
|
Secured by primary interest in all assets of both Loop and ScreenPlay.
|
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
Convertible debentures
– related party $3,000,000
Original terms
On December 12, 2018, the Company
issued $3,000,000 in convertible debentures, which have a maturity date of December 1, 2023 (the “Maturity Date”).
The debentures accrue interest monthly at a rate of 10% per annum, simple interest. Accrued unpaid interest became payable monthly
beginning February 1, 2019 through May 1, 2020. Any outstanding principal and accrued unpaid interest were to be paid in equal
monthly installments beginning June 1, 2020 until all outstanding principal and accrued unpaid interest was paid in full no later
than December 1, 2023.
At the option of the
debenture holders, the debentures are convertible at any time prior to the Maturity Date in whole or in parts into Class A
common shares of the Company at a price of $0.40 per common share. One-half of these convertible debentures were issued to
a director of the Company.
The convertible debentures also
provide that should the Company receive not less than $6,000,000 from the sale of its securities, it must either, at the discretion
of the holders, make a $750,000 principal payment plus the balance of any accrued unpaid interest or convert that amount into the
Company’s common stock. If the Company receives not less than $12,000,000 from the sale of its securities, the entire outstanding
principal balance plus any accrued and unpaid interest must be either paid or converted in common stock.
In connection with the issuance
of the convertible debentures, the Company issued 27,032,208 common share purchase warrants, with each warrant exercisable at
$0.001 for a period of 10 years (See Note 14). The Company evaluated the warrants in accordance with ASC Topic No. 815 –
40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the underlying common stock
is indexed to the Company’s common stock. The Company determined that the warrants did not meet the definition of a liability
and therefore did not account for them as a separate derivative liability.
The
allocation of the $3,000,000 in gross proceeds from issuance of convertible debentures based on the relative fair values resulted
in an allocation of $2,387,687 to the warrants and $612,313 to the convertible debentures. The relative fair value of the
warrants above was determined on the date of grant using the Black Scholes option-pricing model with the following parameters:
(1) risk free interest rate of 2.00%; (2) expected life in years of 10.0; (3) expected stock volatility of 45.0%; and (4) expected
dividend yield of 0%. In addition, because the effective conversion rate based on the $612,313 allocated
to the convertible debentures was $0.08 per share which was less than the fair value of the Company’s stock price on the
date of issuance, a beneficial conversion feature was present at the issuance date. The beneficial conversion feature totaled $612,313
and was recorded as a debt discount. The Company also recorded the allocated fair value of the warrants $2,387,687 as additional
debt discount. The total initial unamortized debt discount was $3,000,000 and is amortized to interest expense using effective
interest method over the life of the convertible debentures.
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
As of December 31, 2019 and
2018, the amortized debt discount recorded as interest expenses was $599,671 and $39,430, respectively.
Settlement – October
31, 2019
The Company was not able to
make the payments required under the terms of the convertible debentures and the holders filed suit on July 11, 2019. The convertible
debenture holders and the Company entered into a settlement agreement on October 31, 2019, and the lawsuit was dismissed as of
October 31, 2019. The settlement resulted in the amendment of the convertible debentures to extend the payment terms as presented
in the convertible debentures table above.
Pursuant to the settlement agreement
the Company (i) issued 67,690 shares of Class B common stock to the convertible debenture holders for $30,000 cash; and (ii) issued
56,408 Class B common shares valued at $25,000 to the convertible debenture holders for the forgiveness of $5,221 in liabilities
owed by the Company, which resulted in a loss on settlement of obligations of $19,779 during the year ended December 31, 2019.
In addition, the settlement
agreement further provided that the Company would be released from any liability for accrued unpaid interest and other convertible
debentures costs from the date of the convertible debentures to the date of the settlement agreement. The Company was relieved
of $192,557 of accrued interest as of October 31, 2019 and recorded a gain on settlement of obligations during the year ended December
31, 2019.
Additionally, the settlement
agreement provided that the Company would merge the Class A common stock and Class B common stock into one class of common stock.
