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 March 31, 2015

 

¨	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: 333-172685

 

EVENTURE INTERACTIVE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		27-4387595
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

 

3420 Bristol Street, 6^th Floor, Costa Mesa, CA 92626

(Address of principal executive offices)

 

855.986.5669

(Registrant’s telephone number, including area code)

 

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.

 

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

 

There were 61,400,877 shares of the issuer’s common stock outstanding as of May 14, 2015.

 

 

EVENTURE INTERACTIVE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

		PAGE
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	42
	SIGNATURES	43

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

		PAGE
Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (unaudited)		4
Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (unaudited)		5
Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7

 

 

EVENTURE INTERACTIVE, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		March 31, 2015				December 31, 2014
ASSETS
Current Assets
Cash		$	1,512			$	2,957
Deposits			15,196				15,196
Total current assets			16,708				18,153
Fixed assets, net			59,342				52,782
Total assets		$	76,050			$	70,935
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current  Liabilities
Accounts payable		$	742,304			$	400,323
Accrued expenses			281,527				924,372
Related party advance			53,387				-
Related party notes payable			175,158				555,250
Notes payable, net of discount of $2,021 and $2,889, respectively			147,979				147,111
Convertible notes payable, net of discount of $404,099 and $168,000 respectively			150,901				6,000
Common stock payable			25,000				-
Derivative liabilities – current			675,166				177,149
Total current liabilities			2,251,422				2,210,205
Derivative liabilities – non-current			176,459				328,044
Convertible notes payable, net of debt discount of $53,702 and $55,556 respectively			1,854				-
Total liabilities			2,429,735				2,538,249
Commitments and contingencies
Stockholders’ Deficit
Preferred Stock, $0.001 par value, 10,000,000 authorized, -0- shares issued and outstanding			-				-
Common stock, $0.001 par value, 300,000,000 shares authorized; 61,325,877 and 25,481,323 shares issued and outstanding, respectively			61,326				25,481
Subscriptions receivable			(125,000	)			-
Additional paid-in-capital			29,794,904				25,242,130
Accumulated deficit			(32,084,915	)			(27,734,925	)
Total stockholders’ deficit			(2,353,685	)			(2,467,314	)
Total liabilities and stockholders’ deficit		$	76,050			$	70,935

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

EVENTURE INTERACTIVE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended March 31, 2015				Three Months Ended March 31, 2014
Revenues		$	-			$	-
General and administrative expenses			4,175,147				16,048,120
Operating loss			(4,175,147	)			(16,048,120	)
Change in fair value of derivative liabilities			(19,797	)			-
Interest expense			(155,046	)			-
Net loss		$	(4,349,990	)		$	(16,048,120	)
Net loss per common share  – basic and diluted		$	(0.09	)		$	(0.79	)
Weighted average number of common shares outstanding			47,455,946				20,427,429

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

EVENTURE INTERACTIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Three Months Ended
		March 31,
		2015				2014
Cash flows from operating activities
Net loss		$	(4,349,990	)		$	(16,048,120	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation			3,022,215				15,636,976
Change in fair value of derivative liabilities			19,797				-
Depreciation and amortization expense			7,165				3,364
Amortization of debt discount on notes			147,623				-
Changes in operating assets and liabilities:
Accounts payable			341,981				22,506
Accrued expenses			277,052				114,175
Net cash used in operating activities			(534,157	)			(271,099	)
Cash flows from investing activities
Software development costs			-				(163,639	)
Acquisition of fixed assets			(13,725	)			(2,900	)
Net cash used in investing activities			(13,725	)			(166,539	)
Cash flows from financing activities
Proceeds from related party loans			24,000				-
Repayments of related party loans			(43,700	)			-
Related party advance			53,387				-
Proceeds from convertible notes			337,750				-
Proceeds from sale of common stock			175,000				675,000
Net cash provided by financing activities			546,437				675,000
Net change in cash			(1,445	)			237,362
Cash at beginning of the period			2,957				67,762
Cash at end of the period		$	1,512			$	305,124
Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes		$	-			$	-
Interest		$	-			$	-
Noncash investing and financing transactions:
Original issue discount on issuance of convertible debt		$	43,251			$	-
Debt discount – variable conversion feature derivative liabilities		$	326,635			$	-
Debt discount – common stock and warrants		$	11,115			$	-
Issuance of common stock for related party notes payable and interest		$	362,105			$	-
Issuance of common stock to settle accrued expenses		$	918,184			$	-
Stock subscriptions receivable		$	125,000			$	-

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

EVENTURE INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

1. ORGANIZATION AND BUSINESS OPERATIONS

 

The Company was incorporated in the State of Nevada on November 29, 2010. The Company was in the GPS tracking system business until late in 2012, when the Company redirected all of its efforts into the social media business. On February 20, 2013, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State to change its name from Live Event Media, Inc. to Eventure Interactive, Inc. (the “Company”).

 

Going Concern

 

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $32,084,915 as of March 31, 2015 and further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or the private placement of common stock. These financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements of Eventure Interactive, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K filed with the SEC. 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 interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent year ended December 31, 2014, as reported in Form 10-K, have been omitted.

 

Principles of Consolidation

 

The financial statements include the accounts of the Company and its subsidiary. Intercompany transactions and balances have been eliminated.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

 

Basic and Diluted Loss Per Common Share

 

Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per common share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per common share excludes all potential common shares if their effect is anti-dilutive.

 

Since the Company is in a loss position, it has excluded stock options and warrants from its calculation of diluted net loss per common share. At March 31, 2015, the Company had 9,131,216 stock options and 8,419,908 warrants and 33,480,839 shares issuable upon the conversion of convertible debt that would have been included in its calculation of diluted net loss per common share if they were not anti-dilutive.

 

Software Development Costs

 

Costs incurred in the research and development of new software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional costs are capitalized in accordance with authoritative guidance until the product is available for general release.

 

Fixed Assets

 

Fixed assets are stated at cost and depreciated using the straight-line method over the estimated useful life of the asset. The Company’s fixed assets are comprised of computer equipment and the estimated life of computer equipment is three years.

 

Derivative Liabilities

 

The Company reviews the terms of the common stock, convertible debt and warrants it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments.

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a Black-Scholes model for valuation of the derivative instrument.

 

Stock-Based Compensation

 

The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, over the vesting or service period, as applicable, of the stock award using the straight-line method.

 

Fair Value Measurements

 

As defined in FASB ASC Topic No. 820 – 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

 

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

 

Level 2:

Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

 

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

 

As required by FASB ASC Topic No. 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant instruments was calculated using the black scholes model.

 

New Accounting Pronouncements

 

The Company’s management does not believe that any other recently issued pronouncements will have a material effect on the Company’s financial statements.

 

3. RELATED PARTY TRANSACTIONS

 

Related party advance

 

During the three months ended March 31, 2015, the Company’s CFO advanced the Company $53,387 to fund the operations of the Company.

 

Related party notes payable

 

At March 31, 2015 and December 31, 2014, the Company owed its Chairman and former CEO $0 and $190,250, respectively, for loans provided to the Company by the Chairman. The loans bear interest at 1% per annum. On January 15, 2015, we received a $14,000 loan from its Chairman bearing interest at 1%. During the three months ended March 31, 2015, the Company paid off $43,700 of the loans and converted $160,550 of the loans and $431 of interest into 2,299,729 shares of common stock of the Company. The Company recorded stock-based compensation of $114,757 for the difference between the fair value of the common stock issued on the grant date and the loans and interest converted.

 

At March 31, 2015 and December 31, 2014, the Company owed its CFO $10,000 and $40,000, respectively, for loans provided to the Company by the CFO. The loans bear interest at 1% per annum. On February 12, 2015, the Company received a $10,000 loan from its CFO bearing interest at 1% per annum, payable May 13, 2015. During the three months ended March 31, 2015, the Company converted $40,000 of the loans and $143 of interest into 573,471 shares of common stock of the Company. The Company recorded stock-based compensation of $28,616 for the difference between the fair value of the common stock issued on the grant date and the loans and interest converted.

 

At March 31, 2015 and December 31, 2014, the Company owed a Director of the Company $115,158 and $275,000, respectively, for loans provided to the Company by the Director. The amounts owed to the Director are past due and in default at March 31, 2015. The loans bear interest at 1% per annum. During the three months ended March 31, 2015, the Company converted $159,842 of the loans and $1,139 of interest into 2,299,729 shares of common stock of the Company. The Company recorded stock-based compensation of $114,757 for the difference between the fair value of the common stock issued on the grant date and the loans and interest converted.

 

 

At March 31, 2015 and December 31, 2014, the Company owed $50,000 to a relative of an executive of the Company. The amounts owed to the individual are past due and in default at March 31, 2015. The loans bear interest at 1% per annum.

 

4. NOTES PAYABLE

 

During August 2014, the Company received $45,000 in cash for a $50,000 promissory note due in June 2015. The promissory note has no stated interest rate. The Company is recognizing the $5,000 original issue discount as interest expense over the life of the promissory note which is due in June 2015. As of March 31, 2015 and December 31, 2014, the amount due in the attached consolidated balance sheet was $47,979 and $47,111, respectively, net of discount of $2,021 and $2,889, respectively.

 

During the year ended December 31, 2014, the Company received $100,000 in cash from third parties in exchange for $100,000 of notes payable bearing interest at 1% per annum. At March 31, 2015, these notes payable are past due and in default.

 

5. CONVERTIBLE NOTES PAYABLE

 

LG Convertible Note

 

On December 15, 2014, the Company issued to LG Capital Funding, LLC (“LG”) an 8% convertible promissory note in the principal amount of $110,000 due December 15, 2015 (the “LG Note”). The LG Note was subject to an original issue discount of $15,000 resulting in net proceeds of $95,000. The LG Note is convertible by LG, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior to the date upon which LG provides us with a notice of conversion. The LG Note may be prepaid by us any time within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The LG Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

The conversion price of the LG Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $113,364 at the issuance date. Debt discount was recorded up to the $110,000 purchase price of the note (of which $15,000 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $18,364 was expensed immediately as unrealized loss on derivative obligation.

 

The Company amortized $26,809 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

JMJ Convertible Note

 

On December 15, 2014, we issued a convertible promissory note in the principal amount of $55,556 to JMJ Financial (“JMJ”) due December 15, 2016 (the “JMJ Note”). The JMJ Note was subject to an original issue discount resulting in net proceeds of $50,000. The JMJ Note, including accrued interest due thereon, is convertible by JMJ, at its option, any time after 180 days from the date of issuance at a conversion price equal to the lesser of $0.16 or 60% of the average of the two lowest trading prices during the twenty trading days prior to conversion. The JMJ Note may be prepaid by us any time within 120 days from the date of issuance without payment of interest. If we do not prepay the JMJ Note within such 120 day period, a one-time interest charge of 12% will be applied to the principal amount. The JMJ Note becomes immediately due and payable upon certain events of default and subjects us to significant default penalties. JMJ may provide us with additional loans on the same terms pursuant to which JMJ would receive notes which, together with the JMJ Note, aggregate to $250,000. The JMJ Note was amended on January 16, 2015 to, among other things, remove a provision which had provided that if, at any time while the JMJ Note is outstanding, we issued securities on more favorable terms than those contained in the JMJ Note, JMJ had the option to include the more favorable terms in the JMJ Note.

 

 

The conversion price of the $55,555 JMJ Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $56,263 at the issuance date. Debt discount was recorded up to the $50,000 purchase price of the note (of which $5,555 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $6,263 was expensed immediately as unrealized loss on derivative obligation.

