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EX-32.2 - CERTIFICATION - CUR MEDIA, INC.curm_ex322.htm
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EX-32.1 - CERTIFICATION - CUR MEDIA, INC.curm_ex321.htm

 

 

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: June 30, 2015

 

 

or

 

 

¨

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

 

 

 

For the transition period from _____________ to _____________

 

Commission file number: 333-183760

 

CÜR MEDIA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

99-0375741

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

2217 New London Turnpike

South Glastonbury, CT 06073

(Address of principal executive offices)

 

(860) 430-1520

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

As of August 14, 2015, there were 31,720,247 shares of the registrant’s common stock, par value $0.0001 per share (“Common Stock”), issued and outstanding. 

 

 

 

CÜR MEDIA, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

 

TABLE OF CONTENTS

 

 

 

 

PAGE

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION  

 

 

 

 

 

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

4

 

 

 

 

 

 

 

Item 2. 

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

 

 

21

 

 

 

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

 

28

 

 

 

 

 

 

 

Item 4. 

Controls and Procedures

 

 

29

 

 

 

 

 

 

 

PART II - OTHER INFORMATION  

 

 

 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

 

30

 

 

 

 

 

 

 

Item 1A. 

Risk Factors

 

 

30

 

 

 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

30

 

 

 

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

 

31

 

 

 

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

 

31

 

 

 

 

 

 

 

Item 5. 

Other Information

 

 

31

 

 

 

 

 

 

 

Item 6. 

Exhibits

 

 

32

 

 

 

 

 

 

 

  

SIGNATURES

 

 

34

 

 

 
2
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

 

·

Changes in the political and regulatory environment and in business and fiscal conditions in the United States and overseas;

 

 

  

 

·

Our ability to attract and retain management with experience in digital media including digital music streaming, and similar emerging technologies;

 

 

  

 

·

Our ability to negotiate an economically feasible agreement with the major and independent music labels, publishers and publisher rights organizations;

 

 

  

 

·

Our expectations regarding market acceptance of our products in general, and our ability to penetrate the digital music streaming market in particular;

 

 

  

 

·

The scope, validity and enforceability of our third party intellectual property rights;

 

 

  

 

·

Our ability to comply with governmental regulation;

 

 

  

 

·

Our ability to raise capital when needed and on acceptable terms and conditions; and

 

 

  

 

·

The intensity of competition.

 

A description of these and other risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we filed with the SEC on March 31, 2015 (“Annual Report”), as updated in subsequent filings we have made with the SEC. The risks and uncertainties described under “Risk Factors” are not exhaustive. 

 

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

 

All references in this Quarterly Report to the “Company”, “CÜR Media”, “we”, “us”, or “our”, are to CÜR Media, Inc., and its consolidated subsidiary, CÜR Media, LLC. 

 

 
3
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report, as updated in subsequent filings we have made 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 periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

CÜR MEDIA, INC.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

Page 

Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (unaudited)

5

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

7

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 
4
 

 

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS 

 

 

 

 

 

 

Cash and Cash Equivalents 

 

$ 1,980,515

 

 

$ 3,228,938

 

Prepaid Expenses 

 

 

85,197

 

 

 

166,140

 

Other Current Assets 

 

 

3,000

 

 

 

3,000

 

TOTAL CURRENT ASSETS 

 

 

2,068,712

 

 

 

3,398,078

 

 

 

 

 

 

 

 

 

 

Property and Equipment, net 

 

 

44,750

 

 

 

44,212

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS 

 

$ 2,113,462

 

 

$ 3,442,290

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILIITES 

 

 

 

 

 

 

 

 

Accounts Payable  

 

$ 650,495

 

 

$ 379,880

 

Accrued Liabilities and Other Current Liabilities 

 

 

43,791

 

 

 

96,706

 

Note Payable, Short-Term 

 

 

25,944

 

 

 

25,622

 

Derivative Liability 

 

 

755,372

 

 

 

3,800,229

 

TOTAL CURRENT LIABILITIES 

 

 

1,475,602

 

 

 

4,302,437

 

 

 

 

 

 

 

 

 

 

Notes Payable, Long-Term 

 

 

22,012

 

 

 

37,180

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES 

 

 

1,497,614

 

 

 

4,339,617

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIENCY) 

 

 

 

 

 

 

 

 

Preferred Stock (.0001 par value, 10,000,000 shares authorized, none issued or outstanding as of June 30, 2015 or December 31, 2014) 

 

 

-

 

 

 

-

 

Common Stock (.0001 par value, 300,000,000 shares authorized, 31,720,247 and 24,929,363 issued at June 30, 2015 and December 31, 2014, respectively and 32,001,442 and 25,198,456 outstanding at June 30, 2015 and December 31, 2014, respectively) 

 

 

3,171

 

 

 

2,493

 

Additional Paid-In-Capital 

 

 

10,118,347

 

 

 

5,297,635

 

Accumulated Deficit 

 

 

(9,505,670 )

 

 

(6,197,455 )

TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 

 

 

615,848

 

 

 

(897,327 )
 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 

 

$ 2,113,462

 

 

$ 3,442,290

 

 

See accompanying notes to condensed consolidated financial statements. 