On December 5, 2019, the Company merged Class A and Class B common stock.
On October 31, 2019, as part
of the above mentioned settlement agreement, the Company issued 27,032,208 Class B common shares upon the exercise of warrants,
with an exercise price of $0.001 per share, for a total value of $27,032. The exercise price was applied against the balance of
accrued interest on the convertible debentures.
The following table presents
the components of the convertible debentures as of December 31, 2019 and 2018:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Principal
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
Less: Unamortized debt discount
|
|
|
(2,360,898
|
)
|
|
|
(2,960,570
|
)
|
|
Balance, Net
|
|
$
|
639,102
|
|
|
$
|
39,430
|
|
Convertible debenture
- $287,000
Original terms
On December 1, 2018, the Company
entered into a redemption agreement with one of the former officers to repurchase 20,000,000 shares of Class A common stock. The
terms of this agreement required that the Company issue a convertible debenture to this shareholder in the amount of $287,000 and
pay the amount of accrued expenses owed to him of $134,000 in four quarterly payments beginning October 1, 2019. The first two
quarterly payments totaling $67,000 were paid in January 2020. The payment terms for this convertible debenture are presented in
the convertible note table above.
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
At the option of the debenture
holder, the debenture shall be convertible at any time prior to December 1, 2023 in whole or in parts into Class A common shares
of the Company at a price of $0.40 per common share. As the effective conversion rate based on the principal $287,000 was $0.40
per share which was less than the fair value of the Company’s stock price on the date of issuance, a beneficial conversion
feature was present at the issuance date. The beneficial conversion feature totaled $30,996 and was recorded as a debt discount.
The discount is amortized to
interest expense using effective interest method over the life of the convertible debenture. As of December 31, 2019 and 2018,
the amortized debt discount recorded as interest expenses was $6,196 and $509, respectively.
The following table presents
the components of the convertible debenture as of December 31, 2019 and 2018:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Principal
|
|
$
|
287,000
|
|
|
$
|
287,000
|
|
|
Less: Unamortized debt discount
|
|
|
(24,291
|
)
|
|
|
(30,487
|
)
|
|
Balance, Net
|
|
$
|
262,709
|
|
|
$
|
256,513
|
|
Secured convertible
debenture - $326,143
Original terms
On July 12, 2019, the Company
entered into a loan agreement with a lender for a loan amount up to $200,000. The loan provided an interest rate of 10% accrued
monthly with principal and accrued unpaid interest due on January 8, 2021. The loan required the Company to pay a loan fee of 2%
($4,000) upon execution. The loan provides for a prepayment penalty of 4% of the amount prepaid plus all interest accrued to the
date of the prepayment. The loan was secured by a primary interest in all assets of both Loop and ScreenPlay.
Amendment 1
By August 20, 2019, the amount
borrowed under the $200,000 loan agreement amounted to $252,473 and the loan agreement was amended to provide for an increase in
the maximum loan amount to $400,000.
In addition, the loan was restructured
as a convertible debenture. At the option of the debenture holder, the debenture is convertible at any time prior to the maturity
date in whole or in parts into Class A common shares of the Company. The conversion price was deemed to be the lesser of $0.40
per common share or the offering price paid by unaffiliated investors for one share of the current merger target’s common
stock, no par value under a planned private offering of such securities by the current merger target in connection with the proposed
merger transaction with the Company. The proposed merger with merger target failed to close so the conversion price was deemed
to be $0.40 per common share.
The Company evaluated the embedded
conversion feature in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging – Contracts in Entity’s
Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined
that the embedded conversion feature did not meet the definition of a liability and therefore did not account for it as a separate
derivative liability. The embedded conversion feature was fair valued at $146,678 using the Black Scholes Method and recorded
as loss on extinguishment of debt and offset to additional paid-in capital. The Company also charged the additional loan fees
of $6,473 to loss on extinguishment of debt.
