UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

for the quarterly period ended September 30, 2013.

 

 

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

for the transition period from ______to _________.

 

Commission file number: 000-29363

 

(Exact name of registrant as specified in its charter)

 

Nevada		88-0343702
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

 

1771 E. Flamingo Road, #201-A Las Vegas, NV		89119
(Address of principal executive offices)		(Zip Code)

 

(702) 734-3457

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

 

The number of shares outstanding of the Registrant’s Common Stock on November 15, 2013 was 114,253,275.

 

 

 

 

PLAYERS NETWORK

FORM 10-Q

Quarterly Period Ended September 30, 2013

 

INDEX
		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	4
	Statements of Operations for the Three and Nine Months ended September 30, 2013 and 2012 (Unaudited)	5
	Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 (Unaudited)	6
	Notes to the Condensed Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		34

 

 

 

 

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

 

On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified in our Annual Report on Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

 

Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” refer specifically to Players Network.

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements

 

PLAYERS NETWORK

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2013				2012
Assets			(Unaudited)
Current assets:
Cash		$	941			$	2,076
Deferred television costs			116,454				116,454
Prepaid expenses			2,070				385
Total current assets			119,465				118,915
Investments, cost method			–				–
Fixed assets, net			68,494				85,704
Debt issuance costs, net			7,937				12,695
Total Assets		$	195,896			$	217,314
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable		$	653,728			$	609,325
Accrued expenses			252,081				225,439
Deferred revenues			135,000				135,000
Convertible debentures, net of discounts of $110,227 and $196,092 at September 30, 2013 and December 31, 2012, respectively			115,773				19,408
Short term debt, currently in default			35,000				35,000
Derivative liabilities			582,480				356,608
Total current liabilities			1,774,062				1,380,780
Total Liabilities			1,774,062				1,380,780
Stockholders' (Deficit):
Series A convertible preferred stock, $0.001 par value, 2,000,000 shares authorized; 2,000,000 shares issued and outstanding			2,000				2,000
Series B convertible preferred stock, $0.001 par value, 10,873,347 shares authorized; 4,349,339 shares issued and outstanding			4,349				4,349
Common stock, $0.001 par value, 600,000,000 shares authorized; 103,103,275 and 69,488,757 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively			103,103				69,489
Additional paid-in capital			21,370,387				20,619,590
Subscriptions payable, 1,000,000 shares			15,000				–
Accumulated (deficit)			(23,073,005	)			(21,858,894	)
Total Stockholders' (Deficit)			(1,578,166	)			(1,163,466	)
Total Liabilities and Stockholders' (Deficit)		$	195,896			$	217,314

 

 

See accompanying notes to financial statements.

 

 

 

PLAYERS NETWORK

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Revenue:		$	286			$	11,254			$	1,365			$	41,953
Expenses:
Direct operating costs			4,843				46,302				82,112				95,678
General and administrative			40,386				94,550				263,646				324,697
Officer salaries			45,850				85,450				164,965				256,350
Salaries and wages			20,142				19,649				38,567				59,342
Bad debts (recoveries)			–				(10,000	)			–				(240	)
Depreciation and amortization			5,737				5,736				17,210				17,209
Total operating expenses			116,958				241,687				566,500				753,036
Net operating loss			(116,672	)			(230,433	)			(565,135	)			(711,083	)
Other income (expense):
Other income			–				2,221				–				23,520
Gain on sale of fixed assets			–				–				–				5,250
Loss on debt conversions			–				–				(1,625	)			–
Interest expense			(80,060	)			(24,134	)			(312,720	)			(32,036	)
Change in derivative liabilities			(142,814	)			20,080				(334,631	)			(174,860	)
Total other income (expense)			(222,874	)			(1,833	)			(648,976	)			(178,126	)
Net loss		$	(339,546	)		$	(232,266	)		$	(1,214,111	)		$	(889,209	)
Weighted average number of common shares outstanding - basic and fully diluted			101,858,030				66,315,764				90,071,292				64,352,286
Net (loss) per share - basic and fully diluted		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)

 

 

 

See accompanying notes to financial statements.

 

 

 

PLAYERS NETWORK

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Nine Months Ended
		September 30,
		2013				2012
Cash flows from operating activities
Net (loss)		$	(1,214,111	)		$	(889,209	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Bad debts expense (recoveries)			–				(240	)
Depreciation and amortization expense			17,210				17,209
Gain on sale of fixed assets			–				(5,250	)
Change in fair market value of derivative liabilities			334,631				174,860
Amortization of convertible note payable discounts			279,772				25,997
Amortization of debt issuance costs			22,018				1,224
Stock issued for services and losses on debt conversions			106,755				234,165
Stock issued for compensation, related party			144,787				177,243
Options and warrants granted for services			18,413				8,404
Options and warrants granted for services, related party			23,937				16,807
Decrease (increase) in assets:
Accounts receivable			–				(5,760	)
Deferred television costs			–				(162,001	)
Prepaid expenses			(1,685	)			14,957
Increase (decrease) in liabilities:
Deferred revenues			–				112,595
Accounts payable			37,143				9,154
Accrued expenses			35,995				(3,533	)
Net cash used in operating activities			(195,135	)			(273,378	)
Cash flows from investing activities
Proceeds from the sale of fixed assets			–				10,162
Net cash provided by investing activities			–				10,162
Cash flows from financing activities
Proceeds from convertible debentures			223,000				183,000
Repayment of long term debt			(40,000	)			–
Payments on debt issuance costs			(10,000	)			(6,500	)
Proceeds from sale of common stock			21,000				25,000
Proceeds from sale of common stock, related party			–				20,000
Net cash provided by financing activities			194,000				221,500
Net increase (decrease) in cash			(1,135	)			(41,716	)
Cash - beginning			2,076				49,208
Cash - ending		$	941			$	7,492
Supplemental disclosures:
Interest paid		$	751			$	655
Income taxes paid		$	–			$	–
Non-cash investing and financing activities:
Value of debt discounts		$	194,407			$	183,000
Value of shares issued for conversion of debt		$	189,853			$	–
Value of derivative adjustment due to debt conversions		$	294,666			$	–
Cancellation of shares of common stock, 361,765 shares		$	–			$	362

 

 

See accompanying notes to financial statements.

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Note 1 – Basis of Presentation

 

The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

 

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2012 and notes thereto included in the Company's 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

 

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. In addition, the Company had debt instruments that required fair value measurement on a recurring basis.

 

Cost Method of Accounting for Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Statement of Operations. If circumstances suggest that the value of the Investee Company has subsequently recovered, such recovery is not recorded. Impairment analysis on our investments which are accounted for on the cost method of accounting resulted in complete impairment at December 31, 2012.

 

Revenue Recognition

The Company recognizes revenue from its internet television platform from internally generated products and from partnered merchants when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the customers purchase a product or access a web-based video, the product or web-based video has been electronically delivered to the purchaser and payment has been received. At that time, the Company's obligations to the customer is substantially complete. The Company records the net amount it retains from the sale of items from its internet television platform after paying any agreed upon percentage of the purchase price to the featured advertising merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the partnered merchant in the transaction. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Network revenue consists of monthly network broadcast subscription revenue, which is recognized over the period in which the subscription service is available. Broadcast television advertising revenue is recognized when advertisements are aired. Video production revenue is recognized as digital video film is completed and accepted by the customer and collection is reasonably assured.

 

Revenue from the distribution of domestic television series is recognized as earned using the following criteria:

 

·

Persuasive evidence of an arrangement exists;

·

The show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery;

·

The license period has begun and the customer can begin its exploitation, exhibition or sale;

·

The price to the customer is fixed and determinable; and

·

Collectability is reasonably assured.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Due to practical limitations applicable to operating relationships with On-Demand networks, the Company has not considered collectability of advertising or television license revenues to be reasonably assured, and accordingly, the Company has not recognize such revenue unless payment has been received.

 

Audio/Video content licensing revenues were recognized when the underlying royalties from the sales of the related products were earned. The Company recognized minimum revenue guarantees, if any, ratably over the term of the license or as earned royalties based on actual sales of the related products, if greater.