 

 
5
 

 

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and Development 

 

 

2,156,198

 

 

 

955,112

 

 

 

3,566,169

 

 

 

1,617,443

 

General and Administrative 

 

 

454,953

 

 

 

308,852

 

 

 

824,023

 

 

 

433,335

 

Stock based Compensation 

 

 

160,579

 

 

 

76,512

 

 

 

173,805

 

 

 

1,513,293

 

Depreciation and amortization 

 

 

6,970

 

 

 

6,263

 

 

 

17,060

 

 

 

7,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES 

 

 

2,778,700

 

 

 

1,346,739

 

 

 

4,581,057

 

 

 

3,571,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense 

 

 

(1,490 )

 

 

(496 )

 

 

(1,890 )

 

 

(4,834 )

Interest Income 

 

 

2,657

 

 

 

1,440

 

 

 

4,844

 

 

 

2,554

 

Extinguishment of Derivative Liabilities 

 

 

(464,686 )

 

 

-

 

 

 

(464,686 )

 

 

-

 

Change in Fair Value of Derivative Liabilities 

 

 

(611,577 )

 

 

439,963

 

 

 

1,734,574

 

 

 

481,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE) 

 

 

(1,075,096 )

 

 

440,907

 

 

 

1,272,842

 

 

 

479,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS 

 

$ (3,853,796 )

 

$ (905,832 )

 

$ (3,308,215 )

 

$ (3,091,943 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$ (0.12 )

 

$ (0.04 )

 

$ (0.12 )

 

$ (0.15 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding basic and diluted

 

 

31,590,398

 

 

 

24,803,146

 

 

 

28,402,796

 

 

 

21,163,471

 

 

See accompanying notes to condensed consolidated financial statements. 

 

 
6
 

 

CÜR MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES 

 

 

 

 

 

 

Net Loss 

 

$ (3,308,215 )

 

$ (3,091,943 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization 

 

 

17,060

 

 

 

7,492

 

Non-cash stock compensation expense 

 

 

173,805

 

 

 

1,513,293

 

Share based consulting services 

 

 

53,250

 

 

 

-

 

Change in Fair Value of Derivative Liability 

 

 

(1,734,574 )

 

 

(481,900 )

Loss on Extinguishment of Derivative Liabilities 

 

 

464,686

 

 

 

-

 

Changes in assets and liabilities 

 

 

 

 

 

 

 

 

Prepaid Expenses 

 

 

80,943

 

 

 

16,839

 

Accounts Payable  

 

 

270,615

 

 

 

38,386

 

Accrued Liabilities and Other Current Liabilities 

 

 

(52,915 )

 

 

(151,165 )

Net cash used in operating activities 

 

 

(4,035,345 )

 

 

(2,148,998 )
 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES 

 

 

 

 

 

 

 

 

Purchases of property and equipment 

 

 

(17,598 )

 

 

(50,742 )

Net cash used in investing activities 

 

 

(17,598 )

 

 

(50,742 )
 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES 

 

 

 

 

 

 

 

 

Repayment of notes payable 

 

 

(14,846 )

 

 

(164,486 )

Proceeds from exercise of warrants and options 

 

 

2,819,366

 

 

 

8,303,225

 

Net cash provided by financing activities 

 

 

2,804,520

 

 

 

8,138,739

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH 

 

 

(1,248,423 )

 

 

5,938,999

 

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF PERIOD 

 

 

3,228,938

 

 

 

-

 

 

 

 

 

 

 

 

 

 

CASH, END OF THE PERIOD 

 

$ 1,980,515

 

 

$ 5,938,999

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Financing: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of derivative liabilities to equity  

 

$

1,378,374

 

 

$

-

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
7
 

 

CÜR MEDIA, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid In

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance January 1, 2015 

 

 

24,929,363

 

 

 

2,493

 

 

 

5,297,635

 

 

 

(6,197,455 )

 

 

(897,327 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Common Stock for consulting services 

 

 

25,000

 

 

 

2

 

 

 

24,998

 

 

 

 

 

 

 

25,000

 

Issuance of Common Stock for recruiting services 

 

 

44,699

 

 

 

4

 

 

 

28,246

 

 

 

 

 

 

 

28,250

 

Issuance of Common Stock for warrant exercise 

 

 

6,467,004

 

 

 

647

 

 

 

4,202,905

 

 

 

 

 

 

 

4,203,552

 

Issuance of Common Stock from Offer to Exercise and Amend 

 

 

203,716

 

 

 

20

 

 

 

132,392

 

 

 

 

 

 

 

132,412

 

Issuance of Broker Warrants from Offer to Exercise and Amend 

 

 

 

 

 

 

 

 

 

 

256,149

 

 

 

 

 

 

 

256,149

 

Issuance of Common Stock for option exercise 

 

 

50,465

 

 

 

5

 

 

 

2,217

 

 

 

 

 

 

 

2,222

 

Stock Compensation Expense 

 

 

 

 

 

 

 

 

 

 

173,805

 

 

 

 

 

 

 

173,805

 

Net Loss 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,308,215 )

 

 

(3,308,215 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2015 

 

 

31,720,247

 

 

$ 3,171

 

 

$ 10,118,347

 

 

$ (9,505,670 )

 

$ 615,848

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
8
 

 

CÜR MEDIA, INC.