 

The Company amortized $1,854 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

KBM Convertible Note

 

On January 29, 2015 and December 19, 2014, the Company issued 8% convertible promissory notes to KBM Worldwide, Inc. (“KBM”) in the principal amounts of $48,000 and $64,000, respectively due November 2, 2015 and September 19, 2015, respectively, (the “KBM Notes”). The Company received cash proceeds of $44,100 and $60,000 for these notes. The KBM Notes are convertible by KBM at its option any time after 180 days from issuance at a conversion price equal to 58% of the average of the lowest three trading prices for our common stock during the ten trading day period prior to the date on which KBM provides us with a conversion notice. The KBM Notes may be prepaid by us any time within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 140% for prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 120%, for the 61-90 day period is 125%, for the 91-120 day period is 130% and for the 121-150 day period is 135%. The KBM Notes become immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

The conversion price of the KBM Notes are based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion features were recognized as derivative instruments at the issuance dates and are measured at fair value at each reporting period. The Company determined that the fair value of the derivatives was $76,817 and $63,980 at the issuance dates of the $48,000 and $64,000 notes, respectively. Debt discount was recorded up to the purchase price of the note and is amortized to interest expense over the term of the notes. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes was expensed immediately as unrealized loss on derivative obligation.

 

The Company amortized $31,195 of the discount on the KBM Notes to interest expense during the three months ended March 31, 2015.

 

 

FireRock Securities Purchase Agreement

 

On January 6, 2015, we entered into a Securities Purchase Agreement (“SPA”) with FireRock Global Opportunities Fund L.P., a Delaware limited partnership (“FireRock”), pursuant to which we issued a convertible promissory note in the principal amount of $137,500 to FireRock (the “FireRock Note”). The FireRock Note was subject to an original issue discount of $15,000 resulting in our receipt of $122,500 in net proceeds. In connection with the SPA, we also issued 250,000 shares of our restricted common stock and a five-year warrant to purchase 500,000 shares of our common stock at an exercise price of $0.50 per share to FireRock. The SPA and a related Registration Rights Agreement between us and FireRock, dated January 6, 2015, provide for us to register the shares issuable upon conversion of the FireRock Note and the exercise of the warrant. We were required to file a registration statement with respect to the shares underlying the note and warrant within 60 days of the January 6, 2015 issuance date and have such registration statement declared effective not more than 150 days following the issuance date. We filed the registration statement on March 6, 2015. The note has a six-month term and provides for payment of interest on the principal amount at maturity at the rate of 1% per annum.

 

The note, including accrued interest thereon, can be prepaid by us, in whole or in part, at any time prior to maturity, upon three trading days prior written notice, at a premium of 135%. The premium rate also applies to any default interest which may be due at the time of prepayment. Default interest, at the rate of 15% per annum, will become due in the event that we fail to pay principal or interest when due on the Notes. The note is convertible at any time after issuance at the lower of (i) $0.20 per share or (ii) 60% (50% upon an Event of Default) of the volume weighted average price for our common stock during the three consecutive trading days immediately preceding the trading day on which we receive a notice of conversion. The SPA further provides that if we complete a registered primary public offering of our securities at any time during which the notes remains outstanding, that the note can be converted at the closing of such offering at a conversion price equal to a 10% discount to the offering price to investors in the offering. We are required to reserve 20,000,000 shares of our common stock to cover note conversions and register all such shares in the registration statement. We are also required to cause our transfer agent to issue and transfer shares to the holders of the Notes within one trading day of our receipt of a conversion notice. The failure to do so constitutes an Event of Default under the Notes. Other Events of Default including, but are not limited to, our failure to pay principal and interest when due, a material breach by us of any of the terms of the FireRock transaction documents, a breach of any representation or warranty made by us in the FireRock transaction documents having a material adverse effect on the holder of the Notes, our appointment of a receiver or trustee, our becoming bankrupt, our stock becoming delisted, our failure to comply with our reporting requirements under the Securities Exchange Act of 1934, our cessation of operations, our dissolution or liquidation, our failure to maintain any of our material assets, certain restatements of our financial statements, our effectuation of a reverse stock split, and certain unvacated judgments against us involving more than $50,000. Subject to applicable cure periods, the Notes become immediately due and payable upon the occurrence and during the continuation of Events of Default.

 

The conversion price of the FireRock Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as aderivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $111,385 at the issuance date of the note. The fair value of the 250,000 shares of common stock issued to FireRock was $25,000. The fair value of the 500,000 warrants issued to FireRock was $38,774. Debt discount was recorded up to the purchase price of the note and is amortized to interest expense over the term of the note.

 

The Company amortized $62,923 of the discount on the FireRock Note to interest expense during the three months ended March 31, 2015.

 

 

Tangiers Investment Group

 

On January 23, 2015, we issued a one-year 10% convertible promissory note to Tangiers Investment Group, LLC (“Tangiers”) in the principal amount of $55,000 (the “Tangiers Note”). The Tangiers Note was subject to an original issue discount of $5,000 resulting in net proceeds of $50,000. The Tangiers Note, including accrued interest due thereon, is convertible by Tangiers, at its option, any time after 180 days from the date of issuance at a conversion price equal to 52% of the lowest trading price for our common stock during the twenty trading days prior to conversion. The conversion price will be further reduced by 10% if we are placed on “chill” status with the Depository Trust Company until such “chill” is remedied and will be reduced by 5% if we are not Deposits and Withdrawl at Custodian eligible. The Tangiers Note may be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The Tangiers Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. By mutual agreement, Tangiers may provide us with additional funding on the same terms up to an aggregate principal amount of $330,000 during the 9-month period which commenced on January 23, 2015.

 

The conversion price of the Tangiers Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $126,436 at the issuance date. Debt discount was recorded up to the $55,000 purchase price of the note (of which $5,000 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount was expensed immediately as unrealized loss on derivative obligation.

 

The Company amortized $10,096 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

Adar Bays

 

On January 23, 2015, we issued to Adar Bays, LLC (“Adar”) an 8% convertible promissory note in the principal amount of $44,000 due January 23, 2016 (the “Adar Note”). The Adar Note was subject to an original issue discount of $6,500 resulting in net proceeds of $37,500. The Adar Note, including accrued interest due thereon, is convertible by Adar, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock during the twenty trading days prior to conversion. In the event that our common stock becomes subject to a DTC “chill”, the conversion price formula will be reduced from 62% to 52% while the “chill” remains in effect. The Adar Note may be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133% and for the 121-150 day period is 139%. The Adar Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

The conversion price of the Adar Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $82,630 at the issuance date. Debt discount was recorded up to the $55,000 purchase price of the note (of which $6,500 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount was expensed immediately as unrealized loss on derivative obligation.

 

 

The Company amortized $7,779 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

Union Capital

 

On March 3, 2015, we issued an 8% convertible promissory note to Union Capital, LLC (“Union”) in the principal amount of $44,000 due March 3, 2016 (“Union Note”). The Note was subject to an original issue discount resulting in net proceeds of $38,000. The Note is convertible by Union, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior to the date upon which Union provides us with a notice of conversion. The Note may be prepaid by us any time within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

The conversion price of the Union Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $49,061 at the issuance date. Debt discount was recorded up to the $44,000 purchase price of the note (of which $6,000 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount was expensed immediately as unrealized loss on derivative obligation.

 

The Company amortized $3,366 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

River North Equity

 

On March 18, 2015, we issued to River North Equity, LLC (“River North”) a 9% convertible promissory note in the principal amount of $52,500 (the “River North Note”). The River North Note was subject to a 10% original issue discount resulting in our receipt of $47,250 in net proceeds. The River North Note is convertible by River North, at its option, any time after 180 days from issuance at a conversion price equal to 60% of the lowest trading price for our common stock during the twenty trading days prior to the date on which River North provides us with a conversion notice. The conversion price formula will be reduced from 60% to 50% if we are not DWAC eligible. The River North Note contains a right of first refusal in favor of River North with regard to certain future borrowings by us for the term of the River North Note. The River North Note may be prepaid by us any time prior to our receipt of a conversion notice from River North in an amount equal to 105% multiplied by the sum of the then outstanding principal amount of the River North Note plus (i) accrued and unpaid interest due on the principal amount; and (ii) default interest and penalty payments, if any, due on the River North Note at the time of prepayment. The River North Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

The conversion price of the River North Note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the derivative was $57,893 at the issuance date. Debt discount was recorded up to the $52,500 purchase price of the note (of which $7,750 is an original issue discount) and is amortized to interest expense over the term of the note. The fair value of the beneficial conversion feature in excess of the principal amount allocated to the notes in the aggregate amount was expensed immediately as unrealized loss on derivative obligation.

 

 

The Company amortized $1,865 of the discount on the convertible notes payable to interest expense during the three months ended March 31, 2015.

 

Convertible debt consists of the following as of March 31, 2015 and December 31, 2014:

 

		March 31, 2015				December 31, 2014
Convertible note dated December 15, 2014, bearing interest at 8% per annum, matures December 15, 2015, and convertible into shares of common stock at a variable conversion price		$	110,000			$	110,000
Convertible note dated December 18, 2014, bearing interest at 8% per annum, matures November 24, 2015, and convertible into shares of common stock at a variable conversion price			64,000				64,000
Convertible note dated December 16, 2014, bearing interest at 12% per annum, matures December 16, 2016, and convertible into shares of common stock at a variable conversion price			55,556				55,556
Convertible note dated January 29, 2015, bearing interest at 8% per annum,     matures November 2, 2015, and convertible into shares of common stock at a variable conversion price			48,000				-
Convertible note dated January 6, 2015, bearing interest at 1% per annum, matures July 6, 2015, and convertible into shares of common stock at a variable conversion price			137,500
Convertible note dated January 23, 2015, bearing interest at 10% per annum, matures January 23, 2016, and convertible into shares of common stock at a variable conversion price			55,000
Convertible note dated January 26, 2015, bearing interest at 8% per annum, matures January 23, 2016, and convertible into shares of common stock at a variable conversion price			44,000
Convertible note dated March 3, 2015, bearing interest at 8% per annum, matures March 3, 2016, and convertible into shares of common stock at a variable conversion price			44,000
Convertible note dated  March  18, 2015, bearing interest at 9% per annum, matures March 18, 2016, and convertible into shares of common stock at a variable conversion price			52,500				-
Less: debt discount			(457,781	)			(223,556	)
Convertible notes payable, net			152,755				6,000
Less: current portion			(150,901	)			(6,000	)
Long-term portion		$	1,854			$	-

 

6. DERIVATIVE LIABILITIES

 

Warrants

 

The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option.

 

 

The Company issued 1,800,000 warrants in connection with the issuance of 600,000 shares of common stock sold for cash during June 2014. All of the warrants vested immediately. These warrants contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the relevant time. The amount of any such adjustment is determined in accordance with the provisions of the relevant warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the relevant time. In addition, the number of shares issuable upon exercise of these warrants will be increased inversely proportional to any decrease in the exercise price, thus preserving the aggregate exercise price of the warrants both before and after any such adjustment.

 

The fair values of these warrants issued were recognized as derivative warrant instruments at issuance and are measured at fair value at each reporting period. The Company determined the fair values of these warrants using the Black-Scholes option pricing model.

 

Activity for derivative warrant liabilities during the three months ended March 31, 2015 was as follows:

 

						Initial valuation
						of derivative				Decrease
						liabilities upon				in
		Balance at				issuance of new				fair value of				Balance at
		December 31,				warrants during				derivative				March 31,
		2014				the year				liability				2015
Derivative warrant instruments		$	269,929			$	-			$	(164,583	)		$	105,346

 

The fair value of these warrants was valued on March 31, 2015 using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 0.26%, (2) term of 7 years, (3) expected stock volatility of 176.02%, (4) expected dividend rate of 0%, and (5) common stock price of $0.03.