 

Deferred revenues consist of the following at September 30, 2013 and December 31, 2012:

 

		September 30,				December 31,
		2013				2012
Deferred revenues on television pilot episodes		$	135,000			$	135,000
Deferred revenues on audio/video content licensing			–				–
Total deferred revenues		$	135,000			$	135,000

 

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

 

Deferred Television Costs

Deferred television costs as of September 30, 2013, included direct production and development costs stated at the lower of cost or net realizable value based on anticipated revenue. Production overhead is not included as the Company outsources its production costs to third party vendors. Capitalized television production costs for each pilot episode are to be expensed as revenues are recognized upon delivery and acceptance of the completed pilot episodes using the individual-film-forecast-computation method for each television show produced.

 

Deferred television costs consist of the following at September 30, 2013 and December 31, 2012:

 

		September 30,				December 31,
		2013				2012
Development and pre-production costs		$	–			$	–
In-production			68,264				68,264
Post production			48,190				48,190
Total deferred television costs		$	116,454			$	116,454

 

Due to practical limitations applicable to monetizing our developed content over On-Demand networks, the Company has not considered collectability of advertising or television license revenues to be reasonably assured, and accordingly, the Company has expensed production costs related to the development of our On-Demand and internet-based content as incurred.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.

 

In February 2013, FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

-

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

-

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

 

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

 

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

 

 

Note 2 – Going Concern

 

As shown in the accompanying condensed financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of ($23,073,005), and as of September 30, 2013, the Company’s current liabilities exceeded its current assets by $1,654,597 and its total liabilities exceeded its total assets by $1,578,166. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Note 3 – Related Party

 

Officers

On May 1, 2013, the Company’s Board of Directors granted the issuance of 2,000,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $38,000 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company’s Board of Directors granted the issuance of 1,294,066 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $24,587 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company’s Board of Directors granted the issuance of 620,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $31,000 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company’s Board of Directors granted the issuance of 760,000 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $38,000 based on the closing price of the Company’s common stock on the date of grant.

 

Officer compensation expense was $73,265 and $85,450 at September 30, 2013 and 2012, respectively. The balance owed was $62,374 and $29,345 at September 30, 2013 and 2012, respectively.

 

Board of Directors

On May 1, 2013, the Company issued 150,000 shares of restricted common stock as a bonus for board services provided to one of our Directors. The total fair value of the common stock was $2,850 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued another 150,000 shares of restricted common stock as a bonus for board services provided to another one of our Directors. The total fair value of the common stock was $2,850 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company’s Board of Directors granted 300,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $11,048.

 

On January 8, 2013, the Company’s Board of Directors granted 100,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $3,683.

 

On January 8, 2013, the Company’s Board of Directors granted 250,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $9,206.

 

Officer and Director Changes

On January 8, 2013, Mr. Jim Bates was appointed to the Company’s Board of Directors. He subsequently resigned on June 3, 2013.

 

 

Note 4 – Fair Value of Financial Instruments

 

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The Company has convertible notes that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of September 30, 2013 and December 31, 2012:

 

		Fair Value Measurements at September 30, 2013
		Level 1				Level 2				Level 3
Assets
Cash		$	941			$	–			$	–
Total assets			941				–				–
Liabilities
Convertible debentures, net of discounts of $110,227			–				–				115,773
Short term debt			–				35,000				–
Derivative liability			–				–				582,480
Total liabilities			–				35,000				698,253
		$	941			$	(35,000	)		$	(698,253	)

 

		Fair Value Measurements at December 31, 2012
		Level 1				Level 2				Level 3
Assets
Cash		$	2,076			$	–			$	–
Total assets			2,076				–				–
Liabilities
Convertible debentures, net of discounts of $196,092			–				–				19,408
Short term debt			–				35,000				–
Derivative liability			–				–				356,608
Total liabilities			–				35,000				376,016
		$	2,076			$	(35,000	)		$	(376,016	)

 

There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September 30, 2013 or the year ended December 31, 2012.

 

 

Note 5 – Investments

 

On May 11, 2011 we acquired a 10% interest in ICI, and a 10% interest in ICB, Nevada entertainment companies that develop and operate a variety of entertainment shows in the United States, primarily in casinos within Las Vegas, NV and Atlantic City, NJ. We acquired the interests in exchange for $25,499 that was in turn spent on the development of a promotional video that will be distributed on our website. In addition, we agreed to pay a license fee of 20% of the adjusted gross revenues that we earn from the distribution and sales related to the promotional video content. No such revenues have been earned to date.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On November 1, 2012, the Company elected to convert a note receivable of $22,477, consisting of $20,000 of principal and $2,477 of interest receivable in exchange for an additional 7.5% ownership interest in ICI, and 7.5% interest in ICB. The conversion resulted in a total ownership of 17.5% in both entities as of November 1, 2012. Both the investments and the note receivable had been written off as impaired on December 31, 2011 due to valuation and collectability uncertainties, as a result the 17.5% investment in both entities are not on the balance sheets as of September 30, 2013 and December 31, 2012.

 

 

Note 6 – Fixed Assets

 

Fixed assets consist of the following at September 30, 2013 and December 31, 2012, respectively:

 

		September 30,				December 31,
		2013				2012
Office equipment		$	12,898			$	12,898
Website development costs			99,880				99,880
Furniture and fixtures			2,730				2,730
Less accumulated depreciation			(47,014	)			(29,804	)
		$	68,494			$	85,704

 

During the nine months ended September 30, 2012, we realized a gain on the sale of assets in the amount of $5,250 from total proceeds of $10,162 received amongst two individuals for the sale of fixed assets with a combined carrying value of $4,912.

 

Depreciation and amortization expense totaled $17,210 and $17,209 for the nine months ended September 30, 2013 and 2012, respectively.

 

 

Note 7 – Accrued Expenses

 

As of September 30, 2013 and December 31, 2012 accrued expenses included the following:

 

		September 30,				December 31,
		2013				2012
Customer Deposits		$	13,500			$	13,500
Accrued Payroll, Officers			74,837				68,808
Accrued Payroll and Payroll Taxes			148,296				135,234
Accrued Interest			15,448				7,897
		$	252,081			$	225,439

 

 

Note 8 – Convertible Debentures

 

Convertible debentures consist of the following at September 30, 2013 and December 31, 2012, respectively:

 

		September 30,				December 31,
		2013				2012
Unsecured $25,500 convertible promissory note originated on July 30, 2013, carries an 8% interest rate (“Eighth Asher Note”), and matures on May 1, 2014. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to thirty five percent (35%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ninety (90) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $564 and $-0- of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.		$	25,500			$	–

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

 

On June 4, 2013, the Company received net proceeds of $25,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $27,500 (“Second JMJ Note”), which matures on March 12, 2014, as part of a larger financing agreement that enables the Company to draw total proceeds of $400,000 at the discretion of the lender. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty five percent (65%) of the lowest trading price of the Company’s common stock over the twenty five (25) trading days prior to the conversion request date. The note carries a one-time twelve percent (12%) of principal interest charge if the note isn’t repaid within the first ninety (90) days, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company amortized the $2,500 original issuance discount over the life of the loan on the straight line method. The Company recognized an additional $803 and $-0- of interest expense on the discount during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The Company must at all times reserve at least 35 million shares of common stock for potential conversions.			27,500				–
Unsecured $35,000 convertible promissory note originated on May 8, 2013, carries an 8% interest rate (“Seventh Asher Note”), and matures on February 13, 2014. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty eight percent (55%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $1,291 and $-0- of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.			35,000				–
On March 13, 2013, the Company received net proceeds of $55,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $60,500 (“First JMJ Note”), which matures on March 12, 2014, as part of a larger financing agreement that enables the Company to draw total proceeds of $400,000 at the discretion of the lender. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty five percent (65%) of the lowest trading price of the Company’s common stock over the twenty five (25) trading days prior to the conversion request date. The note carries a one-time twelve percent (12%) of principal interest charge if the note isn’t repaid within the first ninety (90) days, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The principal interest charge of $7,260 is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $503 and $-0- of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The Company amortized the $5,500 original issuance discount over the life of the loan on the straight line method. The Company recognized an additional $3,021 and $-0- of interest expense on the discount during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The Company must at all times reserve at least 35 million shares of common stock for potential conversions.			60,500				–
On February 5, 2013, the Company received net proceeds of $5,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $5,500, which matured on March 4, 2013. The principal and interest was convertible into shares of common stock in the event of default at the discretion of the note holder at a price equal to the lesser of sixty percent (60%) of the five (5) day average bid price of the Company’s common stock over the five (5) trading days prior to the conversion request date. The principal and interest was repaid in full prior to maturity on February 23, 2013 out of the proceeds from the Sixth Asher Note described below.			–				–