The Company evaluated the embedded
conversion feature as the effective conversion rate based on the principal $252,473 was $0.40 per share which was less than the
fair value of the Company’s stock price on the date of issuance and determined that a beneficial conversion feature was present
at the issuance date. The beneficial conversion feature totaled $29,967 and was recorded as a debt discount and offset to additional
paid-in capital.
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
The amendment also provided
that at the lender’s request, the Company will issue one share of its Class A common stock for every dollar loaned. The total
amount borrowed under this loan as of December 31, 2019 is $326,143, the Company recorded the obligation to issue 326,143 Class
A common shares with a value of $135,144 as Class A common stock subscribed but not yet issued and debt discount.
Amendment 2 – November
26, 2019
The Company changed its merger
target to Interlink Plus, Inc. (Interlink). On November 26, 2019, the $400,000 convertible loan agreement was amended again to
change the conversion price to the lesser of $0.25 per common share or the offering price paid by unaffiliated investors for one
share of Interlink common stock.
As of November 26, 2019, the
amortized debt discount recorded as interest expense was $23,448, and upon execution of Amendment 2, the Company wrote off the
remaining unamortized debt discount of $141,663 as loss on extinguishment of debt.
Upon execution of Amendment
2, a new embedded conversion feature was re-calculated as $110,281 which was charged to additional-paid-in-capital. The difference
of $36,397 was offset against loss on extinguishment of debt.
The following table presents
the components of the convertible debenture as of December 31, 2019 and 2018:
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Principal
|
|
$
|
326,143
|
|
|
$
|
—
|
|
|
Less: Unamortized debt discount
|
|
|
—
|
|
|
|
—
|
|
|
Balance, Net
|
|
$
|
326,143
|
|
|
$
|
—
|
|
|
|
13.
|
RELATED PARTY TRANSACTIONS
|
Related parties are natural
persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence
over the party making financial and operating decisions. Related parties include other parties that are subject to common control
or that are subject to common significant influences.
The amounts
due to or from the related parties are as follows:
|
|
Nature of relationship
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Convertible debt – face value
|
Directors
|
$
|
3,000,000
|
$
|
3,000,000
|
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
Authorized
130,000,000 Class A Shares
with a par value of $0.0001
60,000,000 Class B Shares with
a par value of $0.0001
Class A and Class B Shares have
identical rights, preference, privileges and restrictions except that Class B shares do not have voting rights.
Pursuant to a settlement agreement
with convertible debenture holders of the Company (See Note 12), both Class A and B Shares merged into one common share category
as of December 5, 2019. The Class A and Class B shares were converted to the new category of common shares at a rate of 1 for 1.
During the year ended December
31, 2019, the Company had the following share transactions:
Issued
and outstanding
|
|
●
|
The Company issued 67,690 Class B Shares, at $0.4432 per share, for total cash proceeds of $30,000.
|
|
|
●
|
The Company issued 2,066,000 Class A Shares to various investors, at $0.25 per share, for total
cash proceeds of $516,491.
|
|
|
●
|
The Company issued 23,000,000 Class A Shares and 2,400,000 Class B Shares at $0.25 per share, for
the purchase of intellectual property, with a total value of $6,350,000.
|
|
|
●
|
The Company issued 2,800,000 Class B Shares with a value of $1,240,960 in connection with a settlement
with former employees upon the termination of their employment contracts.
|
|
|
●
|
The Company issued 27,032,208 Class B Shares upon the exercise of warrants, with an exercise price
of $0.001 per share, for a total value of $27,032. In lieu of cash the exercise price of these warrants was satisfied by the forgiveness
of certain liabilities owed by the Company to the investor.
|
|
|
●
|
The Company issued 56,408 Class B Shares valued at $25,000 as a settlement of liabilities with
certain investors and recorded a loss on settlement of $19,779.
|
|
|
●
|
The Company issued 207,581 Class A Shares valued at $92,000 which were reserved for issuance as
a stock payable at December 31, 2018, for proceeds that were received during the year ended December 31, 2018.