 

Derivative conversion feature on convertible debt

 

Activity for derivative liabilities related to the variable conversion features on convertible debt during the three months ended March 31, 2015 was as follows:

 

Lender		Balance at December 31, 2014				Initial valuation of derivative liabilities upon issuance of variable feature convertible notes				Change in fair value of derivative liability				Balance at  March 31, 2015
LG			110,867				-				23,848				134,715
JMJ			58,115				-				12,998				71,113
KBM (2014)			66,282				-				15,527				81,809
FireRock			-				111,385				24,534				135,919
Tangiers			-				50,000				34,084				84,084
Adar			-				37,500				16,509				54,009
KBM (2015)			-				45,000				16,954				61,954
Union			-				38,000				16,659				54,659
River North			-				44,750				23,267				68,017
Total		$	235,264			$	326,635			$	184,380			$	746,279

 

 

The fair value of these derivatives was valued on the date of the issuances of the 2015 convertible notes using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 0.17% - 0.26%, (2) term of 0.50- 1.0 years, (3) expected stock volatility of 141% - 168%, (4) expected dividend rate of 0%, and (5) common stock price of $0.06 - $0.12.

 

The fair value of these derivatives was valued on March 31, 2015 using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 0.25%, (2) term of 0.27 – 1.72 years, (3) expected stock volatility of 130% -228%, (4) expected dividend rate of 0%, and (5) common stock price of $0.03.

 

7. STOCKHOLDERS’ EQUITY

 

Sales of Common Stock for Cash

 

During the three months ended March 31, 2015, the Company issued 500,000 shares of common stock to an individual at a price of $0.05 per share for total cash proceeds of $25,000. The individual was also issued 500,000 warrants (see warrant awards below). The 500,000 shares of common stock have not yet been issued and are recorded as common stock payable as of March 31, 2015.

 

Aladdin

 

On November 25, 2014, we entered into an Equity Purchase Agreement and a Registration Rights Agreement with Aladdin Trading, LLC (“Aladdin”) in order to establish an additional source of funding. Under the Investment Agreement, Aladdin agreed to provide us with up to $5,000,000 of funding upon effectiveness of a registration statement. Following effectiveness of the registration statement, we can deliver puts to Aladdin under the Equity Purchase Agreement under which Aladdin will be obligated to purchase shares of our common stock based on the investment amount specified in each put notice, which investment amount may be any amount up to $5,000,000 less the investment amount received by us from all prior puts, if any. Puts may be delivered by us to Aladdin until the earlier of December 31, 2015 or the date on which Aladdin has purchased an aggregate of $5,000,000 of put shares. The number of shares of our common stock that Aladdin will purchase pursuant to each put notice (“Put Shares”) will be determined by dividing the investment amount specified in the put by the purchase price. The purchase price per share of common stock will be set at 50% of the Market Price for our common stock with Market Price being defined as the volume weighted average trading price for our common stock during the three consecutive trading days immediately following the date of our put notice to Aladdin (the “Pricing Period”). There is no minimum amount that we can put to Aladdin at any one time although the amount may be limited to the amount of securities that can be registered at any given time. On the put notice date, we are required to deliver put shares (“Estimated Put Shares”) to Aladdin in an amount determined by dividing the closing price on the trading day immediately preceding the put notice date multiplied by 50% and Aladdin is required to simultaneously deliver to us the investment amount indicated on the put notice. At the end of the Pricing Period, when the purchase price is established and the number of Put Shares for a particular put is determined, Aladdin must return to us any excess Put Shares provided as Estimated Put Shares or alternatively we must deliver to Aladdin any additional Put Shares required to cover the shortfall between the amount of Estimated Put Shares and the amount of Put Shares. At the end of the pricing period we must also return to Aladdin any excess related to the investment amount previously delivered to us. Pursuant to the Equity Purchase Agreement, Aladdin and its affiliates will not be issued shares of our common stock that would result in Aladdin’s beneficial ownership equaling more than 9.99% of our outstanding common stock. Pursuant to the Registration Rights Agreement, we will be registering 20,000,000 shares of our common stock for issuance to and sale by Aladdin pursuant to the Equity Purchase Agreement. Unless the price of our common stock increases substantially, we will not have access to the full commitment amount under the Equity Purchase Agreement.

 

 

On February 2, 2015, we delivered a put notice to Aladdin for $75,000. This resulted in our issuance of 1,153,847 shares to Aladdin. On February 20, 2015, we delivered a second put notice to Aladdin for $100,000. This resulted in our issuance of 1,538,462 shares to Aladdin, of which 198,877 shares were required to be returned to us for cancellation resulting in a net issuance of 1,339,585 shares to Aladdin as the 1,538,462 share issuance represented an estimate as to the number of shares covered by the put. As of March 31, 2015, Aladdin owed us $25,000 from the second put, of which $20,000 was received in May 2015. On March 10, 2015, we delivered a third put notice to Aladdin for $100,000. This resulted in our issuance of 2,352,942 shares to Aladdin. Based upon the price of our common stock for the third put valuation period we were required to issue an additional 58,322 shares to Aladdin resulting in a total issuance of 2,411,265 shares pursuant to the third put. We have deducted 58,322 shares from the share amount required to be returned to us from the second put and are now entitled to the return of 140,554 shares from the second put share issuance. Aladdin owes us $100,000 from the third put.

 

During the three months ended March 31, 2015, the Company received $150,000 from Aladdin for the issuance of common stock (as described above). As of March 31, 2015, the Company was owed $125,000 for subscriptions receivable (as described above).

 

Common Stock issued for Services

 

Gannon Giguire

 

On February 2, 2015, we entered into Amendment No. 2 to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Gannon Giguiere, our Director and former CEO. The amendment reduced the CEO’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to the CEO, and provided for the issuance of 5,000,000 shares of our common stock (which were granted piggyback registration rights) and 2,000,000 stock options which have a ten-year term and are exercisable for the purchase of 2,000,000 shares of our common stock at a price of $0.10 per share. The stock options vest monthly and ratably over the 36-month period commencing upon issuance. The fair value of the 5,000,000 shares of common stock issued was $0.12 per share ($599,500). During the three months ended March 31, 2015, the Company recorded stock-based compensation of $599,500 in connection with the issuance of these shares.

 

On February 2, 2015, $351,000 in accrued salary due to Gannon Giguiere, was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 5,014,286 shares of common stock which were granted piggyback registration rights. The fair value of the common stock issued was $0.12 per share ($601,213). The Company recorded the difference between the accrued salary and the fair value of the shares issued of $250,213 as stock-based compensation during the three months ended March 31, 2015.

 

 

On February 2, 2015, an aggregate of $160,550 of related party notes payable and $431 of interest was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 2,299,729 shares of common stock to Mr. Giguiere. Piggyback registration rights apply to these shares. The fair value of the common stock issued was $0.12 per share ($275,738). The Company recorded the difference between the related notes payable and accrued interest and the fair value of the shares issued of $114,757 as stock-based compensation during the three months ended March 31, 2015.

 

Alan Johnson

 

On February 2, 2015, we entered into Amendment No. 2 to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Alan Johnson, our Chief Corporate Development Officer. The amendment reduced Mr. Johnson’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to Mr. Johnson, and provided for the issuance of 2,000,000 shares of our common stock (which were granted piggyback registration rights) and 1,000,000 stock options to Mr. Johnson upon execution of the amendment. The stock options were issued under our 2015 Equity Incentive Plan as non-statutory stock options. The stock options have a ten-year term and are exercisable for the purchase of 1,000,000 shares of our common stock at a price of $0.10 per share. The stock options vest monthly and ratably over the 36-month period commencing upon issuance. The fair value of the 2,000,000 shares of common stock issued was $0.12 per share ($239,800). During the three months ended March 31, 2015, the Company recorded stock-based compensation of $239,800 in connection with the issuance of these shares.

 

On February 2, 2015, $339,750 in accrued salary due to Alan Johnson was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 4,853,571 shares of common stock to Mr. Johnson. Piggyback registration rights apply to these shares. The fair value of the common stock issued was $0.12 per share ($581,943). The Company recorded the difference between the accrued salary and the fair value of the shares issued of $242,193 as stock-based compensation during the three months ended March 31, 2015.

 

On February 2, 2015, an aggregate of $159,842 of related party notes payable and $1,139 of interest was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 2,299,729 shares of common stock to Mr. Johnson. Piggyback registration rights apply to these shares. The fair value of the common stock issued was $0.12 per share ($275,738). The Company recorded the difference between the related notes payable and accrued interest and the fair value of the shares issued of $114,757 as stock-based compensation during the three months ended March 31, 2015.

 

Mike Rountree

 

On February 2, 2015, we entered into Amendment No. 1 to the March 10, 2014 Employment Services agreement between us and Michael Rountree, our Chief Financial Officer and Treasurer. The Amendment reduced Mr. Rountree’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to Mr. Rountree and provided for the issuance of 2,000,000 shares of our common stock (which were granted piggyback registration rights) and 1,000,000 stock options to Mr. Rountree upon execution of the amendment. The stock options were issued under our 2015 Equity Incentive Plan as non-statutory stock options. The stock options have a ten-year term and are exercisable for the purchase of 1,000,000 shares of our common stock at a price of $0.10 per share. The stock options vest monthly and ratably over the 36 month period commencing upon issuance. The fair value of the 2,000,000 shares of common stock issued was $0.12 per share ($239,800). During the three months ended March 31, 2015, the Company recorded stock-based compensation of $239,800 in connection with the issuance of these shares.

 

 

On February 2, 2015, $227,435 in accrued salary due to Michael Rountree, our Treasurer and Chief Financial Officer, was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 3,249,071 shares of common stock to Mr. Rountree. Piggyback registration rights apply to these shares. The fair value of the common stock issued was $0.12 per share ($389,564). The Company recorded the difference between the accrued salary and the fair value of the shares issued of $162,129 as stock-based compensation during the three months ended March 31, 2015.

 

On February 2, 2015, an aggregate of $40,000 of related party notes payable and $143 of interest was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 573,471 shares of common stock to Mr. Rountree. Piggyback registration rights apply to these shares. The fair value of the common stock issued was $0.12 per share ($68,759). The Company recorded the difference between the related notes payable and accrued interest and the fair value of the shares issued of $28,616 as stock-based compensation during the three months ended March 31, 2015.

 

Other issuances of stock for services

 

The Company issued 3,400,000 shares of common stock in aggregate for consulting services during the three months ended March 31, 2015 and recorded stock-based compensation of $399,300 based on the grant date fair value of the common shares issued.

 

2015 Equity Incentive Plan

 

On February 2, 2015, our board of directors approved our 2015 Equity Incentive Plan. Our shareholders have yet to approve the 2015 Equity Incentive Plan and unless they do so prior to February 2, 2016, we will not be able to issue incentive stock options under the 2015 Equity Incentive Plan. A total of 11,000,000 shares of our common stock are reserved for issuance under the 2015 Plan. If an incentive award granted under the 2015 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2015 Plan. Shares issued under the 2015 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2015 Plan. In addition, the number of shares of common stock subject to the 2015 Plan and the number of shares and terms of any incentive award are subject to adjustment in the event of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

 

The compensation committee of the Board, or the Board in the absence of such a committee, will administer the 2015 Plan and grants made thereunder. Subject to the terms of the 2015 Plan, the compensation committee has complete authority and discretion to determine the terms of awards under the 2015 Plan. Any officer or other employee of the Company or its affiliates, or an individual that the Company or an affiliate has engaged to become an officer or employee, or a consultant or advisor who provides services to the Company or its affiliates, including a non-employee director of the Board, is eligible to receive awards under the 2015 Plan.

