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EX-10.2 - ZUORA AGREEMENT - CUR MEDIA, INC.curm_ex102.htm
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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended: September 30, 2014

 

or

 

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

 

For the transition period from ___________ to___________

 

Commission file number: 333-183760

 

CÜR MEDIA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

99-0375741

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

2217 New London Turnpike

South Glastonbury, CT 06073

(Address of principal executive offices)

 

(860) 430-1520

(Registrant’s telephone number, including area code)

 

N/A 

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

 

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

 

(Note: The registrant is a voluntary filer of reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed during the preceding 12 months all reports it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant had been subject to one of such Sections.)

 

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.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

   

 

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

 

As of November 14, 2014, there were 24,829,363 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 

CÜR MEDIA, INC.

 

FORM 10-Q 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

 

TABLE OF CONTENTS

 

    PAGE  
     

PART I – FINANCIAL INFORMATION

       

Item 1.

Financial Statements (Unaudited)

   

4

 
       

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   

21

 
       

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

   

29

 
       

Item 4.

Controls and Procedures

   

29

 
       

PART II – OTHER INFORMATION

       

Item 1.

Legal Proceedings

   

30

 
       

Item 1A.

Risk Factors

   

30

 
       

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

   

30

 
       

Item 3.

Defaults Upon Senior Securities

   

30

 
       

Item 4.

Mine Safety Disclosures

   

30

 
       

Item 5.

Other Information

   

31

 
       

Item 6.

Exhibits

   

32

 
       
SIGNATURES    

33

 

  

 
2

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include, among others, those statements including the words “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans” and words of similar import. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions and the following: 

  • Changes in the political and regulatory environment and in business and fiscal conditions in the United States and overseas;
  • Our ability to attract and retain management with experience in digital media including digital music streaming, and similar emerging technologies;
  • Our ability to negotiate an economically feasible agreement with the major and independent music labels and publisher rights organizations;
  • Our expectations regarding market acceptance of our products in general, and our ability to penetrate the digital music streaming market in particular;
  • The scope, validity and enforceability of our third party intellectual property rights;
  • Our ability to comply with governmental regulation;
  • Our ability to raise capital when needed and on acceptable terms and conditions; and
  • The intensity of competition.  

A description of these and other risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in the Annual Report on Form 10-K we filed with the SEC on March 31, 2014. The risks and uncertainties described under “Risk Factors” are not exhaustive.

 

Given these uncertainties, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

 

All references in this Quarterly Report to the “Company”, “CÜR Media”, “we”, “us”, or “our”, are to CÜR Media, Inc. (formerly known as Duane Street Corp.).

 

 
3

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Amendment No. 2 to the Current Report on Form 8-K we filed with the SEC on April 23, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

 
4

   

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

    Page  

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited)

 

6

 
       

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)

   

7

 
       

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)

   

8

 
       

Notes to Unaudited Condensed Consolidated Financial Statements

   

9

 

  

 
5

 

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

  

    September 30,     December 31,  
    2014     2013  

ASSETS

         

CURRENT ASSETS

       

Cash and Cash Equivalents

 

$

4,540,692

   

$

0

 

Prepaid Expenses

   

2,301

     

27,835

 

Other Current Assets

   

3,382

     

3,000

 

TOTAL CURRENT ASSETS

   

4,546,375

     

30,835

 
               

Property and Equipment, net

   

51,676

     

3,545

 
               

TOTAL ASSETS

 

$

4,598,051

   

$

34,380

 
               

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

               

CURRENT LIABILIITES

               

Accounts Payable

 

$

203,379

   

$

170,838

 

Accrued Liabilities and Other Current Liabilities

   

80,171

     

236,426

 

Note Payable, Short-Term

   

26,106

     

175,000

 

Derivative Liability

   

4,029,967

     

-

 

 

 

 

TOTAL CURRENT LIABILITIES

   

4,339,623

     

582,264

 
               

Notes Payable, Long-Term

   

40,897

     

62,755

 

TOTAL LONG TERM LIABILITIES

   

40,897

     

62,755

 
               

TOTAL LIABILITIES

   

4,380,520

     

645,019

 
               

STOCKHOLDERS' EQUITY (DEFICIENCY)

               

Preferred Stock (.0001 par value, 10,000,000 shares authorized, none issued or outstanding as of September 30, 2014 or December 31, 2013)

   

-

     

-

 

Common Stock (.0001 par value, 300,000,000 shares authorized, 24,829,363 and 13,114,032 issued at September 30, 2014 and December 31, 2013, respectively and 25,063,323 and 13,335,890 outstanding at September 30, 2014 and December 31, 2013, respectively)

   

2,483

     

1,311

 

Additional Paid-In-Capital

   

5,040,158

     

4,924,194

 

Accumulated Deficit

 

(4,825,110

)

 

(5,536,144

)

TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)

   

217,531

   

(610,639

)

               

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

 

$

4,598,051

   

$

34,380

 

   

See accompanying notes to condensed consolidated financial statements.

 

 
6

  

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

  

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
                 

REVENUES

 

$

-

   

$

-

   

$

-

   

$

-

 
                               

OPERATING EXPENSES

                               

Research and Development

   

1,115,554

     

110,937

     

2,732,997

     

641,311

 

General and administrative

   

530,972

     

15,478

     

964,307

     

52,580

 

Stock based Compensation

   

107,443

     

16,638

     

1,620,736

     

64,265

 

Depreciation and amortization

   

9,220

     

539

     

16,712

     

3,860

 
                               

TOTAL OPERATING EXPENSES

   

1,763,189

     

143,592

     

5,334,752

     

762,016

 
                               

OTHER INCOME (EXPENSE)

                               

Interest Expense

 

(448

)

 

(5,910

)

 

(5,282

)

 

(16,873

)

Interest Income

   

3,000

     

2

     

5,554

     

14

 

Change in fair value of derivative liabilities

   

9,196

     

-

     

491,096

     

-

 

Other Income

   

18,274

     

-

     

18,274

     

-

 
                               

TOTAL OTHER INCOME (EXPENSE)

   

30,022

   

(5,908

)

   

509,642

   

(16,859

)

                               

NET LOSS

 

$

(1,733,167

)

 

$

(149,500

)

 

$

(4,825,110

)

 

$

(778,875

)

                               

Basic and diluted net loss per share

 

$

(0.07

)

 

$

(0.01

)

 

$

(0.22

)

 

$

(0.07

)

                               

Weighted average number of shares outstanding, basic and diluted

   

24,807,881

     

12,439,451

     

22,396,124

     

11,696,596

 

  

See accompanying notes to condensed consolidated financial statements.