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

 

Unsecured $42,500 convertible promissory note originated on February 19, 2013, carries an 8% interest rate (“Sixth Asher Note”), and matures on November 21, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty eight percent (55%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $2,027 and $-0- of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.			42,500				–
Unsecured $35,000 convertible promissory note originated on January 11, 2013, carries an 8% interest rate (“Fifth Asher Note”), and matures on September 16, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty eight percent (58%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $2,500 and $-0- of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.			35,000				–
Unsecured $32,500 convertible promissory note carries an 8% interest rate (“Fourth Asher Note”), matures on September 14, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty eight percent (58%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $2,328 and $172 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The note holder elected to convert $15,000 of principal in exchange for 738,916 shares of common stock on June 19, 2013, and $18,300, consisting of $17,500 of principal and $1,300 of accrued interest in exchange for 2,937,500 shares of common stock on August 8, 2013 in complete satisfaction of the debt. The conversions were in accordance with the terms of the note; therefore no gain or loss has been recognized.			–				32,500
On November 6, 2012, the Company received net proceeds of $27,000 in exchange for a non-interest bearing, unsecured convertible promissory note (“Dutchess Capital Note”) with a face value of $35,000 that matures on May 6, 2013. Upon an event of default, the face value is convertible into shares of common stock at the discretion of the note holder at a price equal to, the lesser of either (i) 60% of the lowest closing bid price during the twenty (20) trading days immediately preceding the Notice of Conversion or (ii) seven cents ($0.07) per share. On the ninetieth (90th) day following Closing, the Company shall make mandatory monthly payments to the Holder in the amount of one thousand ($1,000) per month. The Company paid a debt issuance cost of $3,050 and 73,000 shares of restricted stock with a fair market value of $5,110, based on the Company’s closing stock price on the date of grant, and $3,050 in cash. The debt issuance costs were amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $5,787 and $2,373 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The Company amortized the $5,000 original issuance discount over the life of the loan on the straight line method. The Company recognized an additional $3,500 and $1,500 of interest expense on the discount during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The principal and accrued interest was paid in full on March 15, 2012 out of the proceeds from the First JMJ Note and the convertible promissory note was canceled.			–				35,000

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

 

Unsecured $37,500 convertible promissory note carries an 8% interest rate (“Third Asher Note”), matures on June 10, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty five percent (55%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $1,453 and $1,047 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The note holder elected to convert $10,500, $12,000 and $15,000 of principal and $1,500 of accrued interest in exchange for 1,967,213, 1,973,684 and 2,400,000 shares of common stock on March 13, 2013, March 24, 2013 and April 12, 2013, respectively, and the note was converted in complete satisfaction. The conversions were in accordance with the terms of the note; therefore no gain or loss has been recognized.			–				37,500
Unsecured $50,000 convertible promissory note carries an 8% interest rate (“Continental Note”), matures on May 31, 2013. On April 30, 2013, Continental Equities, LLC sold and assigned the remaining principal and accrued interest with all rights and privileges in the original note without recourse to an individual investor who partnered with the Mother of our CEO. The note hereafter shall be referred to as the, (“Roberts Note”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 30% of the average of the three lowest reported daily sale or daily closing bid prices (whichever is the lower) for the Company’s common stock as reported on the OTCQB (or such other OTC Markets or OTC Tiers, stock markets or stock exchange upon which the Company’s common stock is listed or traded) during the thirty (30) trading days immediately preceding the Conversion Date, subject to adjustment as provided herein (including, without limitation, adjustment pursuant to Section 6), or a fixed conversion price of $0.001 per share, whichever is greater. Interest shall be due and payable, in arrears, on the last day of each month while any portion of the Principal Amount remains outstanding. The note carries a twenty two percent (16%) interest rate in the event of default. The Company paid a debt issuance cost of $1,500 that was amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $768 and $732 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The note holder elected to convert $10,000, $5,000, $10,000 and $25,000 of principal and $2,233 of accrued interest in exchange for 925,925, 657,894, 1,250,000 and 6,933,250 shares of common stock on March 1, 2013, March 25, 2013, April 3, 2013 and May 15, 2013, respectively, in accordance with the terms of the note; therefore no gain or loss has been recognized. In addition, 178,571 shares were issued in excess of the conversion terms of the note on April 3, 2013. The fair value of the common stock was $1,625 based on the closing price of the Company’s common stock on the date of grant, and was expensed as a loss on debt conversion.			–				50,000
Unsecured $37,500 convertible promissory note carries an 8% interest rate (“Second Asher Note”), matures on April 12, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $2,500 that was amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $924 and $1,576 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The note holder elected to convert a total of $15,000 of principal in exchange for 914,634 shares of common stock on February 5, 2013, and $22,500 of principal and $1,500 of accrued interest in exchange for 2,162,162 shares of common stock on February 19, 2013, and the note was converted in complete satisfaction. The conversions were in accordance with the terms of the note; therefore no gain or loss has been recognized.			–				37,500

 

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Unsecured $58,000 convertible promissory note carries an 8% interest rate (“First Asher Note”), matures on February 7, 2013. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the three (3) lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $3,000 that was amortized on the straight line method, which approximates the effective interest method, over the life of the loan. The Company recognized $1,435 and $1,565 of interest expense related to these debt issuance costs during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The note holder elected to convert a total of $35,000 of principal in exchange for 1,287,878 shares of common stock during the year ended December 31, 2012. The remaining $23,000 of principal and $2,320 of accrued interest was converted in exchange for 1,233,703 shares of common stock during January of 2012, and the note was converted in complete satisfaction. The conversions were in accordance with the terms of the note; therefore no gain or loss has been recognized.		$	–			$	23,000
Total convertible debentures			226,000				215,500
Less: unamortized debt discounts			(110,227	)			(196,092	)
Convertible debentures		$	115,773			$	19,408

 

In accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total discounts of $185,907 and $255,500 for the variable conversion features of the convertible debts incurred during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively. The discounts, including Original Issue Discounts of $8,500 and $5,000 during the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, are being amortized to interest expense over the term of the debentures using the effective interest method. The Company recorded $279,272 and $25,997 of interest expense pursuant to the amortization of the note discounts during the nine months ended September 30, 2013 and 2012, respectively.

 

The eight “Asher” convertible debentures carry default provisions that place a “maximum share amount” on the note holders. The maximum share amount that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the Company’s issued and outstanding shares.

 

In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued represented embedded derivative features, and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value of the compound embedded derivatives associated with the convertible debentures utilizing a lattice model.

 

 

Note 9 – Investment Agreement with Dutchess Opportunity Fund II, LP

 

On November 7, 2012, the Company entered into an Investment Agreement (“Investment Agreement”) with Dutchess Opportunity Fund, II, LP, a Delaware limited partnership (“Dutchess”), as amended on July 5, 2013. Pursuant to the terms of the Investment Agreement, Dutchess committed to purchase, in a series of purchase transactions (“Puts”), up to eight million five hundred thousand ($8,500,000) dollars of the Company’s common stock over a period of up to thirty-six (36) months from the effective date of the registration statement covering the Equity Line Financing with Dutchess, which was September 26, 2013.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The amount that the Company is entitled to request with each Put delivered to Dutchess is equal to, at its option, either (i) two hundred (200%) percent of the average daily volume (U.S. market only) of its common stock for three (3) trading days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or (ii) fifty thousand ($50,000) dollars. The purchase price to be paid by Dutchess for the shares of the Company’s common stock covered by each Put will be equal to ninety-five (95%) percent of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the period beginning on the Put Notice Date and ending on and including the date that is five (5) trading days after such Put Notice Date (“Pricing Period”). The “Put Notice Date” is the trading day immediately following the day on which Dutchess receives a Put Notice from the Company.