 

Our Board of Directors or if then in place, the compensation committee of our Board of Directors, may amend, suspend or terminate the 2015 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of our common stock reserved for issuance under the 2015 Plan or reduces the minimum exercise price for options or exchange of options for other incentive awards. Unless sooner terminated, the 2015 Plan terminates ten years after the date on which it was adopted.

 

 

Stock Option Awards

 

On February 2, 2015, ten-year non-statutory stock options to purchase an aggregate of 6,950,000 shares of our common stock, vesting monthly and ratably over the 36 month period commencing upon issuance on the first day of each month during the vesting period with an initial vesting date of March 1, 2015 and a final vesting date of February 1, 2018 and an exercise price of $0.10 per share were issued under the 2015 Equity Incentive Plan to our employees. options have a 10-year term. The stock price on the grant date was $0.03 per share. As a result, the intrinsic value for these options on the grant date was $0. The fair value of these options was $816,037 and was valued on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1.68%, (2) term of 10 years, (3) expected stock volatility of 176%, and (4) expected dividend rate of 0%.

 

A summary of stock option activity is presented below:

 

						Weighted-				Weighted- average
						average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
		Shares				Price				Term (years)				Value
Outstanding at December 31, 2014			2,583,744			$	0.81							$	-
Granted			6,950,000			$	0.10
Cancelled/Expired			(402,528	)		$	0.41
Outstanding at March 31, 2015			9,131,216			$	0.29				9.48			$	-
Exercisable at March 31, 2015			1,836,197			$	0.60				8.64			$	-

 

During the three months ended March 31, 2015 and 2014, the Company recognized stock-based compensation expense of $418,630 and $630,416, respectively, related to stock options. As of March 31, 2015, there was $1,738,785 of total unrecognized compensation cost related to non-vested stock options.

 

Warrant Awards

 

In March 2015, the Company issued 500,000 shares of common stock and 500,000 warrants to an investor for cash proceeds of $25,000. The warrants have a 10-year term and have an exercise price of $0.10 per share. The stock price on the grant date was $0.06 per share. As a result, the intrinsic value for these warrants on the grant date was $0. The fair value of these warrants was $29,000 and was valued on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1.98%, (2) term of 10 years, (3) expected stock volatility of 147%, and (4) expected dividend rate of 0%. All of the warrants vested immediately.

 

In February 2015, the 7 members of our Advisory Board were each issued a ten-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.10 per share resulting in the issuance of an aggregate of 700,000 warrants. The stock price on the grant date was $0.12 per share. As a result, the aggregate intrinsic value for these warrants on the grant date was $1,400. The fair value of these warrants was $82,650 and was valued on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1.68%, (2) term of 10 years, (3) expected stock volatility of 148%, and (4) expected dividend rate of 0%. All of the warrants vested immediately.

 

In February 2015, 11 advisors/consultants were each issued a ten-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.10 per share resulting in the issuance of an aggregate of 1,100,000 warrants. The stock price on the grant date was $0.12 per share. As a result, the aggregate intrinsic value for these warrants on the grant date was $2,200. The fair value of these warrants was $129,880 and was valued on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1.68%, (2) term of 10 years, (3) expected stock volatility of 148%, and (4) expected dividend rate of 0%. All of the warrants vested immediately.

 

 

In January 2015, a lender (FireRock) was issued 500,000 warrants in connection with the issuance of a convertible note agreement. The warrants have a 5-year term and have an exercise price of $0.10 per share. The stock price on the grant date was $0.10 per share. As a result, the intrinsic value for these warrants on the grant date was $0. The fair value of these warrants was $38,774 and was valued on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1.29%, (2) term of 5 years, (3) expected stock volatility of 107%, and (4) expected dividend rate of 0%. All of the warrants vested immediately.

 

A summary of warrant activity is presented below:

 

						Weighted-				Weighted- average
						average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
		Shares				Price				Term (years)				Value
Outstanding at December 31, 2014			3,760,831			$	0.75
Granted			2,800,000			$	0.10
Warrants issued pursuant to anti-dilution adjustments			1,759,077			$	0.48
Exercised						$	-
Expired/Forfeited			(250,000	)		$	1.00
Outstanding and exercisable at March 31, 2015			8,069,908			$	0.35				6.27			$	17,100

 

8. COMMITMENTS

 

Consulting Agreements

 

During August 2014, the Company entered into a 2-year consulting services agreement with an individual. Pursuant to the agreement, the individual will be paid $50,000 per year. In connection with the consulting services agreement, the individual assigned to the Company all of the assets owned by the individual related to the individual’s business operations being conducted through the name Gift Ya Now including, but not limited to, software code base, original design / creative elements, domain name and all strategic business relationships. The assets assigned to the Company had a fair value of $0.

 

On October 28, 2014, the Company entered into a consulting agreement with OTC Media, LLC (“OTC Media”) pursuant to which OTC Media provides us with investor and public relations services. The services may include public relations and direct mail campaigns. In connection therewith, we pay OTC Media a service fee equal to 20% of the cost of the campaigns together with reimbursement for the cost of the campaigns. The consulting agreement is in effect until December 31, 2015 and is subject to renewal.

 

Employment Agreements

 

On April 8, 2015, Jason Harvey was appointed as our Chief Executive Officer. We have yet to enter into a written employment agreement with him but expect to do so in the near future. We have agreed to pay him an annual base salary of $175,000 and to make a restricted stock grant to him of 2,250,000 shares of our common stock. Mr. Harvey will also be entitled to receive performance based bonuses and other benefits to be determined.

 

 

The Company signed an employment agreement with its Chief Financial Officer. Pursuant to the agreement, in the event the Chief Financial Officer is terminated without cause, the CFO will be entitled to receive all compensation, including any bonus payments, accrued through the date of termination together with all compensation, including bonus payments, earned through the severance period which is defined as a period of 18 months from termination if more than 18 months remain on the term of the employment agreement at the time of termination or as a period of 12 months from termination, if less than 18 months remain on the term of the employment agreement at the time of termination.

 

9. FAIR VALUE MEASUREMENTS

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2015:

 

		Quoted Prices
		In Active				Significant								Total
		Markets for				Other				Significant				Carrying
		Identical				Observable				Unobservable				Value as of
		Assets				Inputs				Inputs				March 31,
Description		(Level 1)				(Level 2)				(Level 3)				2015
Warrant derivatives		$	-			$	-			$	105,346			$	105,346
Variable conversion features - convertible debt derivatives											746,279				746,279
Total		$	-			$	-			$	851,625			$	851,625

 

The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as level 3 in the fair value hierarchy:

 

		Significant Unobservable Inputs (Level 3)
		Three Months Ended March 31,
		2015				2014
Beginning balance		$	505,193			$	-
Additions			326,635
Change in fair value			19,797				-
Ending balance		$	851,625			$	-
Change in unrealized gain included in earnings		$	19,797			$	-

 

10. SUBSEQUENT EVENTS

 

DEBT

 

VGI Convertible Note Agreement

 

On April 8, 2015, we issued to Vires Group, Inc. (“VGI”), a 12% convertible promissory note in the principal amount of $38,000 due January 2016(the “VGI Note”). The VGI Note is convertible by VGI, at its option, any time after 180 days from issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. The VGI Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

On May 11, 2015, the Company issued to VGI a 12% convertible promissory note in the principal amount of $10,000 due February 13, 2016 (the “Second VGI Note”). The Second VGI Note is convertible by VGI, at its option, any time after 180 days from the date of issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice.

 

 

Crown Bridge Partners

 

On April 14, 2015, the Company issued to Crown Bridge Partners, LLC (“CBP”) a 5% convertible promissory note in the principal amount of $60,000 due April 2016 (the “CBP Note”). The CBP Note is convertible by CBP, at its option, any time after 180 days from issuance at a conversion price equal to 52% of the lowest trading prices for our common stock during the twenty-day trading period prior to the date on which CBP provides us with a conversion notice. The CBP Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

JMJ Financial

 

During May 2015, the Company issued JMJ Financial (“JMJ”) a $25,000 convertible promissory note. The note is identical, in all material respects, to the existing JMJ Note. The note has a two-year term and provide for payment of interest on the principal amount at maturity at the rate of 12% per annum. The note, including accrued interest due thereon, is convertible by JMJ, at its option, any time after 180 days from the date of issuance at a conversion price equal to the lesser of $0.16 or 60% of the average of the two lowest trading prices during the twenty trading days prior to conversion.

 

Peak One Opportunity Fund

 

During May 2015, the Company issued Peak One Opportunity Fund (Peak One”) a $70,000 convertible promissory note in the principal amount of $70,000 due May 2018. The Peak One note is convertible at Peak One’s option into common stock of the Company at a conversion price equal to 60% of the lowest bid price 20 days immediately preceding the date of conversion. Pursuant to this agreement, the Company also issued 75,000 shares of common stock to Peak One with a fair value of $8,625. The value of the shares issued was recorded as debt discount and will be amortized to interest expense over the term of the note.

 

EQUITY

 

During May 2015, an investor purchased 500,000 shares of common stock for $25,000.

 

During May 2015, the Company received $20,000 from Aladdin which reduced the subscription receivable from Aladdin from $125,000 to $105,000.

 

RELATED PARTY ADVANCES

 

A Director of the Company advanced $65,000 in aggregate to the Company during April and May 2015.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Statement Regarding Forward-Looking Information

 

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.

 

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

The following discussion should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

 

Overview

 

Since November 21, 2012, we have been engaged in the social communications business with a specific focus on socializing the invitation, calendar, photo/video sharing and local event memory experiences. We have yet to achieve revenues and do not expect to achieve revenues until in or about the second quarter of 2016.

 

During the quarter ended March 31, 2015, we have continued to develop and commercialize our business, including that part of our business dedicated to software applications and hardware devices, and intend to continue to do so during the remainder of 2015. This will require us to raise additional funds. No assurance can be given that we will be able to do so or that we will be able to do so on reasonable terms. We have incurred losses since our inception. The future of our Company is dependent upon our ability to obtain additional financing, successfully develop and market our products and services and achieve revenues and profitability. We represent a speculative investment. Investors may lose some or all of their investment in us.

 

Our goal is to bring to market innovative hardware and software products and services centered around social communications and the process sharing of memorable information captured at organized events. Our business plan includes the development and marketing of social calendaring applications, participation games, wearable cameras and streaming devices. As part of our strategy we aim to leverage our ability to design and develop proprietary devices, software and services to provide our customers solutions with superior design, ease-of-use and seamless integration. Our full product solution coined “Eventure Everywhere” is being developed to capture everyday events and turn them into meaningful memories to be scrapbooked, organized, and referenced forever.

 

 

Our technically unique, yet simple-to-use, patented mobile-to-web technology platform provides users with a single application that addresses the inefficiencies in the social marketplace by enabling captured memories to be centrally stored and effortlessly shared among event attendees in a secure, real-time, mobile ad-hoc network. Eventure Everywhere™ is keystone to our business offerings and our strategy to maximize the experience of each event with rich features to successfully schedule, capture, scrapbook (store), and share one’s life and events in a meaningful way.