|
|
|
●
|
The Company issued 4,200,000 Class B Shares with a value of $1,890,000 which were reserved for
issuance as a stock payable at December 31, 2018. These were issued for consulting services received during the year ended December
31, 2018.
|
Stock Subscribed but not
yet issued
|
|
●
|
The Company has 368,706 Class A Shares reserved as a stock subscribed but not yet issued valued
at $150,144, including a $15,000 subscription payment received from investors and $135,144 as an additional obligation on convertible
debentures.
|
During the year ended December
31, 2018, the Company had the following share transactions:
Issued
and outstanding
|
|
●
|
The Company issued 5,847,293 Class A Shares to various investors valued at $2,541,549, of which
$2,493,049 was paid for in cash, and $48,500 in assets.
|
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
|
|
●
|
The Company issued 3,508,050 Class B Shares for warrants exercised by a consultant. The Company
received $336 for the exercise of these warrants.
|
|
|
●
|
The Company issued 2,794,367 shares valued at $1,274,620 for the acquisition of ScreenPlay.
|
|
|
●
|
The Company cancelled 4,042,027 Class A Shares returned by the former shareholders of ScreenPlay
in connection with the acquisition of ScreenPlay.
|
|
|
●
|
20,000,000 Class A Shares were redeemed by the Company as part of redemption agreement with former
director (See Note 12).
|
Stock subscribed but not
yet issued
|
|
●
|
The Company has 207,581 Class A Shares reserved as a stock subscribed but not yet issued, valued
at $92,000 for a $92,000 subscription payment received from investors. These shares were issued during the year ended December
31, 2019.
|
|
|
●
|
The Company has 4,200,000 Class B shares reserved as a stock payable to various consultants for
consulting fees, valued at $1,890,000. These shares were issued during the year ended December 31, 2019.
|
|
|
b)
|
Share purchase warrants
|
The following table summarizes
the changes in warrants outstanding and the related prices for the shares of the Company’s common stock:
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
$
|
0.57
|
|
|
|
5,326,064
|
|
|
|
7.04
|
|
|
$
|
0.57
|
|
|
|
5,326,064
|
|
|
|
7.04
|
|
|
$
|
0.25
|
|
|
|
3,000,000
|
|
|
|
9.98
|
|
|
$
|
0.09
|
|
|
|
3,000,000
|
|
|
|
9.98
|
|
The following table summarizes the warrant
activity for the years ended December 31, 2019 and 2018:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Outstanding at December 31, 2017
|
|
|
5,326,064
|
|
|
$
|
0.57
|
|
|
Issued
|
|
|
30,540,258
|
|
|
|
—
|
|
|
Exercised
|
|
|
(3,508,050
|
)
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2018
|
|
|
32,358,272
|
|
|
$
|
0.09
|
|
|
Issued
|
|
|
3,000,000
|
|
|
|
0.09
|
|
|
Exercised
|
|
|
(27,032,208
|
)
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2019
|
|
|
8,326,064
|
|
|
$
|
0.45
|
|
The Company recognizes compensation
expense for all warrants granted using the fair value-based method of accounting. During the year ended December 31, 2018, the
Company issued 3,508,050 warrants to a consultant, and recorded consulting expense of $1,554,768. Also, during the year ended December
31, 2018, another 27,032,208 warrants were issued in connection with the issuance of convertible debentures, and the Company recorded
$11,698,370 as the relative fair value of the warrants. During the year ended December 31, 2019, the Company issued 3,000,000 warrants
with a relative fair value of $483,967 to settle $46,000 of liabilities owed to a consultant. This resulted in a loss on settlement
of obligations of $437,967.