 

For each Put Notice submitted to Dutchess under the Investment Agreement, there is a Suspension Price of $0.01 for that Put. In the event the common stock falls below the Suspension Price, the put shall be temporarily suspended. The Put shall resume at such time as the common stock is above the Suspension Price, provided the dates for the Pricing Period for that particular put are still valid. In the event the Pricing Period has been complete, any shares above the Suspension Price due to Dutchess shall be sold to Dutchess by us at the volume weighted average price under the terms of the Investment Agreement.

 

In conjunction with the Investment Agreement, the Company also entered into a registration rights agreement (“Registration Rights Agreement”) with Dutchess. Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) on September 26, 2013 covering 22,750,000 shares of the Company’s common stock underlying a portion of the Investment Agreement. In addition, during the term of the Registration Rights Agreement, the Company is obligated to maintain the effectiveness of this registration statement, as well as any subsequent registration statements that may be associated with the Investment Agreement and/or Registration Rights Agreement.

 

As of September 30, 2013, the Company had not sold any shares to Dutchess nor received any financing from Dutchess.

 

 

Note 10 – Short Term Debt

 

Short-term debt consists of the following at September 30, 2013 and December 31, 2012, respectively:

 

		September 30,				December 31,
		2013				2012
4% unsecured debenture, due June 7, 2012. Currently in default.		$	35,000			$	35,000

 

Accrued interest on the above promissory note totaled $2,542 and $1,492 at September 30, 2013 and December 31, 2012, respectively.

 

The following presents components of interest expense by instrument type at September 30, 2013 and 2012, respectively:

 

		September 30,				September 30,
		2013				2012
Interest on convertible debentures		$	15,615			$	507
Amortization of discount on convertible debentures			273,251				6,258
Amortization of debt issuance costs			22,018				–
Interest on short term debt			1,050				700
Accounts payable related finance charges			786				437
		$	312,720			$	7,902

 

 

Note 11 – Derivative Liabilities

 

As discussed in Note 8 under Convertible Debentures, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $582,480 and $356,608 at September 30, 2013 and December 31, 2012, respectively. The change in fair value of the derivative liabilities resulted in a loss of $334,631 and $174,860 for the nine months ended September 30, 2013 and 2012, respectively, which has been reported as other income (expense) in the statements of operations. The loss of $334,631 for the nine months ended September 30, 2013 consisted of a loss of $125,158 due to the value in excess of the face value of the convertible notes, a gain of ($13,348) attributable to the fair value of preferred stock, a gain of ($22,191) attributable to the fair value of warrants and a net loss in market value of $245,012 on the convertible notes. The loss of $174,860 for the nine months ended September 30, 2012 consisted of a loss of $142,671 due to the value in excess of the face value of the convertible notes, a loss of $36,738 attributable to the fair value of warrants and a net gain in market value of $(4,549) on the convertible notes.

 

The following presents the derivative liability value by instrument type at September 30, 2013 and December 31, 2012, respectively:

 

		September 30,				December 31,
		2013				2012
Convertible debentures		$	568,769			$	308,065
Common stock warrants			1,330				22,814
Convertible preferred stock			12,381				25,729
		$	582,480			$	356,608

 

The following is a summary of changes in the fair market value of the derivative liability during the nine months ended September 30, 2013 and the year ended December 31, 2012:

 

		Derivative
		Liability
		Total
Balance, December 31, 2011		$	–
Increase in derivative value due to issuances of convertible promissory notes			376,957
Increase in derivative value attributable to tainted warrants			64,230
Change in fair market value of derivative liabilities due to the mark to market adjustment			(26,101	)
Debt conversions			(58,478	)
Balance, December 31, 2012		$	356,608
Increase in derivative value due to issuances of convertible promissory notes			310,358
Increase in derivative value attributable to tainted warrants			707
Change in fair market value of derivative liabilities due to the mark to market adjustment			209,473
Debt conversions			(294,666	)
Balance, September 30, 2013		$	582,480

 

Key inputs and assumptions used to value the convertible debentures and warrants issued during the nine months ended September 30, 2013 and the year ended December 31, 2012:

	—	Stock prices on all measurement dates were based on the fair market value and would fluctuate with projected volatility.
	—	The warrant exercise prices ranged from $0.08 to $1.00, exercisable over 2 to 3 year periods from the grant date.
	—	The holders of the securities would convert monthly to the ownership limit starting at 4.99% increasing by 10% per month.
	—	The holders would automatically convert the note at the maximum of 3 times the conversion price if the Company was not in default.
	—	The monthly trading volume would reflect historical averages and would increase at 1% per month.
	—	The Company would redeem the notes based on availability of alternative financing, increasing 2% monthly to a maximum of 10%.
	—	The holder would automatically convert the note at maturity if the registration was effective and the Company was not in default.
	—	The computed volatility was projected based on historical volatility.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

Note 12 – Changes in Stockholders’ Equity (Deficit)

 

Convertible Preferred Stock

The Company has designated 2,000,000 shares of Series A convertible preferred stock (“Series A”) and 10,873,347 shares of Series B convertible preferred stock (“Series B”), of which 2,000,000 shares and 4,349,339 shares are issued and outstanding, respectively, from the 25,000,000 shares authorized. A total of 12,126,653 shares remain undesignated. The Series A shares carry 25:1 preferential voting rights.

 

No preferred shares were issued during the nine months ended September 30, 2013.

 

Common Stock

The Company amended its Articles of Incorporation on April 29, 2013 to increase the authorized shares of common stock from 150,000,000 shares to 600,000,000 shares, of which 103,103,275 shares were issued and outstanding and 283,121,434 shares were reserved as of September 30, 2013.

 

Common Stock Sales

On August 18, 2013, the Company sold 1,000,000 shares of its common stock for proceeds of $15,000. The shares were subsequently issued on October 11, 2013. As such, $15,000 was presented as a subscriptions payable at September 30, 2013.

 

On July 1, 2013, the Company sold 300,000 shares of its common stock and an equal number of warrants, exercisable at $0.08 per share over an eighteen month period pursuant to a unit offering in exchange for total proceeds of $6,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Common Stock Issuances for Debt Conversions

On August 8, 2013, the Company issued 2,937,500 shares of common stock pursuant to the conversion of $18,800, consisting of $17,500 of outstanding principal and $1,300 of accrued interest, on the Fourth Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On June 19, 2013, the Company issued 738,916 shares of common stock pursuant to the conversion of $15,000 of outstanding principal on the Fourth Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On May 15, 2013, the Company issued 6,933,250 shares of common stock pursuant to the conversion of $27,733, consisting of $25,000 of outstanding principal and $2,733 of accrued interest, on the Roberts Note (formerly the Continental Equities Note). The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 12, 2013, the Company issued 2,400,000 shares of common stock pursuant to the conversion of $12,000, consisting of $10,500 of outstanding principal and $1,500 of accrued interest on the Third Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On April 3, 2013, the Company issued 1,428,571 shares of common stock pursuant to the conversion of $10,000 of outstanding principal on the Continental Equities Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized, other than 178,571 of the shares that were issued in excess of the terms of conversion. As a result, a loss on conversion of $1,625 was recognized.

 

On March 25, 2013, the Company issued 657,894 shares of common stock pursuant to the conversion of $5,000 of outstanding principal on the Continental Equities Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On March 25, 2013, the Company issued 1,973,684 shares of common stock pursuant to the conversion of $15,000 of outstanding principal on the Third Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On March 13, 2013, the Company issued 1,967,213 shares of common stock pursuant to the conversion of $12,000 of outstanding principal on the Third Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On March 1, 2013, the Company issued 925,925 shares of common stock pursuant to the conversion of $10,000 of outstanding principal on the Continental Equities Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On February 19, 2013, the Company issued 2,162,162 shares of common stock pursuant to the conversion of $24,000 of convertible debt, consisting of $22,500 of principal and $1,500 of accrued and unpaid interest, on the Second Asher Note. The note was converted in accordance with the conversion 0terms; therefore no gain or loss has been recognized.