 

Our services can be accessed through:

 

•

Mobile applications for Android-based smartphones and devices;

 

•

Mobile applications for iOS-based smartphones and devices;

 

•

Website – www.eventure.com; and

 

•

Wearable cameras and devices networked through our smart streaming hub, which, together with the above, collectively form the Eventure Everywhere™ Service

 

Feature highlights of Eventure Everywhere™ include:

 

•

An instant, smart communications platform that allows users to tap into our rich features through text messaging;

 

•

A native calendar to mark the event date, time, and location. Providing enhanced RSVP management, organizational list generation, and intuitive reminders to attendees;

 

•

Invitation and cards libraries of thousands of pieces allowing for the creation of invitations to/from events, and transmission of those invitations via email, SMS, or direct mail, and the browsing of future events that friends are attending (and opt-in) to get invited to join via private groupings;

 

•

Secure and private group-forming whereby a user has ultimate control of what photos, videos and messages may be shared with whom and when;

 

•

Targeted recommendations of local ideas to users based on behaviors, habits, and interests. With a local events database comprised of over 7 million event and activities listings; over 21 million venue listings; over 10 million interests; and over 30 million information pieces;

 

•

Passive auto-check-in capability across any mobile platform built on a technique called geo-fencing, which allows participants of events to form a private peer-to-peer network for the purpose of capturing pictures, videos, and messaging (which is the core of our Patent – US Patent No. 8,769,610) – all of which is streamed to a scrapboard and tied to each specific event for long-term memory sharing, retrieval, and storage;

 

•

Wearable cameras and content streaming hub platform that allow users to tap into their collage of digital memories; and

 

•

A series of event inspired games titles, including the following:

 

Lil Buddy™, “Don’t show up without your Lil’ Buddy.”

 

Summary: A smart phone’s best friend, Lil Buddy™, will escort you to all your events, digital or otherwise. Show off your digital buddies at virtual buddy events, accessories, training parties, and other buddy-celebrating activities.

 

 

Tablib™, “What gossip do you know about your friends?”

 

Summary: Make tabloids dedicated to your friends. Tablib™ is a strange mix of tabloid magazines and mad lib’s. We let you pick from an array of strange and juicy stories and you put in existing or new pictures of your friends or yourself. A fully customizable array of options for you to embarrass, praise, and do what is necessary to your friends. After making these stories we put them on “the board” and whichever story has the most views goes into a published e-magazine every month.

 

Connection Roulette™ “Interact and meet.”

 

Summary: Take an educated gamble on whom you will meet at your event. People will be thrown onto the spinning “roulette” wheel and randomly stop on a connections or potential connection from the same event. Interact with old friends, new friends, or get your network on by tuning to different social modes inside the game. You feel like only meeting new business relationships? Then turn on only business networking mode. Just want to meet a new friend? Turn on “friend zone”. Enrich your social life at any party with a simple spin of the wheel.

 

You’re it! ™, “Tag , you’re it!”

 

Summary: You’re It adopts the classic game of Tag to the smart phone. Play with your friends, a new friend, or anyone who is down for a good ol’ fashioned game of tag. You’re It has the same rules as Tag: One user is “it” and the other user’s are “not-its”. To tag someone simply be within 5 feet of the user that’s “it”. When you have been tagged a message on your phone alerts you to start looking for “not-its”. A timer for being “it” is set, and you lose if you don’t find someone to tag before the time runs out.

 

Baby Sit-N-Learn™ “Teaching children to learn through images and imagination.”

 

Summary: The idea is simple, children learn best through interactive and entertaining imagery. While you are at an event children get restless fast so why not offer them a chance to present happy, positive imagery. Make every environment a place for your child to learn at a high level that involves interest, critical thinking, and creativity.

 

Butterfly Narrative™, “Be the change in your story.”

 

Summary: Explore a new story every time you play, or continue the story you’ve already started. Each level is a new decision that influences new twists and turns in your story. Through simple actions and tasks, you can build your story. Choose wisely, as each new stage could have irreversible effects on your narrative. Welcome to an illustrated experience that tells an ever-changing story.

 

Face Jumble™, “Solve the jumble and learn the secret!”

 

Summary: Solve the jumble and reveal your friends darkest secrets. Face Jumble™ connects to your friends, obtains gossip from each of them, and then allows you to uncover their “secrets” by solving a picture jumble. After solving each picture jumble from your friends, you will win an opportunity to find out the latest gossip.

 

Pong Ricochet™, “Aim, bounce, conquer the cup.”

 

Summary: Pong Ricochet™ is based on one principle: get the Pong into the cup. Players are given 3 chances to get the Pong into the cup before they can move onto the next level. With every level completed the number of bounces needed to beat the level goes up as well. The player is challenged to bounce the Pong with all kinds of obstacles, targets, and environments inside the game. Increase your level and upgrade your Pong accordingly to complete further levels and to unlock awards and secrets inside the game.

 

 

On August 12, 2014, we acquired the business operations, including the assets, of Gift Ya Now, an electronic gift card platform created by Vinay Jatwani, who joined us in a consulting capacity in conjunction therewith. Gift Ya Now has more than 450 retailers and restaurants on its platform which enables consumers to quickly and easily find, purchase and send electronic gift cards from leading brands. The assets of Gift Ya Now are comprised of software code base, original design / creative elements, domain name and strategic relationships. We intend to integrate Gift Ya Now into the Eventure Service as well as maintaining Gift Ya Now as a standalone brand. Mr. Jatwani will be working with us with respect to such integration and the launch of Gift Ya Now as part of our product offerings. We continue to work through partnership relationships and core integration into our Website, Android and iOS applications.

 

In the course of the evolution of our products and services, we anticipate receiving revenues from the following sources:

 

•

Hardware Sales

•

Digital Invitation Sales

•

Event Ticket Sales

•

Gift Card Sales

•

In-app Purchasing

•

Sponsored Content

•

Targeted Listings

•

Promotional Offers

•

Media Cloud Storage

•

Ad Suppression Subscriptions

•

Data licensing

 

Results of Operations

 

Revenues

 

We have not generated any revenues since the inception of our Company.

 

Loss from Operations

 

We incurred net losses of $4,349,990 and $16,048,120, respectively, for the three months ended March 31, 2015 and 2014. The decrease in comparable losses was principally due to lower stock compensation in the current three month period.

 

Liquidity and Capital Resources

 

We will need additional capital to implement our strategies. There is no assurance that we will be able to raise the amount of capital that we seek for acquisitions or for future growth plans. Even if financing is available, it may not be on terms that are acceptable to us. In addition, we do not have any determined sources for any future funding. If we are unable to raise the necessary capital at the times we require such funding, we may have to materially change our business plan, including delaying implementation of aspects of our business plan or curtailing or abandoning our business plan. We represent a speculative investment and investors may lose all of their investment.

 

Since inception, we have been financed primarily by way of sales of our common stock and loans from officers, directors and third parties.

 

At March 31, 2015, cash was $1,512. At the same time, we had current liabilities of $2,251,422, which consisted of accounts payable, accrued expenses, derivative liabilities and notes payable. We attribute our net loss from operations to having no revenues to sustain our operating costs as we are an early-stage company. At December 31, 2014, cash was $2,957 and other current assets consisting of deposits was $15,196. At the same time, we had current liabilities of $2,210,205, which primarily consisted of accounts payable of $400,323, accrued expenses of $924,372, related party notes payable of $555,250, notes payable of $147,111 and derivative liabilities of $177,149.

 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $534,157 for the three months ended March 31, 2015, as compared to net cash used of $271,099 for the three months ended March 31, 2014. The change in net cash used in operations was primarily due to the Company incurring a larger net loss (excluding non-cash expenses).

 

Net Cash Used by Investing Activities

 

During the three months ended March 31, 2015 and 2014, we used $13,725 and $166,539, respectively, of cash in investing activities. The cash used in investing activities in the three months ended March 31, 2015 was for the purchase of fixed assets. The cash used in investing activities in the three months ended March 31, 2014 was for software development costs of $163,639 and to purchase fixed assets of $2,900.

 

Net Cash Provided by Financing Activities

 

During the three months ended March 31, 2015 and 2014, we received $546,437 and $675,000, respectively, in cash from financing activities. During the three months ended March 31, 2015, the cash received was largely from the sale of common stock and the issuance of debt. During the three months ended March 31, 2014, the cash received was from the sale of common stock.

 

General

 

We will only commit to capital expenditures for any future projects requiring us to raise additional capital as and when adequate capital or new lines of finance are made available to us. There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing or it is offered on unacceptable terms, then our business plan may have to be modified or curtailed or certain aspects terminated. There is no assurance that even with financing we will be able to achieve our goals.

 

Going Concern

 

Our financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We have incurred losses since inception resulting in an accumulated deficit of $32,084,915 as of March 31, 2015 and further losses are anticipated in the development of our business raising substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations and loans when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from officers, directors and third parties and/or sales of common stock. Our financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

 

 

Critical Accounting Policies and Estimates

 

Significant Accounting Policies

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Software Development Costs

 

Costs incurred in the research and development of new software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional costs are capitalized in accordance with authoritative guidance until the product is available for general release.

 

Stock-based Compensation

 

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, over the vesting or service period, as applicable, of the stock award using the straight-line method.

 

Off-Balance Sheet Arrangements

 

None.

 

Contractual Obligations

 

Not applicable.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended March 31, 2015 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, and for the same reasons set forth in our Annual Report on Form 10-K for the year ended December 31, 2014, management concluded that as of March 31, 2015 our disclosure controls and procedures were not effective.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control 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, but are not limited to, 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 by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Controls

 

During the fiscal quarter ended March 31, 2015, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

 

PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.

 

ITEM 1A.

RISK FACTORS

 

Not applicable.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On January 6, 2015, we entered into a Securities Purchase Agreement (“SPA”) with FireRock Global Opportunities Fund L.P. (“FireRock”), pursuant to which we issued and sold to FireRock a convertible promissory note, dated January 6, 2015, in the principal amount of $137,500 (the “Initial Note”). In connection with the SPA, we also issued to FireRock 250,000 shares of our restricted common stock and a five-year warrant (the “Warrant”), dated January 6, 2015, to purchase 500,000 shares (the “Warrant Shares”) of our common stock at an exercise price of $0.50 per share.

 

On January 23, 2015, we entered into a Note Purchase Agreement with Tangiers Investment Group, LLC (“Tangiers”) pursuant to which Tangiers purchased a one-year 10% Convertible Promissory Note from us in the principal amount of $55,000 (the “Note”). The Note is convertible by Tangiers, at its option, any time after 180 days from the date of issuance at a conversion price equal to 52% of the lowest trading price for our common stock during the twenty trading days prior to conversion.

 

On January 23, 2015, we entered into a Securities Purchase Agreement with Adar Bays, LLC (“Adar”) pursuant to which Adar purchased an 8% redeemable, convertible promissory note (the “Note”) from us in the principal amount of $44,000 due January 23, 2016. The Note is convertible by Adar, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock during the twenty trading days prior to conversion.

 

Effective February 2, 2015, we entered into Amendment No. 2 to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Gannon Giguiere, our President, Secretary and Chairman. We issued 5,000,000 shares of our common stock and 2,000,000 stock options to Mr. Giguiere upon execution of the amendment.

 

Effective February 2, 2015, we entered into Amendment No. 2 to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Alan Johnson, our Chief Corporate Development Officer. We issued 2,000,000 shares of our common stock and 1,000,000 stock options to Mr. Johnson upon execution of the amendment.