LOOP MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
The Company calculated the fair
value of warrants issued using the Black-Scholes option pricing model, with the following inputs which were determined using a
basket of comparable companies:
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted
|
|
$
|
0.43
|
|
|
Expected life
|
|
|
10
|
|
|
Risk-free interest rate
|
|
|
2.08
|
%
|
|
Expected volatility
|
|
|
45.49
|
%
|
|
Expected dividends yield
|
|
|
0
|
%
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted
|
|
$
|
0.15
|
|
|
Expected life
|
|
|
10
|
|
|
Risk-free interest rate
|
|
|
1.85
|
%
|
|
Expected volatility
|
|
|
46.97
|
%
|
|
Expected dividends yield
|
|
|
0
|
%
|
|
Forfeiture rate
|
|
|
0
|
%
|
The Company’s Stock Option
Plan allows a maximum of 10,000,000 shares to be reserved for issuance under the plan. Options granted under the plan may not have
a term exceeding 10 years and vesting provisions are at the discretion of the Board of Directors.
The following table summarizes the stock
option activity for the years ended December 31, 2019 and 2018:
|
|
|
|
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at December 31, 2017
|
|
|
|
2,264,224
|
|
|
$
|
0.57
|
|
|
|
8.65
|
|
|
$
|
—
|
|
|
Grants
|
|
|
|
6,995,903
|
|
|
|
0.44
|
|
|
|
9.84
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2018
|
|
|
|
9,260,127
|
|
|
$
|
0.47
|
|
|
|
9.31
|
|
|
$
|
—
|
|
|
Grants
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(541,667
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2019
|
|
|
|
8,718,460
|
|
|
|
0.47
|
|
|
|
8.41
|
|
|
|
—
|
|
|
Exercisable at December 31, 2019
|
|
|
|
8,718,460
|
|
|
$
|
0.47
|
|
|
|
8.41
|
|
|
$
|
—
|
|
LOOP
MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
The
aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic value, based on options with an exercise
price less than the Company’s stock price of $0.25 as of December 31, 2019 and 2018, which would have been received by the
option holders had those option holders exercised their options as of that date.
The
following table presents information related to stock options at December 31, 2019:
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Options
|
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
|
Exercise
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
|
Price
|
|
Options
|
|
|
In
Years
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.57
|
|
|
1,722,557
|
|
|
|
6.8
|
|
|
|
1,722,557
|
|
|
$0.45
|
|
|
6,995,903
|
|
|
|
8.8
|
|
|
|
6,995,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,718,460
|
|
|
|
8.4
|
|
|
|
8,718,460
|
|
The
stock-based compensation expense related to option grants was $55,796 and $1,333,163 for the years ended December 31, 2019 and
2018, respectively.
|
|
d)
|
Stock-based
compensation
|
The
Company recognizes compensation expense for all stock options granted using the fair value based method of accounting. During
the year ended December 31, 2018, the Company issued 6,995,903 options valued at $0.1746 per option.
The
Company calculated the fair value of options issued using the Black-Scholes option pricing model, with the following assumptions:
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$
|
0.1746
|
|
|
Expected life
|
|
|
5 years
|
|
|
Risk-free interest rate
|
|
|
2.43
|
%
|
|
Expected volatility
|
|
|
41.54
|
%
|
|
Expected dividends yield
|
|
|
0
|
%
|
|
Forfeiture rate
|
|
|
0
|
%
|
LOOP
MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
On
December 22, 2017, new legislation was signed into law, informally titled the Tax Cuts and Jobs Act, which included, among other
things, a provision to reduce the federal corporate income tax rate to 21%. Under ASC 740, Accounting for Income Taxes, the enactment
of the Tax Act also requires companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities
and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. There is no further
change to its assertion on maintaining a full valuation allowance against its U.S. deferred tax assets. The Company’s gross
deferred tax assets have been revalued from 35% to 21% with a corresponding offset to the valuation allowance and any potential
other taxes arising due to the Tax Act will result in reductions to its net operating loss carryforward and valuation allowance.