 

On February 5, 2013, the Company issued 914,634 shares of common stock pursuant to the conversion of $15,000 of outstanding principal on the Second Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

On January 16, 2013, the Company issued 516,000 shares of common stock pursuant to the conversion of $10,320 of convertible debt, consisting of $8,000 of principal and $2,320 of accrued and unpaid interest, on the First Asher Note. The note was converted in accordance with the conversion 0terms; therefore no gain or loss has been recognized.

 

On January 2, 2013, the Company issued 717,703 shares of common stock pursuant to the conversion of $15,000 of outstanding principal on the First Asher Note. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

 

Common Stock Issuances for Services

On June 3, 2013, the Company issued 175,000 shares of restricted common stock for administrative services provided by one of our employees. The total fair value of the common stock was $5,250 based on the closing price of the Company’s common stock on the date of grant.

 

On June 3, 2013, the Company issued 1,000,000 shares of restricted common stock for video production services provided by one of our vendors. The total fair value of the common stock was $30,000 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company’s Board of Directors granted the issuance of 2,000,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $38,000 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company’s Board of Directors granted the issuance of 1,294,066 shares of restricted common stock to the Company’s President of Programming as payment on accrued compensation. The total fair value of the common stock was $24,587 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued 150,000 shares of restricted common stock as a bonus for board services provided by one of our Directors. The total fair value of the common stock was $2,850 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued another 150,000 shares of restricted common stock as a bonus for board services provided by another one of our Directors. The total fair value of the common stock was $2,850 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued 675,000 S-8 shares of common stock for professional services provided. The total fair value of the common stock was $12,825 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company granted 150,000 shares of restricted common stock to a consultant for website development services provided. The total fair value of the common stock was $2,850 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company granted 300,000 shares of restricted common stock to a consultant for website development services provided. The total fair value of the common stock was $5,700 based on the closing price of the Company’s common stock on the date of grant.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On May 1, 2013, the Company granted 100,000 shares of restricted common stock to a consultant for business development services provided. The total fair value of the common stock was $1,900 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued 50,000 shares of restricted common stock for consulting services provided by one of our Directors. The total fair value of the common stock was $950 based on the closing price of the Company’s common stock on the date of grant.

 

On May 1, 2013, the Company issued 125,000 shares of restricted common stock for consulting services provided by one of our Directors. The total fair value of the common stock was $2,375 based on the closing price of the Company’s common stock on the date of grant.

 

On March 13, 2013, the Company issued 600,000 S-8 shares of common stock for professional services provided. The total fair value of the common stock was $13,200 based on the closing price of the Company’s common stock on the date of grant.

 

On February 19, 2013, the Company granted 200,000 shares of restricted common stock to a consultant for website development services provided. The total fair value of the common stock was $4,400 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company issued 300,000 S-8 shares of common stock for professional services provided. The total fair value of the common stock was $15,000 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company granted 50,000 shares of restricted common stock to a consultant for video production services provided. The total fair value of the common stock was $2,500 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company granted 50,000 shares of restricted common stock to a consultant for Information Technology services provided. The total fair value of the common stock was $2,500 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company issued 150,000 shares of restricted common stock for consulting services provided by one of our Directors. The total fair value of the common stock was $7,500 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company issued 620,000 shares of common stock to its CEO for unpaid compensation. The total fair value of the common stock was $31,000 based on the closing price of the Company’s common stock on the date of grant.

 

On January 8, 2013, the Company issued 760,000 shares of common stock to its President of Programming for unpaid compensation. The total fair value of the common stock was $38,000 based on the closing price of the Company’s common stock on the date of grant.

 

On January 7, 2013, the Company issued 142,000 shares of restricted common stock for professional services provided. The total fair value of the common stock was $5,680 based on the closing price of the Company’s common stock on the date of grant.

 

 

Note 13 – Warrants and Options

 

Options Granted

On January 8, 2013, the Company’s Board of Directors granted 300,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $11,048.

 

On January 8, 2013, the Company’s Board of Directors granted 100,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $3,683.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

On January 8, 2013, the Company’s Board of Directors granted 250,000 fully vested common stock options as compensation for service on the Board of Directors in 2013 to one of its directors. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $9,206.

 

On January 8, 2013, the Company’s Board of Directors granted 500,000 fully vested common stock options as compensation for services to a consultant. The options are exercisable until January 8, 2017 at an exercise price of $0.08 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 177% and a call option value of $0.0368, was $18,413.

 

Warrants Granted

On July 1, 2013, the Company sold 300,000 shares of its common stock and an equal number of warrants, exercisable at $0.08 per share over an eighteen month period pursuant to a unit offering in exchange for total proceeds of $6,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

Options Expired

On August 28, 2013, a total of 1,800,000 options amongst three option holders expired.

 

On August 26, 2013, a total of 150,000 options amongst three option holders expired.

 

On March 1, 2013, a total of 375,000 options amongst four option holders expired.

 

On January 9, 2013, a total of 750,000 options amongst five option holders expired.

 

Warrants Expired

On September 27, 2013, a total of 35,000 warrants expired.

 

On August 31, 2013, a total of 240,000 warrants expired.

 

On various dates between April 1, 2013 and June 10, 2013, a total of 1,360,000 warrants expired.

 

On various dates between March 1, 2013 and March 23, 2013, a total of 1,400,000 warrants expired.

 

Options and Warrants Exercised

No options or warrants were exercised during the nine months ended September 30, 2013.

 

 

Note 14 – Income Taxes

 

The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

 

For the nine months ended September 30, 2013 and the year ended December 31, 2012, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At September 30, 2013, the Company had approximately $14,821,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.

 

Players Network

Notes to Condensed Financial Statements

(Unaudited)

 

The components of the Company’s deferred tax asset are as follows:

 

		September 30,				December 31,
		2013				2012
Deferred tax assets:
Net operating loss carry forwards		$	5,187,350			$	4,515,000
Net deferred tax assets before valuation allowance			5,187,350				4,515,000
Less: Valuation allowance			(5,187,350	)			(4,515,000	)
Net deferred tax assets		$	–			$	–

 

Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at September 30, 2013 and December 31, 2012, respectively.

 

A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:

 

		September 30,				December 31,
		2013				2012
Federal and state statutory rate			35%				35%
Change in valuation allowance on deferred tax assets			(35%	)			(35%	)

 

In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.

 

 

Note 15 – Subsequent Events

 

Convertible Debentures

On October 28, 2013, the Company issued a $12,500 convertible promissory note to Asher Enterprises, Inc. in exchange for net proceeds of $11,500. The unsecured $12,500 convertible promissory note originated on October 28, 2013, carries an 8% interest rate (“Ninth Asher Note”), and matures on July 30, 2014. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to thirty one percent (31%) of the average of the lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid a debt issuance cost of $1,000 that is being amortized on the straight line method, which approximates the effective interest method, over the life of the loan.

 

Common Stock Issuances

On October 11, 2013, the Company issued 1,000,000 shares of its common stock in settlement of a subscriptions payable for shares of stock that were sold on August 18, 2013 in exchange for proceeds of $15,000.

 

On October 2, 2013, the Company’s Board of Directors granted the issuance of 7,300,000 shares of restricted common stock to the Company’s CEO as payment on accrued compensation. The total fair value of the common stock was $80,300 based on the closing price of the Company’s common stock on the date of grant.

 

On October 2, 2013, the Company issued 750,000 shares of restricted common stock for administrative services provided by one of our employees. The total fair value of the common stock was $8,250 based on the closing price of the Company’s common stock on the date of grant.

 

On October 2, 2013, the Company issued 500,000 shares of restricted common stock for professional services provided. The total fair value of the common stock was $5,500 based on the closing price of the Company’s common stock on the date of grant.

 

On October 2, 2013, the Company issued 1,100,000 shares of restricted common stock for video production services provided by one of our vendors. The total fair value of the common stock was $12,100 based on the closing price of the Company’s common stock on the date of grant.