 

Effective February 2, 2015, we entered into Amendment No. 1 to the March 10, 2014 Employment Services Agreement between us and Michael Rountree, our Chief Financial Officer and Treasurer. We issued 2,000,000 shares of our common stock and 1,000,000 stock options to Mr. Rountree upon execution of the amendment.

 

 

On February 2, 2015, we entered into a one-year Consulting Agreement with JV Holdings, LLC (“JV”) pursuant to which we issued 350,000 shares of our common stock to JV.

 

On February 2, 2015, we entered into Amendment No. 1 to our March 10, 2014 Consulting Agreement with Harrison Group, Inc. (“HG”) pursuant to which we issued 1,500,000 shares of our common stock to HG.

 

On February 2, 2015, we entered into a one-year Consulting Agreement with Market Pulse Media, Inc. (“MP”) pursuant to which we issued 1,300,000 shares of our common stock to MP.

 

Effective February 2, 2015, $351,000 in accrued salary due to Gannon Giguiere, our President, was converted into 5,014,286 shares of our common stock.

 

Effective February 2, 2015, $339,750 in accrued salary due to Alan Johnson, our Chief Corporate Development Officer, was converted into 4,853,571 shares of our common stock.

 

Effective February 2, 2015, $227,435 in accrued salary due to Michael Rountree, our Treasurer and Chief Financial Officer, was converted into 3,249,071 shares of our common stock.

 

Effective February 2, 2015, $160,981 in principal and interest due thereon with respect to certain loans made to us by Gannon Giguiere was converted into 2,299,729 shares of our common stock.

 

Effective February 2, 2015, $160,981 in principal and interest due thereon with respect to certain loans made to us Alan Johnson was converted into 2,299,729 shares of our common stock.

 

Effective February 2, 2015, $40,143 in principal and interest due thereon with respect to certain loans made to us by Michael Rountree was converted into 573,471 shares of our common stock.

 

Effective February 2, 2015, the 7 members of our Advisory Board were each issued a ten-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.10 per share resulting in the issuance of an aggregate of 700,000 warrants.

 

Effective February 2, 2015, 11 advisors/consultants of ours were each issued a ten-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.10 per share resulting in the issuance of an aggregate of 1,100,000 warrants.

 

Effective February 2, 2015, an aggregate of 6,950,000 ten-year non-statutory stock options to purchase an aggregate of 6,950,000 shares of our common stock at an exercise price of $0.10 per share were issued under our 2015 Equity Incentive Plan to 29 persons.

 

On March 3, 2015, we entered into a Securities Purchase Agreement with Union Capital, LLC (“Union”) pursuant to which Union purchased an 8% redeemable, convertible note from us in the principal amount of $44,000 due March 3, 2016. The note is convertible by Union, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior to the date upon which Union provides us with a notice of conversion.

 

In February 2015, we issued 50,000 shares of our common stock to a consultant.

 

In March 2015, we issued an aggregate of 200,000 shares of our common stock to two consultants.

 

In March 2015, we sold 500,000 units to one person at a price of $0.05 per unit or an aggregate of $25,000. Each unit consists of one share of our common stock and one common stock purchase warrant, each of which warrants is exercisable for one share of our common stock at a price of $0.10 per share for a period of ten years from issuance. The shares comprising part of the units will be issued in May 2015.

 

 

On May 7, 2015, we sold 500,000 shares to one person at a price of $0.05 per share. The shares will be issued in May 2015.

 

On March 18, 2015, we entered into a Convertible Note Purchase Agreement with River North Equity, LLC (“River North”) pursuant to which River North purchased a 9% redeemable, convertible note from us in the principal amount of $52,500. The note is convertible by River North at its option, any time after 180 days from the date of issuance at a conversion price equal to 60% of the lowest trading price for our common stock during the twenty trading days prior to the date upon which River North provides us with a notice of conversion.

 

On April 8, 2015, we entered into a Securities Purchase Agreement with Vires Group, Inc. (“VGI”), pursuant to which VGI purchased a 12% redeemable, convertible note from us in the principal amount of $38,000. The note is convertible by VGI, at its option, any time after 180 days from the date of issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. On May 11, 2015, we entered into a new Securities Purchase Agreement with VGI pursuant to which VGI purchased a 12% redeemable, convertible note (the “Second VGI Note”) from us in the principal amount of $10,000 due February 13, 2016. The Second VGI Note is convertible by VGI, at its option, any time after 180 days from the date of issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice.

 

On April 28, 2015, JMJ Financial (“JMJ”), a Nevada sole proprietorship, purchased a redeemable, convertible note (the “Second JMJ Note”) from us in the principal amount of $27,778 due April 28, 2016. The JMJ Note was subject to an original issue discount resulting in a purchase price of $25,000. The Second JMJ Note, including accrued interest due thereon, is convertible by JMJ, at its option, any time after 180 days from the date of issuance at a conversion price equal to the lesser of $0.16 or 60% of the average of the two lowest trading prices during the twenty trading days prior to conversion.

 

On April 14, 2015, we entered into a Securities Purchase Agreement with Crown Bridge Partners, LLC (“CBP”), a New York limited liability company, pursuant to which CBP purchased a 5% redeemable, convertible note (the “CBP Note”) from us in the principal amount of $60,000 due April 14, 2016. The CBP Note, including accrued interest due thereon, is convertible by CBP, at its option, any time after 180 days from issuance at a conversion price equal to 52% of the lowest trading price for our common stock during the twenty-day trading period prior to the date on which CBP provides us with a conversion notice. The conversion price will be reduced by 10% if we are not DWAC eligible.

 

On May 12, 2015, we entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P. a Delaware limited partnership (“Peak”) pursuant to which Peak purchased a three-year Convertible Debenture from us in the principal amount of $70,000 (the “Peak Debenture”). In connection with the Peak Debenture, we also paid Peak a commitment fee consisting of a cash payment of $5,000 and 75,000 shares of our restricted common stock. The Peak Debenture is convertible by Peak, at its option, at any time, at a conversion price equal to 60% of the lowest closing bid price for our common stock during the twenty trading days prior to conversion.

 

All of the foregoing issuances of securities were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended for transactions by an issuer not involving a public offering, pursuant to Rule 506 of Regulation D, or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

On April 8, 2015, we filed a Certificate of Designation with the Nevada Secretary of State to create a series of preferred stock designated Series A Super-Voting Preferred Stock (the “Series A Preferred Stock”) consisting of 1,000,000 shares. Holders of shares of Series A Preferred Stock are entitled to cast the equivalent of 1,000 common votes per share. The holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect two directors of the Company and the holders of record of the shares of common stock, exclusively and as a separate class, shall be entitled to elect one director of the Company. At any time when shares of Series A Preferred Stock shares are outstanding, the Company may not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or our Articles of Incorporation) the written consent or affirmative vote of the holders of at least fifty percent (50%) of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

 

•

liquidate, dissolve or wind-up the business and affairs of the Company, effect any merger or consolidation or any other similar event, or consent to any of the foregoing;

 

•

amend, alter or repeal any provision of the Articles of Incorporation or Bylaws of the Company in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock;

 

•

create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Company, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Company, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary; or

 

•

increase or decrease the authorized number of directors constituting the Company’s board of directors.

 

The shares of Series A Preferred Stock are not redeemable. Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth in the Certificate of Designation may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of at least fifty (50%) of the shares of Series A Preferred Stock then outstanding. Except for the aforementioned voting rights, there are no other rights, privileges, or preferences attendant or relating to in any way the Class A Preferred Stock, including by way of illustration but not limitation, those concerning dividend, ranking, conversion, other redemption, participation, or anti-dilution rights or preferences. No shares of Series A Preferred Stock are presently issued and outstanding, but it is expected that shares of Series A Preferred Stock will be issued to one or more members of current management in the future to better enable them to maintain their existing voting control.

 

During the year ended December 31, 2014 and the three months ended March 31, 2015, we received loans from various persons including, but not limited to, officers, directors, shareholders and third parties. As of March 31, 2015, we had loans outstanding in the aggregate principal amount of $930,158 which included $175,158 in loans from related parties. Loans in the principal amount of $315,158, including $165,158 in loans from related parties, were due and payable as of March 31, 2015. Subsequent to March 31, 2015 through May 15, 2015, we entered into additional loans in the aggregate principal amount of $65,000.

 

 

On January 6, 2015, we entered into a Securities Purchase Agreement (“SPA”) with FireRock Global Opportunities Fund L.P., a Delaware limited partnership (“FireRock”), pursuant to which we issued and sold to FireRock a convertible promissory note, dated January 6, 2015, in the principal amount of $137,500 (the “Initial Note”). The Initial Note was subject to an original issue discount resulting in our receipt of $125,000 in proceeds. In connection with the SPA, we also issued to FireRock 250,000 shares of our restricted common stock and a five-year warrant (the “Warrant”), dated January 6, 2015, to purchase 500,000 shares (the “Warrant Shares”) of our common stock at an exercise price of $0.50 per share. The Initial Note and Second Note, as hereinafter defined, are hereinafter referred to collectively as the Notes. FireRock has agreed to purchase a second convertible promissory note from us in the principal amount of $137,500 (the “Second Note”) three business days following the effective date of the Registration Statement. The Second Note will be identical, in all material respects, to the Initial Note. The Second Note is also subject to an original issue discount and will result in our receipt of $125,000 in additional proceeds. The Notes have six-month terms and provide for payment of interest on the principal amount at maturity at the rate of 1% per annum.

 

The FireRock Notes, including accrued interest thereon, can be prepaid by us, in whole or in part, at any time prior to maturity, upon three trading days prior written notice, at a premium of 135%. The premium rate also applies to any default interest which may be due at the time of prepayment. Default interest, at the rate of 15% per annum, will become due in the event that we fail to pay principal or interest when due on the FireRock Notes. The FireRock Notes are convertible at any time after issuance at the lower of (i) $0.20 per share or (ii) 60% (50% upon certain events of default) of the volume weighted average price for our common stock during the three consecutive trading days immediately preceding the trading day on which we receive a notice of conversion. The SPA further provides that if we complete a registered primary public offering of our securities at any time during which the FireRock Notes remain outstanding, that the FireRock Notes can be converted at the closing of such offering at a conversion price equal to a 10% discount to the offering price to investors in the offering. We have reserved 20,000,000 shares of our common stock to cover FireRock Note conversions. We are also required to cause our transfer agent to issue and transfer shares to the holders of the FireRock Notes within one trading day of our receipt of a conversion notice. The failure to do so constitutes an event of default under the FireRock Notes. Other events of default include, but are not limited to, our failure to pay principal and interest when due, a material breach by us of any of the terms of the FireRock transaction documents, a breach of any representation or warranty made by us in the FireRock transaction documents having a material adverse effect on the holder of the FireRock Notes, our appointment of a receiver or trustee, our becoming bankrupt, our stock becoming delisted, our failure to comply with our reporting requirements under the Securities Exchange Act of 1934, our cessation of operations, our dissolution or liquidation, our failure to maintain any of our material assets, certain restatements of our financial statements, our effectuation of a reverse stock split, and certain unvacated judgments against us involving more than $50,000. Subject to applicable cure periods, the FireRock Notes become immediately due and payable upon the occurrence and during the continuation of events of default.