 

 
7

  

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  

    Nine Months Ended
September 30,
 
    2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES

       

Net Loss

 

$

(4,825,110

)

 

$

(778,875

)

Adjustments to reconcile net loss to net cash provided by operating activities

               

Depreciation and amortization

   

16,712

     

3,860

 

Non-cash stock compensation expense

   

1,620,736

     

64,265

 

Change in fair value of warrant liability

 

(491,096

)

   

-

 

Share based consulting services

   

250,000

         

Changes in assets and liabilities

               

Prepaid Expenses

   

25,535

   

(1,279

)

Other Current Assets

   

-

     

3,577

 

Accounts Payable

   

32,541

   

(18,804

)

Accrued Liabilities and Other Current Liabilities

 

(156,255

)

   

63,637

 

Net cash used in operating activities

 

(3,526,937

)

 

(663,619

)

               

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchases of property and equipment

 

(64,843

)

 

(2,581

)

Net cash used in investing activities

 

(64,843

)

 

(2,581

)

               

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from notes payable

               

Repayment of notes payable

 

(170,753

)

 

(6,100

)

Proceeds from issuance of common stock

   

8,303,225

     

672,300

 

Net cash provided by financing activities

   

8,132,472

     

666,200

 
               

NET INCREASE (DECREASE) IN CASH

   

4,540,692

     

-

 
               

CASH, BEGINNING OF PERIOD

   

-

     

-

 
               

CASH, END OF THE PERIOD

 

$

4,540,692

   

$

-

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
8

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Note 1 – Summary of Business and Basis of Presentation

 

Organization and Business

 

CÜR Media, LLC (formerly known as Raditaz, LLC) (“Raditaz”) was formed in Connecticut on February 15, 2008. On January 28, 2014, the members of Raditaz contributed their Raditaz membership interests (the “Contribution”) to CUR Media, Inc. (formerly known as Duane Street Corp.) (the “Company”) in exchange for approximately 10,000,000 shares of the Company’s common stock, which resulted in Raditaz being a wholly owned subsidiary of the Company. Each membership interest of Raditaz, at the time of the Contribution was automatically converted into shares of the Company’s common stock, with the result that the 39,249,885 membership interests outstanding immediately prior to the Contribution were converted into approximately 10,000,000 shares of the Company’s common stock outstanding immediately thereafter. The Contribution is considered to be a recapitalization of the Company which has been retrospectively applied to these financial statements for all periods presented. In connection with the recapitalization, the accumulated deficit of $5,536,144 from the period from February 15, 2008 (inception) through the date of the Contribution was reclassified to additional paid-in-capital.

 

As a result of the Contribution, the Company changed its business focus to the business of Raditaz, which is to develop and commercialize a streaming music experience for listening on the web and mobile devices. The Company is currently developing CÜR, a hybrid internet radio and on-demand music streaming service.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements include the activities of CÜR Media, Inc. and its wholly owned subsidiary, CÜR Media, LLC. All intercompany transactions have been eliminated in these consolidated financial statements.

 

The financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of the Company's management, the financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company's financial position for the periods presented.

 

Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s audited financial statements in Amendment No. 2 to the Current Report on Form 8-K the filed with the SEC on April 23, 2014.

  

 
9

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant Accounting Policies

 

Other than as disclosed below, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in Amendment No. 2 to the Current Report on Form 8-K the Company filed with the SEC on April 23, 2014.

 

Recently Adopted Accounting Pronouncements

 

In June 2014 the FASB issued ASU 2014-10 regarding development stage entities. The ASU removes the definition of development stage entity, as was previously defined under generally accepted accounting principles in the United States (U.S. GAAP), from the accounting standards codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.

 

In addition, the ASU eliminates the requirements for development stage entities to (i) present inception-to-date information in the statement of income, cash flow and stockholders’ equity, (ii) label the financial statements as those of a development stage entity, (iii) disclose a description of the development stage activities in which the entity is engaged, and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

 

The Company applied the ASU effective from the financial statements as of June 30, 2014.

 

Note 2 – Going Concern Uncertainty

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of the liabilities in the normal course of business and does not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern.

 

The Company incurred a net loss of $4,825,110 and $778,875 in the nine months ending September 30, 2014 and 2013, respectively. The Company is currently developing CÜR, a hybrid internet radio and on-demand music streaming service and has not generated material revenue from operations and anticipates needing additional capital prior to launching CÜR to execute the current operating plan. These factors raise a substantial doubt about the Company’s ability to continue as a going concern.

 

 
10

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

In connection with the Contribution, the Company completed a first closing of a private equity offering on January 28, 2014 whereby the Company raised approximately $4.075 million in proceeds prior to the deduction of expenses related to the transaction. In addition, the Company completed a second closing of a private equity offering on March 14, 2014 whereby the Company raised approximately $4.635 million in proceeds prior to the deduction of expenses related to the transaction. On March 28, 2014 the Company completed a third closing of a private equity offering whereby the Company raised $970,245 in proceeds prior to the deduction of expenses related to the transaction. The proceeds from the private equity offering will be used to fund ongoing operations of the Company. Based on management projections, the Company contemplates raising an additional $25 – $30 million or more prior to the planned launch of CÜR, to implement the business plan, market CÜR, provide content license costs, and for working capital. This fundraising has not yet begun, and no specific terms have been set. The Company plans to launch the CÜR music streaming product and platform in beta in the first half of 2015.

 

Management believes that it will be successful in obtaining sufficient financing to execute its operating plan. However, no assurances can be provided that the Company will secure additional financing or achieve and sustain a profitable level of operations. To the extent that the Company is unsuccessful in its plans, the Company may find it necessary to contemplate the sale of its assets and curtail operations.

 

Note 3 – Risks and Uncertainties

 

The Company operates in an industry that is subject to rapid technological change and intense competition. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, content licensing, regulatory and other risks including the potential for business failure.

 

A description of some of the risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in the Annual Report on Form 10-K the Company filed with the SEC on March 31, 2014. The risks and uncertainties described under “Risk Factors” are not exhaustive. 

 

Note 4 – Debt Instruments

 

On February 28, 2012, the Company entered into a convertible promissory drawdown note (“CI Note”) with Connecticut Innovations Incorporated (“CT Innovations”) for up to $150,000. The Company received $75,000 on February 28, 2012. The CI Note bore interest at 12% per annum, was due on February 28, 2014 and included a provision whereby, after a qualified financing, as defined, CT Innovations may have converted the amount outstanding under the CI Note, including principal and accrued interest into equity securities being sold by the Company, at a 25% discount to the offering price. The note included a provision whereby the lender could, at its sole discretion, demand payment in an amount equal to two times the principal and outstanding and unpaid interest as of the demand date upon the occurrence of a liquidation event or change of control event as defined in the CI Note. The Company received an additional $75,000 in connection with the CI Note on October 26, 2012. As of December 31, 2013, the Company had $150,000 in principal recorded as Note Payable in the short-term liability section of the Company’s balance sheet. Under the terms of the agreement, the CI Note was repaid in full with accrued interest on February 28, 2014.

 

On June 19, 2012, the Company entered into a promissory note (“State of CT Note”) with State of Connecticut Department of Economic and Community Development (“CT DECD”) for up to $100,000. The Company received $100,000 on June 19, 2012. The State of CT Note bears interest at 2.5% per annum. Commencing on the thirteenth month following the loan date and continuing on the first day of each month thereafter principal and interest shall be payable in 48 equal, consecutive monthly installments. The full principal and all accrued interest are due and payable on June 19, 2017. The Company and CT DECD also entered into a security agreement whereby the State of CT Note is secured by all properties, assets and rights of the Company. As of September 30, 2014 and December 31, 2013, the Company had $40,897 and $62,755 in principal recorded as Note Payable in the long-term sections of the Company’s balance sheet, respectively and $26,106 and $25,000 in notes payable short-term, respectively.