Income
tax expense (benefit) consist of the following for the years ended December 31, consist of the following:
|
U.S. federal
|
|
2019
|
|
|
2018
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
(2,063,921
|
)
|
|
|
(1,021,554
|
)
|
|
State and local
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,600
|
|
|
|
800
|
|
|
Deferred
|
|
|
(746,995
|
)
|
|
|
(543,546
|
)
|
|
Total
|
|
$
|
(2,809,316
|
)
|
|
$
|
(1,564,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
2,810,916
|
|
|
|
1,565,100
|
|
|
Income Tax Provision
|
|
|
1,600
|
|
|
|
800
|
|
The
reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December
31, 2019 and 2018 is as follows:
|
|
|
2019
|
|
|
2018
|
|
|
U.S. federal statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
State income taxes, net of federal benefit
|
|
|
6.98
|
%
|
|
|
6.98
|
%
|
|
Other permanent items
|
|
|
(2.36
|
)%
|
|
|
(0.04
|
)%
|
|
Change in valuation allowance
|
|
|
(24.42
|
)%
|
|
|
(19.07
|
)%
|
|
Other
|
|
|
(0.62
|
)%
|
|
|
(8.87
|
)%
|
|
Effective rate
|
|
|
0.58
|
%
|
|
|
0.00
|
%
|
As
of December 31, 2019, and 2018, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences
attributable to the following:
|
Deferred tax assets
|
|
2019
|
|
|
2018
|
|
|
Net Operating Loss Carryover
|
|
$
|
2,448,321
|
|
|
$
|
1,930,973
|
|
|
State Net Operating Loss
|
|
|
813,492
|
|
|
|
641,676
|
|
|
Stock-based compensation
|
|
|
877,478
|
|
|
|
514,599
|
|
|
Fixed assets book/ tax basis difference
|
|
|
(1,576
|
)
|
|
|
135,798
|
|
|
Impairment
|
|
|
1,776,959
|
|
|
|
—
|
|
|
Accrued expenses
|
|
|
(138,719
|
)
|
|
|
(154,515
|
)
|
|
Amortization of debt discount
|
|
|
(660,900
|
)
|
|
|
(837,005
|
)
|
|
Research credit
|
|
|
4,259
|
|
|
|
4,259
|
|
|
Intangible book/tax basis difference
|
|
|
861,776
|
|
|
|
934,389
|
|
|
Total deferred tax asset, net
|
|
|
5,981,090
|
|
|
|
3,170,174
|
|
|
Less reserve for allowance
|
|
|
(5,981,090
|
)
|
|
|
(3,170,174
|
)
|
|
Total Deferred tax asset, net of valuation allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
LOOP
MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
The
Internal Revenue Code Section 382 limits NOL and tax credit carry forwards when an ownership change of more than 50% of the value
of the stock in a loss corporation occurs. Accordingly, the ability to utilize remaining NOL and tax credit carryforwards may
be significantly restricted. All of net operating loss carry forwards as of December 31, 2018, are subject to the limitations
under Section 382 of the Internal Revenue Code.
The
Company files income tax returns in the U.S. federal and various state jurisdictions. As of December 31, 2019, and 2018, the Company
has federal net operating loss carryforwards of $11.6 million and $9.2 million, respectively. As a result of the Tax Cuts and
Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, NOLs arising before January 1, 2018, and
NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled approximately $1.56 million; these
NOLs will expire in varying amounts from 2037 through 2038, if not utilized. Our NOLs arising in 2018 and 2019 can generally be
carried back five years, carried forward indefinitely and can offset 100% of future taxable income for tax years before January
1, 2021 and up to 80% of future taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1,
2021, cannot be carried back, can generally be carried forward indefinitely and can offset up to 80% of future taxable income.
The federal NOLs begin to expire in 2037; losses generated in 2018 and forward have an indefinite life. The state NOLs begin to
expire in 2034.
As
of December 31, 2019, and 2018, the Company has state net operating loss carryforwards of $11.6 million and $9.2 million, respectively.
The state NOLs begin to expire in 2037.
As
of December 31, 2019, the tax returns for the years from 2014 through 2018 remain open to examination by the Internal Revenue
Service and various state authorities. ASC 740, “Income Taxes” requires that a valuation allowance is established
when it is “more likely than not” that all, or a portion of, deferred tax assets will not be recognized. A review
of all available positive and negative evidence needs to be considered, including the Section 382 limitation, the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information
available, management believes that uncertainty exists with respect to the future realization of its deferred tax assets and has,
therefore, established a full valuation allowance as of December 31, 2019, and 2018.