 

The face amount of purchase price of the Initial Note is $312,500. This consists of the actual amount funded of $125,000, $12,500 in original issue discount, $125,000 to reflect the potential conversion amount penalty in the case of an uncured event of default and $50,000 to reflect a potential penalty in the event this registration statement is not declared effective within 150 days of January 6, 2015. The face amount of purchase price of the Second Note will be $262,500 consisting of the $125,000 amount to be funded, $12,500 in original issue discount and $125,000 to reflect the potential conversion amount penalty in the case of an uncured event of default. Accordingly, the aggregate face uncured amount of the FireRock Notes will be $575,000. If we determine to prepay the FireRock Notes prior to their respective maturity dates, the 135% prepayment principal premium will be applied, in the case of each of the FireRock Notes, against the $137,500 principal amount of each of the FireRock Notes and against the accrued interest due thereon. If FireRock determines to convert the FireRock Notes prior to the respective maturity dates, the conversion will likewise be made against the $137,500 principal amount of the FireRock Notes and all accrued interest due thereon. Subject to applicable cure periods, upon the occurrence and during the continuation of any event of default, the FireRock Notes will become immediately due and payable and we will be required to pay to FireRock, in full satisfaction of our obligation thereunder, an amount equal to (i) in the case of payments to be made in common stock, the conversion rate described above against $575,000 ($525,000 if the registration obligations have been satisfied) together with accrued interest and default interest due on the FireRock Notes through the date of payment, or (ii) in the case of payments to be made in cash, $325,000 ($275,000 if the registration obligations have been satisfied) together with accrued interest and default interest due thereon through the date of the payment multiplied by 145%. The amounts payable upon default, whether in cash or stock, will be proportionately reduced in case we make partial payments of principal or FireRock converts part of the FireRock Notes prior to any such default. FireRock may, in its sole discretion, determine to take payment part in stock and part in cash.

 

 

On January 23, 2015, we entered into a Note Purchase Agreement with Tangiers Investment Group, LLC (“Tangiers”) pursuant to which Tangiers purchased a one-year 10% Convertible Promissory Note from us in the principal amount of $55,000 (the “Tangiers Note”). The Tangiers Note was subject to an original issue discount resulting in a purchase price of $50,000. The Tangiers Note, including accrued interest due thereon, is convertible by Tangiers, at its option, any time after 180 days from the date of issuance at a conversion price equal to 52% of the lowest trading price for our common stock during the twenty trading days prior to conversion. The conversion price will be further reduced by 10% if we are placed on “chill” status with DTC until such “chill” is remedied and will be reduced by 5% if we are not DWAC eligible. The Tangiers Note may be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The Tangiers Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. By mutual agreement, Tangiers may provide us with additional funding on the same terms up to an aggregate principal amount of $330,000 during the 9-month period which commenced on January 23, 2015.

 

On January 23, 2015, we entered into a Securities Purchase Agreement with Adar Bays, LLC (“Adar”) pursuant to which Adar purchased an 8% redeemable, convertible promissory note (the “Adar Note”) from us in the principal amount of $44,000 due January 23, 2016.The Adar Note was subject to an original issue discount resulting in a purchase price of $40,000. The Adar Note, including accrued interest due thereon, is convertible by Adar, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock during the twenty trading days prior to conversion. In the event that our common stock becomes subject to a DTC “chill”, the conversion price formula will be reduced from 62% to 52% while the “chill” remains in effect. The Adar Note may be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133% and for the 121-150 day period is 139%. The Adar Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

On February 2, 2015, we entered into a one-year Consulting and Development Agreement (the “MCI Agreement”) with Meridian Computing, Inc. (“MCI”) pursuant to which MCI provides us with services which include (i) software development services; (ii) assisting us with our product requirements, release schedules and client-server dependencies; and (iii) assisting us with our gathering and specification requirements related to mobile architecture and implementation. We are paying MCI for the services at the rate of $19,200 per month or $230,400 on an annualized basis. The annualized fee amount is payable by us in advance. Such cash payment has yet to be made. The MCI Agreement contains customary confidentiality and non-solicitation provisions. We can terminate the Agreement upon 30 days prior written notice. Upon any such termination, MCI is able to retain the cash fee payment.

 

 

On February 2, 2015, we entered into a one-year Consulting Agreement (the “JV Agreement”) with JV Holdings, LLC (“JV”) pursuant to which JV provides us with investor relations and related services. The JV Agreement is automatically renewable for additional one-year terms unless either party notifies the other of its intention not to renew not less than 30 days prior to the end of the existing term. In the event of a renewal, the parties will re-negotiate the cash and stock fees payable to JV under the JV Agreement. We are required to pay JV a monthly cash fee of $6,000 per month or an aggregate of $72,000 for the initial one-year term, which annualized fee is payable in full, in advance. Such payment has yet to be made. We also issued 350,000 shares of our restricted common stock to JV, as a stock fee. The JV Agreement contains customary confidentiality, indemnification and non-circumvention provisions. The JV Agreement may be terminated by us upon 30 days prior written notice. In such event, JV is entitled to retain the cash and stock fees it has received prior to the date of termination.

 

On February 2, 2015, we entered into a Consulting Agreement (the “M1 Agreement”) with M1 Capital Advisors LLC (“M1”) pursuant to which M1 is providing us with strategic and corporate consulting services which include (i) the development and refinement of our business plan; (ii) market and competitive research assessment; (iii) preparation of investor presentation materials; (iv) review of product features; and (v) development of marketing strategies and initiatives. The M1 Agreement terminates on December 31, 2015. We are require to pay M1 a $110,000 cash fee for the services which is payable in advance. Such cash payment has yet to be made. The M1 Agreement is renewable 60 days prior to the end of the term upon mutual agreement of the parties. The M1 Agreement contains customary confidentiality and indemnification provisions.

 

On February 2, 2015, we entered into a one-year Consulting Agreement (the “MP Agreement”) with Market Pulse Media, Inc. (“MP”) pursuant to which MP provides us with financial and business advice and investor relations services. The MP Agreement is subject to extension upon mutual agreement of the parties. In connection therewith, we issued 1,300,000 shares of our restricted common stock to MP. We can terminate the MP Agreement upon 30 days prior written notice. The MP Agreement contains a covenant not to compete and non-solicitation and indemnification provisions.

 

On March 3, 2015, we entered into a Securities Purchase Agreement with Union Capital, LLC (“Union”) pursuant to which Union purchased an 8% redeemable, convertible note (the “Union Note”) from us in the principal amount of $44,000 due March 3, 2016. The Union Note was subject to an original issue discount resulting in a purchase price of $40,000. The Union Note is convertible by Union, at its option, any time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior to the date upon which Union provides us with a notice of conversion. The Union Note may be prepaid by us any time within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The Union Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

On March 18, 2015, we entered into a Convertible Note Purchase Agreement with River North Equity, LLC (“River North”) an Illinois limited liability corporation, pursuant to which River North purchased a 9% Convertible Note (the “River North Note”) from us in the principal amount of $52,500. The River North Note was subject to an original issue discount resulting in our receipt of $47,250 in proceeds. The River North Note is convertible by River North, at its option, any time after 180 days from issuance at a conversion price equal to 60% of the lowest trading price for our common stock during the twenty trading days prior to the date on which River North provides us with a conversion notice. The conversion price formula will be reduced from 60% to 50% if we are not DWAC eligible. The River North Note contains a right of first refusal in favor of River North with regard to certain future borrowings by us for the term of the River North Note. The River North Note may be prepaid by us any time prior to our receipt of a conversion notice from River North in an amount equal to 105% multiplied by the sum of the then outstanding principal amount of the River North Note plus (i) accrued and unpaid interest due on the principal amount; and (ii) default interest and penalty payments, if any, due on the River North Note at the time of prepayment. The River North Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

 

On April 8, 2015, we entered into a Securities Purchase Agreement with Vires Group, Inc. (“VGI”), a New York Corporation, pursuant to which VGI purchased a 12% redeemable, convertible note (the “VGI Note”) from us in the principal amount of $38,000 due December 26, 2015. The VGI Note is convertible by VGI, at its option, any time after 180 days from issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. The VGI Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. On May 11, 2015, we entered into a new Securities Purchase Agreement with VGI pursuant to which VGI purchased a 12% redeemable, convertible note (the “Second VGI Note”) from us in the principal amount of $10,000 due February 13, 2016. The Second VGI Note is convertible by VGI, at its option, any time after 180 days from the date of issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. Except for dates, the Second VGI Note is identical in all material respects to the VGI Note.

 

On April 22, 2015, we received $21,000 in loans from Gannon Giguiere paying interest at the rate of 1% per annum. The loans are due and payable on July 21, 2015.

 

On May 1, 2015, we received a $31,500 loan from Gannon Giguiere paying interest at the rate of 1% per annum. The loan is due and payable on July 30, 2015.

 

On May 6, 2015, we received a $5,000 loan from Gannon Giguiere paying interest at the rate of 1% per annum. The loan is due and payable on August 4, 2015.

 

On May 11, 2015, we received a $7,500 loan from Gannon Giguiere paying interest at the rate of 1% per annum. The loan is due and payable on August 9, 2015.

 

Effective February 2, 2015, $64,050 in principal and $279 in interest due thereon with respect to the loan made by Gannon Giguiere to us on November 10, 2014, $67,500 in principal and $124 in interest due thereon with respect to the loan made by Gannon Giguiere to us on November 28, 2014, $15,000 in principal and $21 in interest due thereon with respect to the loan made by Gannon Giguiere to us on December 15, 2014, and $14,000 in principal and $7 in interest due thereon with respect to the loan made by Gannon Giguiere to us on January 15, 2015, or an aggregate of $160,981 was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 2,299,729 shares of common stock to Mr. Giguiere. Piggyback registration rights apply to these shares.

 

Effective February 2, 2015, $150,000 in principal and $777 in interest due thereon with respect to the loan made by Alan Johnson to us on July 29, 2014, and $9,842 in principal and $362 in interest due thereon with respect to the loan made by Alan Johnson to us on September 24, 2014, or an aggregate of $160,981 was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 2,299,729 shares of common stock to Mr. Johnson. Piggyback registration rights apply to these shares.

 

Effective February 2, 2015, $15,000 in principal and $63 in interest due thereon with respect to the loan made by Michael Rountree to us on September 30, 2014, and $25,000 in principal and $80 in interest due thereon with respect to the loan made by Michael Rountree to us on October 9, 2014, or an aggregate of $40,143 was converted into shares of our restricted common stock at a conversion price of $0.07 per share resulting in the issuance of 573,471 shares of common stock to Mr. Rountree. Piggyback registration rights apply to these shares.