 

 
11

  

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Note 5 – Derivative Liabilities

 

The PPO and agent warrants described in Note 8 qualify for derivative classification due to the price protection provisions on the exercise price. The initial fair value of these liabilities was recorded as an increase to derivative liabilities and a decrease in additional paid in capital as the warrants were issued in connection with the three closings under the private placement offerings. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments included in other income or expenses.

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the period ended September 30, 2014.

 

    September 30,
2014
 
     

Balance at the beginning of period

 

$

-

 
       

Addition of new derivative liabilities (warrants)

   

4,521,063

 
       

Change in fair value of warrants

 

(491,096

)

       

Balance at the end of the period

 

$

4,029,967

 

  

The following table summarizes the change in fair value of derivatives:

 

Nine months ended September 30, 2014

 

Change in fair value of derivative liabilities during:

 

Change in fair value of derivative liabilities during:

   

Three months ended September 30, 2014

 

$

(9,196

)

Nine months ended September 30, 2014

 

$

(491,096

)

   

 
12

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s common stock, volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The weighted average per-share fair value of each Common Stock Warrant of $0.425 and $0.378 was determined on the date of grant and at September 30, 2014, respectively using the Black-Scholes pricing model using the following weighted average assumptions:

 

    Expected Volatility     Risk-free Interest Rate     Expected Dividend Yield     Expected Life
(in years)
 
                 

At issuance

 

67.62

%

 

1.59

%

 

0

%

 

5.00

 

At September 30, 2014

   

66.19

%

   

1.78

%

   

0

%

   

4.40

 

 

Note 6 – Related Party Transactions

 

The Company’s Chief Executive Officer paid personally certain expenses of the Company totaling $24,235 at December 31, 2013 which is reported as other current liabilities. There were no related party transactions for the period ended September 30, 2014.

 

Note 7 – Common Stock

 

Prior to the Contribution, the Company raised $61,526 by issuing 209,755 shares of the Company’s Common Stock at a price per share of $0.29. Additionally, on January 17, 2014 the Company issued 186,091 shares of common stock for proceeds of $99,694 in connection with the exercise of warrants. 

  

On January 28, 2014, the members of Raditaz, contributed their Raditaz membership interests to the Company in exchange for approximately 10,000,000 shares of the Company’s common stock, which resulted in Raditaz being a wholly owned subsidiary of the Company. Each membership interest of Raditaz, at the time of Contribution were automatically converted into shares of the Company’s common stock, with the result that the 39,249,885 membership interests outstanding immediately prior to the Contribution was converted into approximately 10,000,000 shares of common stock outstanding immediately thereafter.

 

 
13

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Concurrently with the closing of the Contribution and in contemplation of the Contribution, the Company held a closing of its private placement offering (“PPO”) of 4,075,036 units of its common stock, at a price of $1.00 per unit, for gross proceeds (before deducting commissions and expenses of the PPO) of $4,075,036. Each unit was comprised of one share of common stock and a warrant to purchase one share of the Company’s common stock. Each warrant carries a term of five years. An aggregate of 4,075,036 units were sold in the initial closing of the PPO with a total of 4,482,539 warrants issued, as discussed in Note 8.

 

On March 14, 2014, the Company consummated a second closing (the "Second Closing") of the PPO, in connection with which the Company issued and sold 4,635,019 additional units, at a purchase price of $1.00 per unit, for gross proceeds (before deducting commissions and expenses of the PPO) of $4,635,019. Each unit was comprised of one share of common stock and a warrant to purchase one share of the Company’s common stock. Each warrant carries a term of five years. An aggregate of 4,635,019 units were sold in the second closing of the PPO with a total of 5,098,520 warrants issued, as discussed in Note 8.

 

On March 28, 2014, the Company consummated a third and final closing of the PPO, in connection with which the Company issued and sold 970,300 additional units at the PPO Price of $1.00 per unit, for gross proceeds (before deducting commissions and expenses of the PPO) of $970,245. Each unit was comprised of one share of common stock and a warrant to purchase one share of the Company’s common stock. Each warrant carries a term of five years. An aggregate of 970,300 units were sold in the third and final closing of the PPO with a total of 1,067,330 warrants issued, as discussed in Note 8.

 

As a result of the three closings of the PPO discussed above, a total of 9,680,355 shares of common stock were issued. Proceeds were received of approximately $8,200,000, net of costs associated with the placement of approximately $1,500,000. As of September 30, 2014, warrants entitle their holders to purchase 9,680,355 shares of the Company’s common stock, with a term of five years and an exercise price of $2.00 per share and broker warrants entitle their holders to purchase 968,034 shares of the Company’s common stock, with a term of five years and an exercise price of $1.00 per share. 

 

Prior to the Contribution, eleven stockholders of the Company (“Pre-Contribution Transaction Stockholders”), entered into an agreement with the Company (“Side Sale Agreement”) pursuant to which they agreed to cancel a portion of their shares after the initial PPO such that the aggregate number of shares they collectively held following such cancellation would be equal to 19.9% of the total outstanding shares of the Company’s common stock. Subsequent to the initial PPO, approximately 715,280 shares were cancelled in connection with the Side Sale Agreement. Terms included in the agreement discussed the issuance of additional shares to the shareholders in the event there were additional closings of the PPO following the initial closing so as to maintain their 19.9% common stock ownership position, in the aggregate. As a result of the second and third closing, an aggregate of approximately 1,379,631 restricted shares of common stock were issued to the Pre-Contribution Transaction Stockholders (the “Adjustment Shares”). The Company recorded $1,379,631 of stock based compensation expense in connection with the issuance of the shares with a fair value per share of $1.00.

 

On March 25, 2014 the Company entered into a contract with a consultant pursuant to which the Company was to issue shares to the consultant in exchange for advisory services. On June 4, 2014 the contract was mutually terminated and the consultant agreed to forfeit any shares he may have been entitled to under the agreement.

  

On September 29, 2014 the Company entered into a contract with a consultant pursuant to which the Company issued shares in exchange for advisory services. Pursuant to the services agreement the Company was obligated to issue 250,000 shares of restricted common stock, par value $0.0001 per share, in prepayment of services to be provided under the agreement. These shares were issued on September 29, 2014 at a cost basis of $1.00 per share.

 

 
14

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)  

 

Note 8 – Common Stock Warrants

 

At December 31, 2013, the Company had warrants outstanding to purchase 1,227,656 shares of the Company’s common stock at $0.54 per share. Warrants to purchase 186,091 shares of common stock were exercised on January 17, 2014 for proceeds of $99,694. Prior to the Contribution of the Raditaz membership interests discussed above, the remaining warrants exercisable into 1,041,565 underlying shares were cancelled.