 

On October 2, 2013, the Company issued 250,000 shares of restricted common stock for consulting services provided. The total fair value of the common stock was $2,750 based on the closing price of the Company’s common stock on the date of grant.

 

On October 2, 2013, the Company issued 250,000 shares of restricted common stock for professional services provided. The total fair value of the common stock was $2,750 based on the closing price of the Company’s common stock on the date of grant.

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview and Outlook

 

Players Network is a media and entertainment company engaged in the development of Digital Networks. We distribute broadband video and other social media content over a wide variety of internet enabled devices and cable television channels. The Company has launched its proprietary scalable technology platform. The platform is designed to deliver video content and develop digital social communities, including “Vegas On Demand TV”, which is our first digital branded network that was in development during 2012. We are currently in the process of finalizing enhancements and plan to re-launch the platform during the third quarter of 2013.

 

The Company operates a Video On Demand (“VOD”) television channel, also named Vegas On Demand, which consists of original programming that is distributed over its own VOD channels to approximately 24,000,000 homes over the internet with distribution partners that include, Comcast, Hulu, Blinkx, Google, and YouTube Video, for DVD home video, and various mobile platforms. Players Network has a fourteen year history of providing consumers with quality ‘Gaming and Las Vegas Lifestyle’ video content.

 

Vegas On Demand TV offers its audience the ability to connect to Vegas Insiders through unique, high-quality programming that captures the excitement, sex appeal, entertainment, and the non-stop adrenaline rush of the Las Vegas gaming lifestyle. Players Network’s content goes beyond poker, casino action, sports betting, and racing, to lifestyle programs about entertainment and fine living that attract young and sophisticated viewers that comprise the major digital media demographic. Whenever possible our content incorporates an expert, insider or celebrity within the Vegas community in order to enhance promotional merchandising to prospective customers.

 

The Company plans to use both its platform and original branded programming and events as a means to develop additional revenue streams, as well as marketing and membership benefits of our social media platform. These revenue streams include branded entertainment, sponsorships for events, and media placement, third party commissions for video and banner advertisements, merchandise and production sales and services.

 

Players Network has addressed the digital market in an effort to grow as a New Media Company using “Vegas On Demand”, its flagship Branded Television Channel Destination, it use its scalable, custom Enterprise Web Platform to host “Vegas On Demand”, which can also be replicated to launch thousands of Channel Destinations in any Lifestyle Category, for any Lifestyle Brand.

 

PNTV’s Enterprise Platform efficiently deploys, manages and distributes videos with integrated revenue-generating tools that go beyond traditional advertising. On our Platform, the viewer of a video is brought into a web environment encompassing that video’s lifestyle, where they are presented with Membership, Merchandising, Couponing, Subscription, Loyalty Programs, Contest and other Marketing opportunities, including the integration of Live Events. The Platform also integrates Branded Sponsorships, and a game-like Virtual Economy supported by our Cost Per Action Advertising network.

 

PNTV’s next-generation Media Network operates across all distribution platforms from TV screens to mobile devices, gaming consoles, computers and tablets. We have positioned ourselves to provide companies with an affordable, turnkey, integrated solution that creates bookable revenue while generating net profits. We have not yet generated revenues from our Platform, but plan to market our services to companies in 2012 that can make their initial investment using a small portion of their existing marketing budget.

 

By providing companies and Lifestyle Brands with their own Channel Destination on our Enterprise Web Platform and offering our Media and Production expertise, we plan to provide an integrated Media, Marketing and Merchandising solution that aims to save our customers significant time and money that would need to be incurred to replicate equivalent services.

 

We have also leveraged our existing library of original content, and distribution network, to build this infrastructure hub and launch our initial digital Lifestyle Network: “VegasOnDemand.tv”.

 

Through the cross-promotional integration of Sponsored Live Events, Contests and Media creation and distribution, PNTV’s Platform can deliver a targeted audience that can be monetized in multiple ways. The Platform is a Revenue Engine that grows as audience and page views increase. The Platform also provides a self-perpetuating aggregation juncture where Las Vegas businesses and “Insiders” can connect socially with their audience/customer and generate shared revenues.

 

The ability to Monetize Video in so many ways, coupled with an efficient, easy-to-use technical and administrative back-end dashboard, is a powerful feature of PNTV’s Platform. It allows the creation of unlimited, new Channel Destinations using our scalable Content Management System (“CMS”) framework, with cost-competitive operations. Importantly, it allows Content Management by administrative and editorial level employees without the expense of having a full-time technical engineering staff in-house.

 

The Company’s platform has two main membership categories: 1) the Consumer/User who visits our digital communities and partakes in viewing ad-supported and pay-per-view premium videos, purchases products and connects with “Insiders”, who are our 2) Premium Members.

 

Premium Members must be industry Insiders and/or experts in their Lifestyle category. For example, with regard to Vegas On Demand, Insiders are designed to be the who’s-who of Vegas: Entertainers, Nightclub Promoters, Casino Hosts, famous Chefs, etc. who offer our Members deals on transactions connected to their sphere of influence. Deals may include being invited to a special VIP Event, Line Passes, two-for-one offers, PPV Video discounts, etc.

 

Transactions can be purchased using credit cards, or our incentivized Virtual Economy. When using our Virtual Economy, we set the value of the goods and services that are redeemed through a Points (Virtual Currency) System. Points can be bought or earned using our CPA Ad Network. Our Virtual Economy allows the Company to realize revenue every time Points are earned, as well as every time Points are redeemed.

 

On May 11, 2011, we acquired a 10% interest in iCandy, Inc. (“ICI”), and a 10% interest in iCandy Burlesque, Inc. (“ICB”), Nevada entertainment companies that develop and operate a variety of entertainment shows in the United States, primarily in casinos within Las Vegas, NV and Atlantic City, NJ. We agreed to pay a license fee of 20% of the adjusted gross revenues that we earn from the distribution and sales related to the promotional video content. No such revenues have been earned to date. On November 1, 2012, the Company elected to convert a note receivable of $22,477, consisting of $20,000 of principal and $2,477 of interest receivable in exchange for an additional 7.5% ownership interest in ICI, and 7.5% interest in ICB. The conversion resulted in a total ownership of 17.5% in both entities as of November 1, 2012. Both the investments and the note receivable had been written off as impaired at December 31, 2011 due to valuation and collectability uncertainties, as a result the 17.5% investment in both entities are not on the balance sheets as of September 30, 2013 and December 31, 2012.

 

In December of 2011, the Company signed an agreement with J&H Productions to produce a series of three reality shows centered on a family that is in the Las Vegas nightlife and night club business. The agreement also provides for the production of forty short video segments to be used to develop a new branded Channel Destination using the Company’s scalable platform. Capitalized television production costs for each pilot episode are to be expensed as revenues are recognized upon delivery and acceptance of the completed pilot episodes using the individual-film-forecast-computation method for each television show produced. We plan to complete the final two pilot episodes during 2013.

 

As we continue to expand our business and implement our business strategy, our current monthly cash flow requirements will exceed our near term cash flow from operations. Our available cash resources and anticipated cash flow from operations are insufficient to satisfy our anticipated costs associated with new product development. There can be no assurance that we will be able to generate sufficient cash from operations in future periods to satisfy our capital requirements. Therefore, we will have to continue to rely on external financing activities, including the sale of our equity securities, to satisfy our capital requirements for the foreseeable future. Due, in part, to our lack of historical earnings, our prior success in attracting additional funding has been limited to transactions in which our equity is used as currency. Equity financings of the type we have had to pursue are dilutive to our stockholders and may adversely impact the market price for our shares. However, we have no commitments for borrowings or additional sales of equity, the precise terms upon which we may be able to attract additional funding is not known at this time, and there can be no assurance that we will be successful in consummating any such future financing transactions on terms satisfactory to us, or at all.