As
of December 31, 2019, and 2018, the Company has evaluated and concluded that there were no material uncertain tax positions requiring
recognition in the Company’s financial statements. The Company’s policy is to classify assessments, if any, for tax-related
interest as income tax expenses. No interest or penalties were recorded during the years ended December 31, 2019, and 2018. The
Company does not expect its unrecognized tax benefit position to change during the next twelve months.
Merger
between Loop Media, Inc. and its wholly owned subsidiary, ScreenPlay, Inc.
On
January 24, 2020, the Company filed the Articles of Merger between itself a Delaware corporation and ScreenPlay, Inc. (SPI) a
Washington Corporation with both Delaware and Washington Secretaries of State. On the date of the merger: the separate corporate
existence of SPI ceased; title to all assets owned by SPI became vested in the Company without reversion or impairment; and the
Company assumed all liabilities of SPI. Any proceeding pending by or against SPI may be continued as if such merger did not occur,
or the Company may be substituted in the proceeding for SPI. Immediately after the merger, all issued and outstanding shares of
SPI were cancelled.
Merger
between Loop Media, Inc. and Interlink Plus, Inc.
Effective
February 5, 2020, the Company merged with Loop Media Acquisition, Inc., a wholly owned subsidiary of Interlink Plus, Inc. (“Interlink”)
(the “Merger”). The Company was the surviving corporation and, as a result of the Merger, became a wholly owned subsidiary
of Interlink.
LOOP
MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
Pursuant
to the Merger Agreement, at the effective time of the Merger:
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The
Company’s outstanding 159,663,970 shares of common stock were exchanged for an
aggregate of 159,663,970 shares of the Interlink’ s common stock.
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The
Company’s outstanding options to purchase 8,718,460 shares of common stock were
assumed by Interlink and converted into options to purchase 8,718,460 shares of Interlink’s
common stock.
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The
Company’s outstanding warrants to purchase 8,326,064 shares of common stock were
exchanged for warrants to purchase 8,326,064 shares of the Interlink’s common stock:
and
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The
Company’s outstanding debt convertible into approximately 9,770,166 shares of common
stock was assumed by Interlink and will be amended to provide for the conversion into
approximately 9,770,166 shares of Interlink’s common stock.
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Stock
Option Plan
On
June 15, 2020, the board of directors of Loop adopted the Loop Media, Inc. 2020 Equity Incentive Compensation Plan (the Plan).
Awards that may be granted under the Plan include: (a) Incentive Stock Options; (b) Non-qualified Stock Options; (c) Stock Appreciation
Rights; (d) Restricted Awards; (e) Performance Share Awards; (f) Cash Awards; and (g) Other Equity-Based Awards. The Plan allows
a total share reserve of no more than 12,000,000 shares of common stock for the grant of Awards. The Plan further provides that
no more than 10,000,000 shares of Common Stock may be issued in the aggregate pursuant to the exercise of Incentive Stock Options
(the “ISO Limit”).
Under
the Plan, stock option awards of 1,000,000 and 1,500,000 shares, respectively were granted to two key employees on June 15, 2020.
The options are intended to be Incentive Stock Options up to the point the fair market value of the vested shares determined on
the grant date exceed $100,000. The vested shares or portions of shares thereafter will be treated as Non-Qualified Stock Options.
The vesting period for both awards begins on July 1, 2020. The award of 1,000,000 option shares will vest 500,000 shares on July
1, 2020 and the remaining 500,000 shares will vest on January 1, 2021. The award of 1,500,000 option shares will vest ratably
each month over a 36-month period.
Sale
of Preferred Stock
Effective
February 5, 2020 the Company entered into a Restricted Stock Purchase Agreement. In consideration for the 300,000 Series B Shares,
the investor agreed to (i) pay $1,000,000 and (ii) forgive debt in the amount of $1,000,000 in principal and accrued interest.