 

Concurrently with the closings of the Contribution and the private placement, discussed above, the Company issued warrants with respect to an aggregate of 9,680,355 underlying common shares to the investors in the PPO. Each warrant has a term of five years to purchase one share of common stock at $2.00 per share. The PPO warrants have weighted average anti-dilution and price protection, and a cashless exercise provision, which are subject to customary exceptions.

 

In addition, the placement agent in the PPO, and its sub-agents, received warrants exercisable for a period of five years to purchase a number of shares of Common Stock equal to 10% of the number of shares of common stock sold to investors introduced by it, with a per share exercise price of $1.00. As a result of the foregoing, the placement agent in the PPO, and its sub-agents, was issued warrants with respect to an aggregate of 968,034 underlying shares of the Company’s common stock. Common Stock Warrant activity during the nine months ended September 30, 2014 was as follows:

 

    Common Warrants Outstanding  
    Warrants Outstanding     Weighted-Average Exercise Price  
         

Balance as of December 31, 2013

 

1,227,656

   

0.54

 

Granted

   

10,648,389

     

1.91

 

Cancelled/Forfeited

 

(1,041,565

)

   

0.54

 

Exercised

 

(186,091

)

   

0.54

 

Balance as of September 30, 2014

   

10,648,389

   

$

1.91

 
                 

The weighted average per-share fair value of each Common Stock Warrant of $0.425 was determined on the date of grant using the Black-Scholes pricing model (see Note 5).

 

 
15

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Note 9 – Equity Incentive Awards

 

Stock Compensation Plans

 

In November 2008, the board of directors of the Company adopted the 2008 Restricted Stock Plan, as amended (the “2008 Plan”). The 2008 Plan provided for the issuance of restricted common shares (“options”).

 

Under the 2008 Plan, the Company determined various terms and conditions of awards including option expiration dates (no more than ten years from the date of grant), vesting terms (generally over a four-year period), exercise price, and payment terms.

 

Certain of the Company’s options grants included a right to repurchase a terminated individual’s options at a repurchase price equal to the lower of the exercise price or the fair value of the restricted common stock at the termination date, during the 18 months following the termination of an individual's service with the Company, for any reason. 

 

Upon closing of the Contribution (discussed above), the board of directors of the Company adopted, and the stockholders approved, the 2014 Equity Incentive Plan (the “2014 Plan”) which provided for the issuance of equity awards of up to 4,000,000 shares of common stock to officers, key employees, consultants and directors. Upon effectiveness of the Contribution, 6,500,000 options outstanding under the 2008 Plan were exchanged for an aggregate of (i) approximately 1,339,728 non-statutory stock options to purchase shares of the Company’s common stock at an average exercise price of approximately $0.22 per share, and (ii) approximately 316,331 restricted stock awards (of which approximately 221,863 were fully vested at and represented approximately 221,863 issued and outstanding shares of the Company’s common stock).

 

On April 21, 2014, the 2014 Plan was amended to increase the total number of shares of common stock reserved for issuance thereunder from 4,000,000 to 4,250,000.

 

On October 8, 2014, the 2014 Plan was amended to increase the total number of shares of common stock reserved for issuance thereunder from 4,250,000 to 4,400,000.

 

 
16

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Under the 2014 Plan, the Company determines various terms and conditions of awards including option expiration dates (no more than ten years from the date of grant), vesting terms (generally over a four-year period), exercise price, and payment terms. 

 

Stock Options

 

Option activity during the nine months ended September 30, 2014 was as follows:

 

    Options Outstanding  
    Outstanding Options     Weighted-Average Exercise Price     Weighted-Average Remaining Contractual Term  
             

Balance as of January 1, 2014

 

1,339,728

   

$

0.22

   

6.0

 

Granted

   

2,612,921

   

$

1.00

         

Cancelled/Forfeited

 

(100,000

)

 

$

1.00

         

Exercised

 

(9,554

)

 

$

0.04

         

Repurchased

   

-

                 

Balance as of September 30, 2014

   

3,843,095

   

$

0.71

     

8.4

 

Exercisable September 30, 2014

   

921,774

   

$

0.21

         

 

 
17

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Valuation of Awards

 

Under ASC 718, the weighted average grant date fair value of options granted was $0.61 for options granted for the nine months ended September 30, 2014. The per-share fair value of each stock option was determined on the date of grant using the Black-Scholes model using the following weighted average assumptions:

 

    Nine Months Ended
September 30,
2014
 

Exercise Price

 

1.00

 

Expected life (years)

   

6.11

 

Risk-free interest rate

   

1.62

%

Expected volatility

   

67.41

%

Expected dividend yield

   

0

%

 

The expected life of options granted represents the weighted average period that the options are expected to remain outstanding. The Company determined the expected life assumption based on the Company's historical exercise behavior combined with estimates of the post-vesting holding period. Expected volatility is based on historical volatility of peer companies in the Company's industry that have similar vesting and contractual terms. The risk free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company currently has no history or expectation of paying cash dividends on its common membership interests.

 

Stock-based Compensation Expense

 

As of September 30, 2014, total compensation cost related to stock options granted, but not yet recognized, was $1,410,470 which the Company expects to recognize over a weighted-average period of approximately 1.91 years. Stock-based compensation expenses related to all employee and non-employee stock-based awards were $241,083 and $64,265 for the nine months ended September 30, 2014 and 2013 and $107,443 and $16,638 for the three months ended September 30, 2014 and 2013, respectively.

 

On September 17, 2014 the Company issued 9,554 shares of common stock for proceeds of $832 in connection with the exercise of options.

 

 
18

  

CÜR MEDIA, INC. 

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

Restricted Stock Awards

 

During 2011, the Company had issued restricted stock awards with respect to 359,640 underlying shares under the 2008 Plan. The restricted stock awards vested over a term of four years with 25% per year. As of December 31, 2013 and September 30, 2014, 221,858 and 233,960 restricted common shares were outstanding but not yet issued under these awards, respectively. The Company is obligated to issue these awards upon request by the holder of the award. During the each of the nine month periods ended September 30, 2014 and 2013, the Company recorded stock based compensation of $1,387. As of September 30, 2014, unrecognized stock based compensation expense related to restricted stock awards granted, but not yet vested was $1,632 which the Company expects to recognize over a weighted average period of less than one year.

 

Note 10 – Commitments and Contingencies

 

Data License and Service Agreement with Rovi

 

On July 1, 2014 the Company entered into a licensing agreement acquiring the limited, non-exclusive, non-transferable right to use, display, communicate, reproduce and transmit the Licensors’ data. On September 8th and September 18th, a first amendment and second amendment to the data license and service agreement, respectively, were executed which expanded the original license agreement to include custom development of search and voice capabilities. The licensing agreement remains in effect through and including March 14, 2017. The Company has the option to extend the term of this agreement for additional 1 year periods.

 

During the term of the licensing agreement and as consideration for the grant of rights and license of the Licensors’ data, the Company agreed to pay the Licensor a monthly minimum charge during the development period which is the period where data will be used for internal, non-public, non-commercial uses. In addition, the Company has agreed to pay a minimum per month during the first initial term, subsequent to launch date until March 14, 2016. For each subsequent term, consideration paid will depend on the number of subscribers of the Licensee property.