 

 

 

Results of Operations for the Three Months Ended September 30, 2013 and 2012:

 

		For the Three
		Months Ended
		September 30,								Increase /
		2013				2012				(Decrease)
Revenues		$	286			$	11,254			$	(10,968	)
Direct operating costs			4,843				46,302				(41,459	)
General and administrative			40,386				94,550				(54,164	)
Salaries and wages			65,992				105,099				(39,107	)
Bad debts expense (recoveries)			–				(10,000	)			(10,000	)
Depreciation and amortization			5,737				5,736				1
Total Operating Expenses			116,958				241,687				(124,729	)
Net Operating Loss			(116,672	)			(230,433	)			(113,761	)
Total other income (expense)			(222,874	)			(1,833	)			221,041
Net (Loss)		$	(339,546	)		$	(232,266	)		$	107,280

 

Revenues:

 

During the three months ended September 30, 2013 and 2012, we received revenues primarily from licensing fees from our private networks, including the sale of in-home media and advertising fees, and production revenues, which included fees from third party programming production. Aggregate revenues for the three months ended September 30, 2013 were $286 compared to revenues of $11,254 in the three months ended September 30, 2012, a decrease in revenues of $10,968, or 97%. Revenues from networks were down 97%, or $10,968 in the three months ended September 30, 2013 compared to 2012, due to decreased revenues from the termination of a license agreement that previously enabled us to distribute our content to a Company in Greece. We didn’t realize production revenues also in the three months ended September 30, 2013, or 2012. Our revenues have been dramatically reduced as we have focused entirely on building and expanding our technology and revenues for the future, primarily through the development of a new internet based technology platform that was launched in October of 2011, and is in the process of being enhanced and redeployed in 2013.

 

Direct Operating Costs:

 

Direct operating costs were $4,843 for the three months ended September 30, 2013 compared to $46,302 for the three months ended September 30, 2012, a decrease of $41,459, or 90%. Our direct operating costs decreased due to our decreased website development costs as we shifted our focus to the development of our internet based technology platform that was launched to expand our distribution through new media channels, which was substantially completed during the period, however, our lack of resources has delayed the re-launch.

 

General and Administrative:

 

General and administrative expenses were $40,386 for the three months ended September 30, 2013 compared to $94,550 for the three months ended September 30, 2012, a decrease of $(54,164), or 57%. General and administrative expense decreased primarily due to decreased rent and professional fees incurred during the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

 

Salaries and Wages:

 

Salaries and wages expense totaled $65,992 for the three months ended September 30, 2013 compared to $105,099 for the three months ended September 30, 2012, a decrease of $39,107, or 37%. The decrease in salaries and wages was primarily due to staffing reductions due to our diminished resources during the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

 

Bad Debts Expense (Recoveries):

 

Bad debts expense (recoveries) was $-0- for the three months ended September 30, 2013 compared to $(10,000) for the three months ended September 30, 2012, a decrease of $10,000. The decrease was due to changes in the allowance for doubtful accounts.

 

Depreciation and Amortization:

 

Depreciation and amortization expense was $5,737 for the three months ended September 30, 2013 compared to $5,736 for the three months ended September 30, 2012.

 

Net Operating Loss:

 

Net operating loss for the three months ended September 30, 2013 was $116,672, or ($0.00) per share compared to a net operating loss of $230,433 for the three months ended September 30, 2012, or ($0.00) per share, a decrease of $113,761, or 49%. Net operating loss decreased primarily due to a reduction in revenues and decreased general and administrative and salaries and wages expenses for the three months ended September 30, 2013 compared to the same period in 2012, as our resources were insufficient to maintain our previous level of operations. We decreased production and overhead as we focused our limited resources on raising capital to fund our newly created and revamped websites that will be used to expand our distribution through new media channels.

 

Other Income (Expense):

 

Other income (expense) was $(222,874) for the three months ended September 30, 2013 compared to $(221,041) for the three months ended September 30, 2012, an increase of $221,041, or 12,059%. Other expense increased on a net basis primarily due to the amortization of debt discounts related to our convertible debentures recognized during the three months ended September 30, 2013 that were not recognized during the three months ended September 30, 2012.

 

Net Loss:

 

The net loss for the three months ended September 30, 2013 was $339,546, or ($0.00) per share, compared to a net loss of $232,266, or ($0.00) per share, for the three months ended September 30, 2012, a decreased net loss of $107,280. Net loss decreased primarily as a result of our decreased direct operating costs, salaries and general operating expenses and increased amortization of debt discounts related to convertible debts, as offset by decreased revenues incurred during the three months ended September 30, 2013, compared to the same period in 2012.

 

 

 

Results of Operations for the Nine Months Ended September 30, 2013 and 2012:

 

		For the Nine
		Months Ended
		September 30,								Increase /
		2013				2012				(Decrease)
Revenues		$	1,365			$	41,953			$	(40,588	)
Direct operating costs			82,112				95,678				(13,566	)
General and administrative			263,646				324,697				(61,051	)
Salaries and wages			203,532				315,692				(112,160	)
Bad debts expense (recoveries)			–				(240	)			(240	)
Depreciation and amortization			17,210				17,209				1
Total Operating Expenses			566,500				753,036				(186,536	)
Net Operating Loss			(565,135	)			(711,083	)			(145,948	)
Total other income (expense)			(648,976	)			(178,126	)			470,850
Net (Loss)		$	(1,214,111	)		$	(889,209	)		$	324,902

 

Revenues:

 

During the nine months ended September 30, 2013 and 2012, we received revenues primarily from licensing fees from our private networks, including the sale of in-home media and advertising fees, and production revenues, which included fees from third party programming production. Aggregate revenues for the nine months ended September 30, 2013 were $1,365 compared to revenues of $41,953 in the nine months ended September 30, 2012, a decrease in revenues of $40,588, or 97%. Revenues from networks were down 2,504%, or $34,175 in the nine months ended September 30, 2013 compared to 2012, due to decreased revenues from the termination of a license agreement that previously enabled us to distribute our content to a Company in Greece. Production revenues also decreased by 100%, or $6,413 in the nine months ended September 30, 2013 compared to 2012, due to our current inability to complete the last two episodes of a six episode pilot that was commissioned. We expect to complete post production and deliver the remaining two episodes in 2013 as funds become available. The completion of these pilots will enable us to recognize the remaining $135,000 of deferred revenue currently on our balance sheet. Our revenues have been dramatically reduced as we have focused entirely on building and expanding our technology and revenues for the future, primarily through the development of a new internet based technology platform that was launched in October of 2011, and is in the process of being enhanced and redeployed in 2013.

 

Direct Operating Costs:

 

Direct operating costs were $82,112 for the nine months ended September 30, 2013 compared to $95,678 for the nine months ended September 30, 2012, a decrease of $13,566, or 14%. Our direct operating costs decreased primarily due to our decreased website development costs as resources were limited.

 

General and Administrative:

 

General and administrative expenses were $263,646 for the nine months ended September 30, 2013 compared to $324,697 for the nine months ended September 30, 2012, a decrease of $61,051, or 19%. General and administrative expense decreased primarily due to rent reductions and decreased professional fees during the nine months ended September 30, 2013 compared to the nine months ending September 30, 2012.

 

Bad Debts Expense (Recoveries):

 

Bad debts expense (recoveries) was $-0- for the nine months ended September 30, 2013 compared to $(240) for the nine months ended September 30, 2012, a decrease of $240. The decrease was due to changes in the allowance for doubtful accounts.

 

Salaries and Wages:

 

Salaries and wages expense totaled $203,532 for the nine months ended September 30, 2013 compared to $315,692 for the nine months ended September 30, 2012, a decrease of $112,160, or 36%. The decrease in salaries and wages was primarily due to staffing reductions during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.

 

Depreciation and Amortization:

 

Depreciation and amortization expense was $17,210 for the nine months ended September 30, 2013 compared to $17,209 for the nine months ended September 30, 2012.

 

Net Operating Loss:

 

Net operating loss for the nine months ended September 30, 2013 was $565,135, or ($0.01) per share compared to a net operating loss of $711,083 for the nine months ended September 30, 2012, or ($0.01) per share, a decrease of $145,948, or 21%. Net operating loss decreased primarily due to decreased direct operating costs, rent and overhead and salaries and wages expenses, as offset by decreased revenues, for the nine months ended September 30, 2013 compared to the same period in 2012, as our resources were insufficient to maintain our previous level of operations. We decreased production during the nine months ended September 30, 2013 to focus on raising capital in order to redeploy our internet based technology platform.