 

 

On November 25, 2014 we entered into an Equity Purchase Agreement and a Registration Rights Agreement with Aladdin Trading, LLC (“Aladdin”) in order to establish a new source of funding for us. Under the Equity Purchase Agreement, Aladdin agreed to provide us with up to $5,000,000 of funding upon effectiveness of a registration statement on Form S-1. The registration statement was declared effective on January 28, 2015. Since the effectiveness of the registration statement, we have been able to deliver puts to Aladdin under the Equity Purchase Agreement under which Aladdin is obligated to purchase shares of our common stock based on the investment amount specified in each put notice, which investment amount may be any amount up to $5,000,000 less the investment amount received by us from all prior puts, if any. Puts may be delivered by us to Aladdin until the earlier of December 31, 2015 or the date on which Aladdin has purchased an aggregate of $5,000,000 of put shares. The number of shares of our common stock that Aladdin will purchase pursuant to each put notice (“Put Shares”) is determined by dividing the investment amount specified in the put by the purchase price. The purchase price per share of common stock is set at fifty (50%) of the Market Price for our common stock with Market Price being defined as the volume weighted average trading price for our common stock during the three consecutive trading days immediately following the date of our put notice to Aladdin (the “Pricing Period”). There is no minimum amount that we can put to Aladdin at any one time. On the put notice date, we are required to deliver put shares (“Estimated Put Shares”) to Aladdin in an amount determined by dividing the closing price on the trading day immediately preceding the put notice date multiplied by 50% and Aladdin is required to simultaneously deliver to us the investment amount indicated on the put notice. At the end of the Pricing Period, when the purchase price is established and the number of Put Shares for a particular put is determined, Aladdin must return to us any excess Put Shares provided as Estimated Put Shares or alternatively we must deliver to Aladdin any additional Put Shares required to cover the shortfall between the amount of Estimated Put Shares and the amount of Put Shares. At the end of the pricing period we must also return to Aladdin any excess related to the investment amount previously delivered to us. Pursuant to the Equity Purchase Agreement, Aladdin and its affiliates will not be issued shares of our common stock that would result in Aladdin’s beneficial ownership equaling more than 9.99% of our outstanding common stock. Pursuant to the Registration Rights Agreement, we registered 20,000,000 shares of our common stock for issuance to and sale by Aladdin pursuant to the Equity Purchase Agreement. On February 2, 2015, we delivered a put notice to Aladdin for an investment amount of $75,000. This resulted in our issuance of 1,153,847 shares to Aladdin. On February 20, 2015, we delivered a second put notice to Aladdin for an investment amount of $100,000. This resulted in our issuance of 1,538,462 shares to Aladdin, 198,877 of which were required to be returned to us for cancellation resulting in a net issuance of 1,339,585 shares to Aladdin as the 1,538,462 share issuance represented an estimate as to the number of shares covered by the put. Aladdin owes us $5,000 from the second put. On March 10, 2015, we delivered a third put notice to Aladdin for an investment amount of $100,000. This resulted in our issuance of 2,352,942 shares to Aladdin. Based upon the price of our common stock for the third put valuation period we were required to issue an additional 58,322 shares to Aladdin resulting in a net issuance of 2,411,265 shares pursuant to the third put. We have deducted 58,323 shares from the share amount required to be returned to us from the second put and are now entitled to the return of 140,554 shares from the second put share issuance. Aladdin owes us $100,000 from the third put. Unless the price of our common stock increases substantially, we will not have access to the full commitment amount under the Equity Purchase Agreement.

 

Effective February 2, 2015, we entered into Amendment No. 2 (“Amendment No. 2”) to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Gannon Giguiere. Amendment No. 2 reduced Mr. Giguiere’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to Mr. Giguiere, and provided for the issuance of 5,000,000 shares (the “Shares”) of our common stock and 2,000,000 stock options to Mr. Giguiere upon execution of Amendment No. 2. The stock options were issued under our 2015 Equity Incentive Plan as non-statutory stock options. They have a ten-year term and are exercisable for the purchase of 2,000,000 shares of our common stock at a price of $0.10 per share. They vest monthly and ratably over the 36-month period commencing upon issuance. Mr. Giguiere was granted piggyback registration rights with respect to the 5,000,000 Shares.

 

 

Effective February 2, 2015, we entered into Amendment No. 2 to the November 21, 2012 Employment Services Agreement, as amended on March 10, 2014, between us and Alan Johnson. Amendment No. 2 reduced Mr. Johnson’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to Mr. Johnson, and provided for the issuance of 2,000,000 shares (the “Shares”) of our common stock and 1,000,000 stock options to Mr. Johnson upon execution of Amendment No. 2. The stock options were issued under our 2015 Equity Incentive Plan as non-statutory stock options. They have a ten-year term and are exercisable for the purchase of 1,000,000 shares of our common stock at a price of $0.10 per share. They vest monthly and ratably over the 36-month period commencing upon issuance. Mr. Johnson was granted piggyback registration rights with respect to the 2,000,000 Shares.

 

Effective February 2, 2015, we entered into Amendment No. 1 (“Amendment No. 1”) to the March 10, 2014 Employment Services Agreement between us and Michael D. Rountree. Amendment No. 1 reduced Mr. Rountree’s base annual salary from $180,000 to $1, clarified the provision under which we can issue bonuses to Mr. Rountree and provided for the issuance of 2,000,000 shares of our common stock and 1,000,000 stock options to Mr. Rountree upon execution of the Amendment. The stock options were issued under our 2015 Equity Incentive Plan as non-statutory stock options. They have a ten-year term and are exercisable for the purchase of 1,000,000 shares of our common stock at a price of $0.10 per share. They vest monthly and ratably over the 36-month period commencing upon issuance. Mr. Rountree was granted piggyback registration rights with respect to the 2,000,000 shares.

 

Effective February 27, 2015, we further amended our employment agreements with Messrs. Giguiere, Johnson and Rountree to clarify that they can devote a reasonable amount of time to civic, community or charitable activities and may serve as investors, employees, directors and/or executive officers of other corporations or entities provided that any such other corporation or entity is not a competitor of ours and that their responsibilities with respect thereto do not conflict with or interfere with the faithful performance of their duties to us.

 

On May 15, 2015, we entered into a 2-year employment agreement with Jason Harvey, our Chief Executive Officer which had an effective date of April 8, 2015, the date in which he was appointed as our Chief Executive Officer. The employment agreement will be automatically renewed for successive periods of two years at the end of each term unless we or the employee give the other written notice at least 60 days prior to the end of the term or the applicable renewal term, as the case may be. The employment agreement provided for the issuance of 2,250,000 shares of our common stock to Mr. Harvey which shares have yet to be issued. Pursuant to the employment agreement, Mr. Harvey receives a base annual salary of $175,000 and is entitled to receive an annual bonus of up to 100% of his base annual salary upon our achieving certain milestones to be established by our Board of Directors. The employment agreement also provides for paid vacation time, payment of customary health insurance and other benefits and expense reimbursement. The employment agreement also contains a non-compete and non-solicitation provision effective during the employment period and for up to 12 months thereafter in the case of the non-compete provision and for 3 months thereafter in the case of the non-solicitation provision unless Mr. Harvey is terminated without cause or Mr. Harvey terminates the agreement for good reason, in which case the non-compete provision is of no further force or effect.

 

In the event Mr. Harvey is terminated for cause, or resigns without good reason, Mr. Harvey is entitled to receive all compensation, including bonus payments, accrued through the date of termination. In the event Mr. Harvey is terminated without cause or resigns for good reason, Mr. Harvey will be entitled to receive all compensation, including bonus payments, accrued through the date of termination together with all compensation, including bonus payments, earned through the severance period which is defined as a period of 12 months from termination if more than 12 months remain on the term of the employment agreement at the time of termination, and as a period of 6 months from termination, if less than 6 months remain on the term of the employment agreement at the time of termination, and as a period comprising the balance of the term of more than 6 but less than 12 months remain on the term of the employment agreement at the time of termination.

 

 

On April 28, 2015, JMJ Financial (“JMJ”), a Nevada sole proprietorship, purchased a redeemable, convertible note (the “Second JMJ Note”) from us in the principal amount of $27,778 due April 28, 2016. The JMJ Note was subject to an original issue discount resulting in a purchase price of $25,000. The Second JMJ Note, including accrued interest due thereon, is convertible by JMJ, at its option, any time after 180 days from the date of issuance at a conversion price equal to the lesser of $0.16 or 60% of the average of the two lowest trading prices during the twenty trading days prior to conversion. The Second JMJ Note may be prepaid by us any time within 120 days from the date of issuance without payment of interest. If we do not prepay the Second JMJ Note within such 120 day period, a one-time interest charge of 12% will be applied to the principal amount. The Second JMJ Note becomes immediately due and payable upon certain events of default and subjects us to significant default penalties. JMJ may provide us with additional loans on the same terms pursuant to which JMJ would receive notes which, together with the all other JMJ Notes, aggregate to $250,000. JMJ previously purchased a similar note from us dated December 15,2014 in the principal amount of $55,555.

 

On May 11, 2015, our Board of Directors and the holders of a majority of our outstanding common stock, our only outstanding voting stock, adopted resolutions approving an amendment to our Articles of Incorporation to increase the number of authorized shares of common stock from 300,000,000 shares to 1,000,000,000 shares. The primary purpose for the increase is to enhance our ability to finance the development and operation of our business. Potential uses of the additional shares may include public or private offerings, conversions of convertible securities, issuances pursuant to employee benefit plans, acquisition transactions and other general corporate purposes. Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended, the actions described herein will not be implemented until a date at least 20 days after the date on which an Information Statement has been provided to our shareholders.

 

On April 14, 2015, we entered into a Securities Purchase Agreement with Crown Bridge Partners, LLC (“CBP”), a New York limited liability company, pursuant to which CBP purchased a 5% redeemable, convertible note (the “CBP Note”) from us in the principal amount of $60,000 due April 14, 2016. The CBP Note was subject to an original issue discount of $8,500 resulting in a purchase price of $51,500. The CBP Note, including accrued interest due thereon, is convertible by CBP, at its option, any time after 180 days from issuance at a conversion price equal to 52% of the lowest trading price for our common stock during the twenty-day trading period prior to the date on which CBP provides us with a conversion notice. The conversion price will be reduced by 10% if we are not DWAC eligible. The CBP Note may be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 140% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 period is 120%, for the 61-90 day period is 125%, for the 91-120 day period is 130% and for the 121-150 day period is 135%. The CBP Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties.

 

On May 12, 2015, we entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P. a Delaware limited partnership (“Peak”) pursuant to which Peak purchased a three-year Convertible Promissory Note from us in the principal amount of $70,000 (the “Peak Debenture”). The Peak Debenture was subject to an original issue discount resulting in a purchase price of $63,000. In connection with the Peak Debenture, we also paid Peak a commitment fee consisting of a cash payment of $5,000 and 75,000 shares of our restricted common stock. The Peak Debenture is convertible by Peak, at its option, at any time, at a conversion price equal to 60% of the lowest closing bid price for our common stock during the twenty trading days prior to conversion. The Peak Debenture may be redeemed by us at any time. The Peak Debenture may be redeemed (i) within 90 days of issuance at 100% of the outstanding principal amount; (ii) more than 90 but less than 121 days after issuance at 110% of the outstanding principal amount; (iii) more than 120 but less than 151 days after the issuance at 120% of the outstanding principal amount; (iv) more than 150 days but less than 181 days after issuance at 125% of the outstanding principal amount; and (v) more than 180 days after issuance at 130% of the outstanding principal amount. The Peak Debenture becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. By mutual agreement, Peak may provide us with additional funding on the same terms under a second debenture in the principal amount of $100,000.

 

 

ITEM 6.

EXHIBITS

 

In reviewing the agreements included as exhibits to this Form 10-Q, 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 Number		Description of Exhibit
10.1		Employment Agreement, dated May 14, 2015, between Registrant and Jason Harvey.
10.2		Convertible Promissory Note of Registrant, dated April 14, 2015, in the principal amount of $60,000 issued to Crown Bridge Partners, LLC
10.3		Convertible Promissory Note of Registrant, dated May 11, 2015, in the principal amount of $10,000 issued to Vis Vires Group, Inc.
10.4		Convertible Debenture of Registrant, dated May 12, 2015, in the principal amount of $70,000 issued to Peak One Opportunity Fund, L.P.
31.1		Certification of Principal Executive Officer and Pursuant to Rule 13a-14
31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14
32.1*		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
32.2*		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

 

* This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference

 

 

SIGNATURES

 

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

 

	EVENTURE INTERACTIVE, INC.
May 18, 2015	By:	/s/ Jason Harvey
	Jason Harvey, Chief Executive Officer
	EVENTURE INTERACTIVE, INC.
May 18, 2015	By:	/s/ Michael D. Rountree
	Michael D. Rountree, Chief Financial Officer