 

As of September 30, 2014, the Company has paid the Licensor $30,000.

 

 
19

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

  

Master Subscription Agreement with Zuora

 

On July 31, 2014 the Company entered into a limited license agreement which provides the Company non-exclusive, non-transferable worldwide limited license to use the online integrated subscription management, billing, and data analysis services. The initial order form covered the implementation and development period ending October 31, 2014. In addition, the Company has agreed to an initial 36 month service term, subsequent to implementation.

 

As of September 30, 2014, the Company has paid $23,279.

 

Distribution Agreement with MediaNet

 

On November 13, 2014 the Company entered into a service agreement which provides the Company with a catalog of sound recordings and metadata which enables and provides for the delivery of sound recordings to end users of the Company’s application. The agreement remains in effect for a period of three years following the effective date of November 13, 2014. The agreement will automatically renew for successive one year terms unless terminated by MediaNet or the Company.

 

The Company will pay a set-up fee, a monthly technology licensing fee, a monthly usage fee and will pay for any additional professional services and technical assistance or customization.

 

As of September 30, 2014, the Company did not make any payments to MediaNet.

 

Minimum payments related to the previously described contracts is summarized as follows:

 

Twelve Months Ended September 30,

  Total  
     

2015

 

$

568,706*

 
     

2016

 

$

797,388*

 
     

2017

 

$

839,399*

 
 

$

2,205,493

 

_________________

* Additional contract terms include per subscriber, stream or percentage of revenue charges.

 

 
20

  

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

 

Forward-Looking Statements

 

The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in Amendment No. 1 to the Current Report on Form 8-K we filed with the SEC on March 31, 2014, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

 

The following discussion highlights the our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

References in this section to “CÜR Media,” “we,” “us,” “our,” “the Company” and “our Company” refer to CÜR Media, Inc. (formerly known as Duane Street Corp.), and its consolidated subsidiary, CÜR Media, LLC (formerly known as Raditaz, LLC) (“Raditaz”).

 

Basis of Presentation

 

As a result of the Contribution (as defined below) and the related change in our business and operations, a discussion of our past financial results is not pertinent, and under applicable accounting principles the historical financial results of Raditaz the accounting acquirer, prior to the Contribution are considered the historical financial results of the Company.

 

The audited financial statements for our fiscal year ended December 31, 2013 and the audited financial statements as amended filed with the Securities Exchange Commission on Form 8-K/A on April 23, 2014, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these audited financial statements. All such adjustments are of a normal recurring nature.

 

 
21

  

General Overview

 

Raditaz was founded as a Connecticut limited liability company in February 2008. Activities since inception were devoted primarily to the development and commercialization of Raditaz, a DMCA compliant internet radio product. Raditaz was launched in early 2012 and the platform was continually developed and improved through November 2013 when its iOS, Android and web products were removed from the market, to allow us to focus on the further development of our product.

 

The Raditaz music streaming platform and products have been under development since 2010 and, prior to the PPO (as defined below) have been financed from angel investments in the aggregate amount of approximately $4,858,000, $150,000 of financing from a promissory note from CT Innovations, Incorporated, and a $100,000 promissory note and a $100,000 grant from the State of Connecticut Department of Economic Development.

 

On January 28, 2014, we consummated a contribution transaction (the “Contribution”) with Raditaz, pursuant to a Contribution Agreement by and among the Company, Raditaz, and the holders of a majority of Raditaz’s limited liability company membership interests (the “Contribution Agreement”). In connection with the Contribution, and in accordance with the terms and conditions of the Contribution Agreement, all 39,249,885 outstanding Raditaz limited liability company membership interests were exchanged for approximately 10,000,000 restricted shares of our common stock, par value $0.0001 per share (“Common Stock”), and outstanding options to purchase 6,500,000 restricted common units of Raditaz were exchanged for an aggregate of (i) approximately 1,339,722 non-statutory stock options to purchase shares of our Common Stock at an average exercise price of approximately $3.63 per share, and (ii) approximately 316,331 restricted stock awards (of which approximately 221,863 were fully vested and represent approximately 221,863 outstanding shares of our Common Stock). As a result of the Contribution, Raditaz became our wholly owned subsidiary.

 

Upon the closing of the Contribution, pursuant to the terms and conditions of a Split-Off Agreement (the “Split-Off Agreement”) and a General Release Agreement (the “General Release Agreement”), we transferred all of our pre-Contribution operating assets and liabilities to our wholly-owned special-purpose subsidiary, Duane Street Split Corp., a Delaware corporation, formed on January 10, 2014 solely for this purpose (“Split-Off Subsidiary”). Thereafter, pursuant to the Split-Off Agreement, we transferred all of the outstanding shares of capital stock of Split-Off Subsidiary to Peretz Yehuda Aisenstark and Yair Shofel, our pre-Contribution majority stockholders, and former officers and directors (the “Split-Off”), in consideration of and in exchange for (i) the surrender and cancellation of an aggregate of 24,755,859 shares of our Common Stock held by Mr. Aisenstark and Mr. Shofel (which were cancelled and resumed the status of authorized but unissued shares of our Common Stock) and (ii) certain representations, covenants and indemnities.

 

In connection with the Contribution and Split-Off, we changed our business focus to the business of Raditaz, which is to develop and commercialize a streaming music experience for listening on the web and mobile devices, and will continue the existing business operations of Raditaz as a publicly-traded company. As a result of the Contribution and Split-Off, we ceased to be a shell company.

 

Also on January 28, 2014, we consummated an initial closing (the “Initial Closing”) of our private placement offering (the “PPO”) of a minimum of $4,000,000 through the sale of 4,000,000 units of our securities (each, a “Unit” and collectively, the “Units”), and a maximum of $7,000,000 through the sale of 7,000,000 Units, with an additional 1,000,000 Units subject to offer and sale at our discretion pursuant to an over-allotment option (the “Over-Allotment Option”), at an offering price of $1.00 per Unit (the “PPO Price”), each Unit comprised of one (1) share of our Common Stock and a warrant to purchase one (1) share of our Common Stock at an exercise price of $2.00 per share for a term of five (5) years (“PPO Warrants”). We sold an aggregate of approximately 4,075,036 Units in the Initial Closing of the PPO, for gross proceeds of approximately $4,075,036 (before deducting placement agent fees and expenses of the PPO estimated at approximately $818,254).

 

 
22

  

The placement agent for the PPO and its sub-agent were paid an aggregate commission of approximately $407,504 and were issued warrants to purchase an aggregate of approximately 407,504 shares of our Common Stock at an exercise price of $1.00 per share for a term of five (5) years (“Broker Warrants”).

 

In connection with the Initial Closing of the PPO, our stockholders prior to the Contribution (excluding Peretz Yehuda Aisenstark and Yair Shofel, who surrendered their shares in the Split-Off) (the “Pre-Contribution Stockholders”), surrendered for cancellation an aggregate of approximately 715,280 shares of our Common Stock. These shares were cancelled pursuant to an agreement we had with the Pre-Contribution Stockholders to cancel a portion of their shares such that the aggregate number of shares they collectively held at the time of the Initial Closing of PPO was equal to 19.9% of the total outstanding shares of our Common Stock, giving effect to the Initial Closing of the PPO, the Split-Off and the Contribution.