 

Other Income (Expense):

 

Other income (expense) was $(648,976) for the nine months ended September 30, 2013 compared to $(178,126) for the nine months ended September 30, 2012, an increase of $470,850, or 264%. Other expense, on a net basis, increased primarily due to the amortization of debt discounts related to our convertible debentures recognized during the nine months ended September 30, 2013 that were not recognized during the nine months ended September 30, 2012.

 

Net Loss:

 

The net loss for the nine months ended September 30, 2013 was $1,214,111, or ($0.01) per share, compared to a net loss of $889,209, or ($0.01) per share, for the nine months ended September 30, 2012, an increased net loss of $324,902, or 37%. Net loss increased primarily as a result of our decreased revenues, and increased amortization of debt discounts related to convertible debts, as offset by reductions in salaries and wages and operating costs incurred during the nine months ended September 30, 2013, compared to the same period in 2012.

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total assets, accumulated deficit, stockholders’ equity and working capital at September 30, 2013 compared to December 31, 2012.

 

		September 30,				December 31,				Increase /
		2013				2012				(Decrease)
Total Assets		$	195,896			$	217,314			$	(21,418	)
Accumulated (Deficit)		$	(23,703,005	)		$	(21,858,894	)		$	1,214,111
Stockholders’ Equity (Deficit)		$	(1,578,166	)		$	(1,163,466	)		$	414,700
Working Capital (Deficit)		$	(1,654,597	)		$	(1,261,865	)		$	392,732

 

Our principal source of operating capital has been provided from private sales of our common stock, revenues from operations, and debt and equity financings. At September 30, 2013, we had a negative working capital position of $1,654,597.

 

Debt Financing

During the nine months ended September 30, 2013, we received a total of $223,000 in exchange for a total of seven convertible debentures. The convertible debentures mature on various dates through May 1, 2014 and are convertible into shares of common stock at various conversion rates ranging from thirty five percent (35%) of the average of the lowest closing bid prices to seventy percent (70%) of the average of the three lowest reported daily sale or daily closing bid prices (whichever is the lower) of the Company’s common stock for the ten (10) trading days prior to the conversion date.

 

We have utilized these funds to repay $40,000 of previously issued convertible debentures, comply with our regulatory reporting requirements, and to expand our media distribution platforms and to continue production of original programming for our own distribution platforms, as well as our expanding distribution network. Although our revenues are expected to grow as we expand our operations, our revenues are not expected to exceed our investment and operating costs in the next twelve months, and we do not have funds sufficient to fund our operations at their current level for the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions in our industry, effectively monitor and manage our claims for payments that are owed to us, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

 

To conserve on the Company's capital requirements, the Company has issued shares in lieu of cash payments to outside consultants, and the Company expects to continue this practice. In the nine months ended September 30, 2013, the Company granted a total of 9,041,066 shares of common stock valued at $249,917 in lieu of cash payments to employees and outside consultants, compared to the issuance of 6,155,754 shares of common stock valued at $436,618 in lieu of cash payments to employees and outside consultants during the nine months ending September 30, 2012. The Company is not now in a position to determine an approximate number of shares that the Company may issue for the preceding purpose in the remainder of 2013.

 

 

During the nine months ended September 30, 2013, we issued a total of 24,273,452 pursuant to the conversion of $191,478 of indebtedness on convertible debentures, including $9,353 of accrued interest and a loss on conversion of $1,625. The conversion prices of a total of $446,500 in convertible notes (principal only) sold between May 3, 2012 and July 30, 2013, of which $180,500 was converted, $40,000 was repaid in cash and $226,000 remains outstanding as of September 30, 2013, is convertible at various hypothetical prices discounted to market as depicted in the table below:

 

								Potential issuable shares at various conversion prices
								below the most recent market price of $0.01 per share
Lender /		Conversion		Principal				100%				75%				50%				25%
Origination		Terms		Borrowed				$0.01				$0.0075				$0.0050				$0.0025
Asher Enterprises, Inc. (Fifth Asher Note) January 11, 2013		Convertible into 58% of the average of the three lowest bid prices over the 10 days prior to the conversion request. Interest rate of 8% with a 22% default rate.		$	35,000				3,500,000				4,666,667				7,000,000				14,000,000
Asher Enterprises, Inc. (Sixth Asher Note) February 19, 2013		Convertible into 55% of the average of the three lowest bid prices over the 10 days prior to the conversion request. Interest rate of 8% with a 22% default rate.		$	42,500				4,250,000				5,666,667				8,500,000				17,000,000
JMJ Financial (First JMJ Note) March 13, 2013		Convertible into 65% of the average of the lowest trading price over the 25 days prior to the conversion request. Interest rate of 10%.		$	60,500				6,050,000				8,066,667				12,100,000				24,200,000
Asher Enterprises, Inc. (Seventh Asher Note) May 8, 2013		Convertible into 55% of the average of the three lowest bid prices over the 10 days prior to the conversion request. Interest rate of 8% with a 22% default rate.		$	35,000				3,500,000				4,666,667				7,000,000				14,000,000
JMJ Financial (Second JMJ Note) June 4, 2013		Convertible into 65% of the average of the lowest trading price over the 25 days prior to the conversion request. Interest rate of 10%.		$	27,500				2,750,000				3,666,667				5,500,000				11,000,000
Asher Enterprises, Inc. (Eighth Asher Note) July 30, 2013		Convertible into 35% of the average of the lowest bid prices over the 90 days prior to the conversion request. Interest rate of 8% with a 22% default rate.		$	25,500				2,550,000				3,400,000				5,100,000				10,200,000
				$	226,000				22,600,000				30,133,333				45,200,000				90,400,000

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

 

Not applicable.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, whom are one in the same, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(e)). Based upon that evaluation, our principal executive officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer, as appropriate to allow timely decisions regarding required disclosure.

 

Inherent Limitations of Internal Controls

Our Principal Executive Officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, other than those stated above, during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

 

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The following sales of equity securities by the Company occurred during the three month period ended September 30, 2013:

 

Common Stock Sales

On July 1, 2013, the Company sold 300,000 shares of its common stock and an equal number of warrants, exercisable at $0.08 per share over an eighteen month period pursuant to a unit offering in exchange for total proceeds of $6,000. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, the investor was accredited, and there was no solicitation in connection with the offering.

 

Common Stock Issuances for Debt Conversions

On August 8, 2013, the Company issued 2,937,500 shares of common stock pursuant to the conversion of $18,800, consisting of $17,500 of outstanding principal and $1,300 of accrued interest, on the Fourth Asher Note. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits

 

3.1	Certificate of Amendment of Articles of Incorporation Increasing the Authorized Stock filed with the Nevada Secretary of State on May 6, 2013 (incorporated by reference to Exhibit 3.5 of the Form 10-Q filed with the Securities and Exchange Commission by Players Network on May 13, 2013)
10.1*	Convertible Promissory Note with Asher Enterprises, Inc. (Eighth Asher Note), July 30, 2013
10.2*	Securities Purchase Agreement with Asher Enterprises, Inc. (Eighth Asher Note), July 30, 2013
10.3	Amendment to Investment Agreement by and between Players Network and Dutchess Opportunity Fund II, LP dated July 8, 2013 (incorporated by reference to Exhibit 10.19 of the Form S-1 filed with the Securities and Exchange Commission by Players Network on July 24, 2013)
10.4*	Subscription Agreement (John David Roberts), July 1, 2013
10.5*	Warrant Agreement (John David Roberts), July 1, 2013
10.6*	Subscription Agreement (Ralph Senensky), August 18, 2013
31.1*	Certification of Mark Bradley, CEO and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1*	Certification of Mark Bradley, CEO and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Labels Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

________

* Filed herewith

 

 

SIGNATURES

 

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

 

 

Date: November 19, 2013
	Players Network
	/s/ Mark Bradley
	Mark Bradley
	Chief Executive Officer
	(Principal Executive Officer and Principal Financial Officer)