Sale
of Common Stock
The
Company entered into a Restricted Stock Purchase Agreement dated January 24, 2020, with a contractor in connection with the issuance
of 6,000,000 shares of common stock as additional compensation for services provided in the development of software and applications
for the Company’s content distribution platform.
During
the first quarter of 2020 and after the merger with Interlink, Interlink issued 780,000 shares of common stock for cash in
the amount of $195,000.
Prior
to the merger, the Company issued 860,000 shares of common stock for $215,000 in cash.
Subsequent
Contractual Arrangements
On
April 16, 2020, the Company entered into a license agreement with Sony Music Entertainment (“SME”) to digitally distribute
audio-visual musical recordings that it owns or controls in agreed forms to consumers via certain approved distribution channels.
This agreement requires the Company to pay royalties and make minimum guaranteed payments, and includes marketing commitments,
advertising inventory, and financial and data reporting obligations. Rights to sound recordings granted pursuant to this agreement
are expected to account for a significant part of its streams in the foreseeable future. This license agreement has a duration
of two years, is not automatically renewable, and applies to the United States, Canada, and certain Latin American countries.
The license agreements also allow for the record label to terminate the agreement in certain circumstances, including, for example,
the Company’s failure to timely pay sums due within a certain period, a breach of material terms, and in some situations
which could constitute a “change of control” of the Company. This agreement provides that SME has the right to audit
the Company for compliance with the terms of the agreement. Further, it contains a “most favored nation” provision,
which requires that certain material contract terms be at least as favorable as the terms agreed to or will agree with any other
record label. Future minimum guarantee payments are material and represent a significant portion of the Company’s contractual
obligations and commercial commitments.
LOOP
MEDIA, INC.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
Payroll
Protection Program and Economic Injury Disaster Loan Grant
The
Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020 and provided for, among other
things, the Payroll Protection Program (PPP). The CARES Act temporarily added the PPP Loan program to the U.S. Small Business
Administration’s (SBA) 7(a) Loan Program and provides for the forgiveness of up to the full amount of qualifying loan plus
accrued interest guaranteed under the program. The Company applied for and received on April 27, 2020, through a bank, $573,500
under this program. The loan provides for an annual interest rate of 1% and a term of two years from the date the proceeds were
received. Payments of principal and interest are deferred for the first six months of the loan period. The program further provides
that the payment of certain qualified expenses from the proceeds received can be eligible for loan forgiveness. The qualified
payments must consist of at least 60% for payroll costs and the remaining amount up to a maximum of 40% can be used for certain
non-payroll related costs such as mortgage interest, rent and utilities. The bank that issued the loan will determine how much
of the loan will be forgiven based upon the information provided by the Company along with evidence of such costs. The $573,500
has been accounted for as a liability on the Company’s balance sheet. Any amount that is forgiven will be accounted for
as other income at the time the forgiveness is determined. Any amount that is not forgiven will remain on the balance sheet as
a long-term liability and accrued interest. The remaining balance will be repaid with interest over the remaining term of the
loan.
The
CARES Act also provided that businesses affected by the Coronavirus pandemic would be eligible to apply for a loan under the Economic
Injury Disaster Loan (EIDL) Program of the SBA. However, a business can only apply for a loan under PPP or EIDL, not both. The
Company applied for an EIDL loan as well but accepted the PPP Loan and therefore was no longer eligible to borrow under the EIDL
Program. However, as part of the EIDL loan application process, the Company was able to request a $10,000 grant from the EIDL
Program. The grant does not have to repaid as a result of not getting the EIDL. However, the $10,000 grant will be reduced against
the amount of the PPP loan qualifying to be forgiven. The $10,000 EIDL grant has been recognized in Q2 2020.
COVID
19
The
spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility
in U.S. and international markets. The Company experienced a 12% decline in revenues in the six months ended June 30, 2020 as
compared to the six months ended June 30, 2019, which was directly related to business closures of key customers.