 

On January 31, 2014, we changed our name to CÜR Media, Inc., a name which more accurately represents our new business focus. In connection with the name change, we changed our OTC trading symbol to “CURM.”

 

In addition, on January 31, 2014, we increased our number of authorized shares to 310,000,000 shares, consisting of (i) 300,000,000 shares of Common Stock, and (ii) 10,000,000 shares of “blank check” preferred stock, par value $0.0001 per share (“Preferred Stock”).

 

Further, on January 31, 2014, our Board of Directors authorized a 16.503906-for-1 forward split of our Common Stock, in the form of a dividend, with a record date of February 11, 2014 (the “Record Date”), and the payment date of February 14, 2014 (the “Payment Date”). On the Payment Date, each shareholder of our Common Stock as of the Record Date received 15.503906 additional shares of Common Stock for each one share owned. Share and per share numbers in this report relating to our Common Stock have been retrospectively adjusted to give effect to this forward stock spilt, unless otherwise stated.

 

Effective as of March 13, 2014, we increased the Over-Allotment Option for the PPO from 1,000,000 Units to 3,000,000 Units, such that the maximum aggregate number of Units that may be sold in the PPO, including the Over-Allotment Option, was 10,000,000 Units.

 

On March 14, 2014, we consummated a second closing (the “Second Closing”) of the PPO, in connection with which we issued and sold approximately 4,635,019 additional Units at the PPO Price. The aggregate additional gross proceeds from the Second Closing of the PPO were approximately $4,635,019 (before deducting placement agent fees and expenses of the PPO estimated at approximately $546,132).

 

The placement agent for the PPO and its sub-agent were paid an aggregate commission of approximately $463,447 and were issued Broker Warrants to purchase an aggregate of approximately 463,447 shares of our Common Stock.

 

On March 28, 2014, we consummated a third and final closing (the “Third Closing”) of the PPO, in connection with which we issued and sold approximately 970,300 additional Units at the PPO Price. The aggregate additional gross proceeds from the Third Closing of the PPO were approximately $970,245 (before deducting placement agent fees and expenses of the PPO estimated at approximately $171,102).

 

 
23

  

The placement agent for the PPO and its sub-agent were paid an aggregate commission of approximately $97,030 and were issued Broker Warrants to purchase an aggregate of approximately 97,030 shares of our Common Stock.

 

In connection with the Third Closing of the PPO, we issued to the Pre-Contribution Stockholders an aggregate of approximately 1,379,631 shares of our Common Stock, in accordance with our agreement to issue to the Pre-Contribution Transaction Stockholders additional shares of our Common Stock so that their pro forma percentage ownership would remain 19.9%, giving effect to the Contribution, Spilt-Off and PPO.

 

As of September 30, 2014, we had devoted substantially all of our efforts to product development, raising capital and building our technology infrastructure. As of that date, we did not receive any revenues from our planned principal operations.

 

Our Strategy

 

Our CÜR product (“CÜR”) is a new streaming music experience that combines the listening experience of free internet radio products with an on-demand listening experience for listening on web and mobile devices. CÜR will target consumers who are seeking a more comprehensive music streaming service. We believe that the CÜR product will include a hybrid model that includes many features that free, ad-supported internet radio products provide, without interruptive advertising, with a limited on-demand offering and will include a toolset that enables consumers to curate their playlists.

 

In addition to revenue from subscriptions, our business plan includes a second revenue stream of personalized advertising, which never interrupts a stream but targets a user’s listening habits. The advertising will be in the form of video, display ads, email and text messages. Advertisers may also create and sponsor playlists.

 

Our business plan further includes a third revenue stream from the sale of music, concert tickets and merchandise through our music streaming service, tailored to each listeners taste based on prior listening trends.

 

In addition, our business plan includes distributing CÜR’s music streaming service through Apple’s iTunes App Store to iOS devices, Google’s Google Play Store to Android devices and the internet, among other distribution channels and platforms. At launch, we plan to have an iOS application, Android application and a CÜR website.

 

We plan to source our music from MusicNet, Inc. d/b/a MediaNet Digital, Inc. We also plan to use Amazon web services to support certain of the technological needs of the business.

 

Recent Developments

 

We have been working with a New York-based design, user interface and user experience firm to help us design the CÜR Music experience. In addition we have been building our team with a large focus on software developers.

 

We have been negotiating with the major music labels, and while the negotiations are not completed yet, and have taken longer than anticipated, we have made significant progress with each major label.

 

 
24

  

As previously disclosed, we entered into an agreement with Zuora Inc. to be our subscription provider. As also announced, we recently signed a deal with Rovi Corporation to be our search and recommendation engine, to be our provider of album art and artist photos, and to integrate their voice recognition software with CÜR.

 

We plan to launch our CÜR music streaming product and platform in the first half of 2015.

 

Results of Operations

 

Three Month Period Ended September 30, 2014 Compared to Three Month Period Ended September 30, 2013

 

Revenues

 

We have not generated any material revenues for the three months ended September 30, 2014 or 2013.

 

Operating Expenses

 

Overview

 

Total operating expenses for the three months ended September 30, 2014 and 2013 were $1,763,189 and $143,592, respectively. The increase in total operating expenses of $1,619,597, or approximately 1,127.9%,was primarily related to an increase in employee compensation of approximately $599,000, an increase in non-cash compensation expense for stock and warrant issuances of approximately $91,000 an increase in consultant expenses of approximately $225,000, an increase in professional services of approximately $377,000, an increase in other operating expenses of approximately $197,000, an increase in content costs of approximately $88,000 and an increase in marketing and advertising of approximately $50,000 offset by a decrease in hosting and facilities costs of approximately $16,000.

 

Research and Development Expenses

 

For the three months ended September 30, 2014 and 2013, research and development expenses were $1,115,554 and $110,937, respectively. Research and development expenses increased by $1,004,617, or approximately 905.6%, primarily due to an increase in consultant fees for application and business development of approximately $225,000, an increase in employee wages associated with the application development of approximately $509,000, an increase in other expenses for recruiting, travel, office and other expenses of approximately $172,000, an increase in content costs of $88,000 and an increase in costs to create materials for business development of approximately $35,000. These increases were partially offset by a decrease in professional fees and costs associated with hosting of approximately $23,000.

 

 
25

  

General and Administrative Expenses

 

For the three months ended September 30, 2014 and 2013, general and administrative expenses were $530,972 and $15,478, respectively. General and administrative expenses increased by $515,494, or approximately 3,330.5%, primarily due to an increase of $409,000 in professional expenses, legal and accounting fees, related to the activities associated with the Contribution, re-capitalization and financial reporting requirements, $90,000 in compensation, and $15,000 in marketing and investor relations development. These increases were partially offset by a decrease in costs associated with the facilities. General and administrative expenses include wages expenses, facilities and professional fees.

  

Stock based Compensation Expenses

 

For the three months ended September 30, 2014 and 2013, stock based compensation expenses were $107,443 and $16,638, respectively. Stock based compensation expenses increased due to the grant of additional options since the third quarter of 2013 with a Black Scholes fair value higher than the previous period.

 

Other Income (Expense)

 

For the three months ended September 30, 2014 and 2013, other income (expense) was $30,022 and ($5,908), respectively. Other income (expense) increased due to a decrease in prior period accrued expenses and a change in fair value of the warrants issued in 2014.

 

Nine Month Period Ended September 30, 2014 Compared to Nine Month Period Ended September 30, 2013

 

Revenues

 

We have not generated any material revenues for the nine months ended September 30, 2014 or 2013.

 

Operating Expenses

 

Overview

 

Total operating expenses for the nine months ended September 30, 2014 and 2013 were $5,334,752 and $762,016, respectively. The increase in total operating expenses of $4,572,736, or approximately 600.1%, was primarily related to an increase in employee compensation of approximately $1,255,000 an increase in non-cash compensation expense for stock and warrant issuances of approximately $1,556,000, an increase in consultant expenses of approximately $799,000, an increase in professional services of approximately $527,000, an increase in other operating expenses of approximately $373,000, an increase in marketing and advertising of approximately $152,000 and an increase in depreciation expense of $13,000. These increases were partially offset by a decrease in content, hosting and facilities costs of approximately $102,000. 

  

 
26

 

Research and Development Expenses

 

For the nine months ended September 30, 2014 and 2013, research and development expenses were $2,732,997 and $641,311, respectively. Research and development expenses increased by $2,091,686, or approximately 326.2%, primarily due to an increase in consultant fees for application and business development of approximately $799,000, an increase in employee wages associated with the application development of approximately $1,016,000, an increase in other expenses for travel, office and other expenses of approximately $344,000, and an increase in costs to create materials for business development of approximately $84,000. The increases were partially offset by a decrease in costs associated with music licensing, hosting and professional fees of approximately $150,000.

 

General and Administrative Expenses

 

For the nine months ended September 30, 2014 and 2013, general and administrative expenses were $964,307 and $52,580 respectively. General and administrative expenses increased by $911,727, or approximately 1,734.0%, primarily due to an increase of $603,000 in professional expenses, legal and accounting fees, related to the activities associated with the Contribution, re-capitalization and financial reporting requirements, $240,000 in compensation, and $68,000 in marketing and investor relations development. General and administrative expenses include wages expenses, facilities and professional fees. 

  

Stock based Compensation Expenses

 

For the nine months ended September 30, 2014 and 2013, stock based compensation expenses were $1,620,736 and $64,265, respectively. Stock based compensation expenses increased due to the grant of additional options in the first nine months of 2014 with a higher average fair value.

 

Other Income (Expense)

 

For the nine months ended September 30, 2014 and 2013, other income (expense) was $509,642 and ($5,908), respectively. Other income (expense) increased primarily due to change in fair value of the warrants issued in 2014.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

Since inception, we satisfied our operating cash requirements from private placements of membership interests in Raditaz and the PPO.

 

During 2011, Raditaz received subscriptions for the private placement of common stock in the amount of $1,023,746, which was funded to us at various dates during 2011.

 

In the first quarter of 2012, Raditaz received subscriptions and funding for the private placement of common stock in the amount of $322,515. At various dates between April 2012 and January 9, 2014, an additional $1,115,432 in subscriptions and funding for the private placement of common stock was funded to us.

 

 
27

   

In January 2014, warrants to purchase 186,091 shares of common stock were exercised resulting in gross proceeds of $99,695.

 

We have raised aggregate gross proceeds of approximately $9,680,300 in our PPO (before deducting placement agent fees and expenses of the PPO of approximately $1,529,000). With the proceeds from the PPO, management believes we have sufficient capital to fund our research and development and related general and administrative expenses for at least the next 3-6 months of operations under our current business plan. Management believes we will need to raise additional capital prior to our planned launch of CÜR in the first half of 2015.

 

We are contemplating raising an additional $25 - $30 million or more prior to the planned launch of CÜR, to be used for marketing CÜR, content license costs and working capital. This fundraising has not yet begun, and no specific terms have been set. There can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all.

 

We expect that we will need to raise funds in order to effectuate our business plan. We anticipate that we will need to seek financing through means such as borrowings from institutions or private or public equity or debt offerings. There can be no assurance that we will be able to raise such funds. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to seek a buyer for our business or another entity with which we could create a joint venture. If all of these alternatives fail, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $3,526,937 for the nine months ended September 30, 2014, as compared to net cash used of $663,619 for the nine months ended September 30, 2013. The increase of $2,863,318 or 431.5%, in net cash used in operations was primarily due to an increase non-cash compensation and share based consulting services of $1,806,000 offset by a decrease in accrued liabilities of $220,000, non-cash change in fair value of derivative liabilities of $491,000 and an increase in the net operating loss compared with nine months ended September 30. 2013. 

  

Net Cash Used in Investing Activities

 

During the nine months ended September 30, 2014 and 2013, we used $64,843 and $2,581, respectively, of cash in investing activities. The cash used in investing activities in the nine months ended September 30, 2014 was for the purchase of computers and related hardware, software and other office equipment associated with additional staff and development.

 

Net Cash Provided by Financing Activities

 

During the nine months ended September 30, 2014 and 2013, we received $8,132,472 and $666,200, respectively, in proceeds from the sale of common stock and/or warrants of the Company. The $8,303,225 we received during the nine months ended September 30, 2014, was primarily related to the PPO. Receipts were slightly offset by an increase in debt repayments of $164,000.

   

Going Concern

 

Our independent auditor has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.

 

 
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Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. 

  

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our senior management, currently consisting of Thomas Brophy, our President, Chief Executive Officer, interim Chief Financial Officer and Treasurer (Principal Executive Officer and Principal Financial Officer), as appropriate to allow timely decisions regarding required disclosure.

 

In connection with the preparation of this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our senior management, currently consisting of Thomas Brophy, our President, Chief Executive Officer, interim Chief Financial Officer and Treasurer (Principal Executive Officer and Principal Financial Officer), of the effectiveness of the design and operation of our predecessor’s disclosure controls and procedures existing as of September 30, 2014. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, Thomas Brophy, our President, Chief Executive Officer, interim Chief Financial Officer and Treasurer (Principal Executive Officer and Principal Financial Officer) concluded that our disclosure controls and procedures were not effective as of such date.  

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of September 30, 2014, that occurred during our third quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
29

  

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

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

 

Other than as reported in our Current Reports on Form 8-K, or prior periodic reports, we have not sold any of our equity securities during the period covered by this Quarterly Report, or subsequent period through the date hereof, except as follows:

 

Between August 11, 2014 and October 15, 2014, we issued an aggregate of 95,000 non-statutory stock options under our 2014 Equity Incentive Plan to employees of the Company at an exercise price of $1.00 per share, a price equal to the PPO Price.

 

The issuances of the non-statutory stock options in connection with these transactions were exempt from registration under Rule 701 under the Securities Act as transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering.

 

On September 17, 2014, non-statutory stock options to purchase 9,554 shares of our Common Stock, which were issued under our 2014 Equity Incentive Plan, were exercised by their holder.

 

The issuance of the shares of Common Stock in connection with this transaction was exempt from registration under Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering.

 

On September 29, 2014, in consideration for services provided pursuant to a consulting agreement, we issued an aggregate of 250,000 shares of our Common Stock to a consultant, and its designee, which were valued at an aggregate of $250,000.

 

The issuance of the shares of Common Stock in connection with this transaction was exempt from registration under Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering.

   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
30

  

ITEM 5. OTHER INFORMATION

 

Entry into Data License and Service Agreement with Rovi Data Solutions and Veveo Inc.

 

On July 1, 2014, we entered into a data license and service agreement (the “Data License and Services Agreement”) with Rovi Data Solutions, Inc. and Veveo, Inc. (”Rovi”).  Pursuant to the Data License and Services Agreement, we acquired the limited, non-exclusive, non-transferable right and license to use, display, communicate, reproduce and transmit Rovi’s search and recommendation data in our CÜR music streaming product and platform.  On September 8, 2014 and September 18, 2014, the Data License and Services Agreement, was amended to include custom development of search and voice capabilities. 

 

The term of the Data License and Services Agreement will continue through March 14, 2017.  Unless one party gives the other party sixty (60) days written notice prior to the end of the initial term or an extended term of its desire to terminate the Data License and Services Agreement at the end of the initial term or applicable extended term, the Data License and Services Agreement shall automatically renew for additional one (1) year periods which will immediately follow the initial term. 

 

In consideration for the grant of rights and license by Rovi, we agreed to pay a fixed monthly license fee during the development period, which will increase following the launch date and through March 14, 2016.  After March 14, 2016, consideration paid will depend on our number of subscribers.  As of September 30, 2014, we had paid Rovi and aggregate of $30,000.

 

The Data License and Services Agreement, as amended, is filed as Exhibit 10.1 to this report and incorporated herein by reference.

 

Entry into Distribution Agreement with MediaNet Digital, Inc.

 

On November 13, 2014, we entered into a distribution agreement (the “Distribution Agreement”) with MusicNet, Inc. d/b/a MediaNet Digital, Inc. (“MediaNet”).  Pursuant to the Distribution Agreement, MediaNet will provide us with certain services that will enable and provide for the delivery of sound recordings to end users of our CÜR music streaming product and platform. 

 

In consideration for these services, we agreed to pay a set-up fee, a monthly technology licensing fee, a monthly usage fee, and will pay for any additional professional services and technical assistance or customization.

 

The term of the Distribution Agreement will be for a period of three (3) years, and will automatically renew for successive one (1) year periods, subject to termination by one of the parties.  Either party may terminate the Distribution Agreement effective immediately upon notice of a material breach of any obligation thereunder by the other party, if such material breach or failure is not cured within thirty (30) days following the date the non-breaching party gives the other party notice setting forth in reasonable detail the elements of such breach.  In addition, either party will have the right to terminate the Distribution Agreement at the conclusion of the initial term or the conclusion of the then current renewal term upon written notice received by the non-terminating party, (a) if by us,  not less than thirty (30) days prior to the end of the initial term or the end of the then current renewal term, or, (b) if by MediaNet, not less than ninety (90) days prior to the end of the initial term or the end of the then current renewal term.

 

The Distribution Agreement is filed as Exhibit 10.2 to this report and incorporated herein by reference.

 

Resignation and Appointment of Chief Technology Officer

 

On November 13, 2014, Gordon C. Mackenzie III resigned as our Chief Technology Officer, to pursue other interests.  In connection with his resignation, Mr. Mackenzie’s Employment Agreement, dated March 11, 2014, was terminated, and we have no further obligations thereunder.  In addition, Mr. MacKenzie’s non-qualified stock options to purchase 150,000 shares of our Common Stock terminated upon his resignation.

 

On November 13, 2014, we appointed Michael Betts as our Interim Chief Technology Officer.

 

Michael Betts, 50, is a veteran software professional with over 25 years of successfully delivering software solutions.  Before joining CÜR Media in May 2012 as Senior Platform Architect, he was the CTO / Architect at Artbox LLC, which he joined in September 2009.  Prior to Artbox, he was Principal of Software Development Group LLC, whose major clients included Konica-Minolta, HP, NIST, and Microsoft.  Mr. Betts has a Master’s Degree in Computer Science from Rensselaer Polytechnic Institute and a B.S., Computer Science Engineering / Electrical Engineering from the University of Connecticut.

 

There are no arrangements or understandings between Mr. Betts and any other person pursuant to which he was appointed as an officer of ours.  In addition, there are no family relationships between Mr. Betts and any of our other officers or directors.  Further, there was no transaction since the beginning of our last fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds $120,000, and in which Mr. Betts had, or will have, a direct or indirect material interest. 

 

 
31

  

ITEM 6. EXHIBITS

 

In reviewing the agreements included as exhibits to this Quarterly Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and: 

  • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
  • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
  • may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
  • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

The following exhibits are included as part of this report:

 

Exhibit No.

 

SEC Report

Reference No.

 

Description

         

10.1

 

*

 

Data License and Service Agreement, dated July 1, 2014, among the Company, Rovi Data Solutions and Veveo, Inc., as amended as of September 8, 2014 and September 18, 2014 (confidential portions have been omitted and filed separately with the SEC)

10.2

 

*

 

Distribution Agreement, dated November 13, 2014, between the Company and MusicNet, Inc. d/b/a MediaNet Digital, Inc. (confidential portions have been omitted and filed separately with the SEC)

31.1

 

*

 

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

*

 

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

*

 

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

*

 

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

*

 

XBRL Instance Document

101.SCH

 

*

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

*

 

XBRL Taxonomy Extension Presentation Linkbase Document

_____________

* Filed herewith

 

 
32

  

SIGNATURES

 

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

 

 

 

CÜR MEDIA, INC.

 
       

Dated: November 14, 2014

By: 

/s/ Thomas Brophy  
 

Name:

Thomas Brophy

 
 

Title:

President, Chief Executive Officer,
interim Chief Financial Officer and Treasurer

(Principal Executive Officer and Principal Financial Officer)

 

  

 
33

 

EXHIBIT INDEX

 

Exhibit No.

 

SEC Report

Reference No.

 

Description

         

10.1

 

*

 

Data License and Service Agreement, dated July 1, 2014, among the Company, Rovi Data Solutions and Veveo, Inc., as amended as of September 8, 2014 and September 18, 2014 (confidential portions have been omitted and filed separately with the SEC)

10.2

 

*

 

Distribution Agreement, dated November 13, 2014, between the Company and MusicNet, Inc. d/b/a MediaNet Digital, Inc. (confidential portions have been omitted and filed separately with the SEC)

31.1

 

*

 

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

*

 

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

*

 

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

*

 

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

*

 

XBRL Instance Document

101.SCH

 

*

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

*

 

XBRL Taxonomy Extension Presentation Linkbase Document

_____________

* Filed herewith

 

 

34