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2015 and 2014

(Unaudited)

 

Note 1 – Summary of Business and Basis of Presentation

 

Organization and Business

 

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

 

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

 

Basis of Presentation

 

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

 

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

 

Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which the Company filed with the SEC on March 31, 2015 (“Annual Report”), as updated in subsequent filings the Company has made with the SEC.  

 

 
9
 

 

Use of Estimates

 

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

 

Significant Accounting Policies

 

Other than as disclosed below, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report. 

 

Earnings Per Share

 

Basic earnings per share ("EPS") is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of Common Stock plus the effect of dilutive potential common shares from outstanding stock options during the period using the treasury stock method. At June 30, 2015 and 2014, the number of shares underlying options and warrants that were anti-dilutive was approximately 8,903,062 shares and 14,406,038 shares, respectively. 

 

 Note 2 – Going Concern Uncertainty 

 

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

 

The Company incurred net operating losses since inception including a net operating loss of $3,308,215 in the six months ending June 30, 2015. The Company is currently developing CÜR Music, a hybrid internet radio and on-demand music streaming service and has not generated material revenue from operations and anticipates needing additional capital prior to launching CÜR Music to execute the current operating plan. These factors raise a substantial doubt about the Company’s ability to continue as a going concern. 

 

The Company initiated an offer to amend and exercise warrants to purchase an aggregate of 9,680,355 shares of the Company’s Common Stock on March 9, 2015. In connection with the offer to amend and exercise, which closed on April 6, 2015, the Company received gross proceeds in the amount of $3,233,502 (before deducting placement agent fees and expenses of the offer to amend and exercise of approximately $417,000) (See Note 5). In addition, based on management projections, the Company contemplates raising an additional $15-20 million concurrent with the planned launch of CÜR Music to implement the business plan, market CÜR Music, provide content license costs, and for general working capital. Fundraising discussions have started, however no specific terms have been set. The Company plans to launch its CÜR Music’s streaming product and platform later in 2015. 

 

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

 

 
10
 

 

Note 3 – Risks and Uncertainties

 

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

 

A description of some of the risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in the Company’s Annual Report, as updated in subsequent filings we have made with the SEC. The risks and uncertainties described under “Risk Factors” are not exhaustive. 

 

Note 4 - Debt Instruments

 

On June 19, 2012, the Company entered into a promissory note (“State of CT Note”) with State of Connecticut Department of Economic and Community Development (“CT DECD”) for up to $100,000. The State of CT Note bears interest at 2.5% per annum. Commencing on the thirteenth month following the loan date and continuing on the first day of each month thereafter principal and interest shall be payable in 48 equal, consecutive monthly installments. The full principal and all accrued interest are due and payable on June 19, 2017. The Company and CT DECD also entered into a security agreement whereby the State of CT Note is secured by all properties, assets and rights of the Company. As of June 30, 2015 and December 31, 2014, the Company had $22,012 and $37,180 in principal recorded as Note Payable in the long-term sections of the Company’s balance sheet, respectively and $25,944 and $25,622 in notes payable short-term, respectively. 

 

Note 5 – Derivative Liabilities

 

The Investor and Broker Warrants issued by the Company, and described in Note 7, qualified for derivative classification due to the price protection provisions on the exercise price. The initial fair value of these liabilities was recorded as an increase to derivative liabilities and a decrease in additional paid in capital as the warrants were issued in connection with the Company’s private placement offerings, which closed on January 28, 2014, March 14, 2014, and March 28, 2014 (the “2014 PPO”).  

 

In addition to the PPO Warrants, the Company has outstanding Broker Warrants to purchase an aggregate of 968,034 shares of the Company’s Common Stock comprised of warrants issued to the placement agent and its sub-agents in the Company’s 2014 PPO. 

 

On March 9, 2015, the Company commenced an offer to amend and exercise the 2014 PPO Warrants to purchase an aggregate of 9,680,355 shares of its Common Stock and Broker Warrants to purchase an aggregate of 968,034 shares of its Common Stock (the “Offer to Amend and Exercise”). 

 

Pursuant to the Offer to Amend and Exercise, for those who elected to participate, the PPO Warrants would be amended (the “Amended Warrants” ) to: (i) reduce the exercise price of the PPO Warrants from $2.00 per share to $0.50 per share of Common Stock in cash, (ii) shorten the exercise period so that the Amended Warrants would expire concurrently with the expiration of the Offer to Amend and Exercise on April 6, 2015 (the “Expiration Date”), and (iii) eliminate the anti-dilution provisions contained in the PPO Warrants,  

 

 
11
 

 

Regardless of whether a holder chose to participate in the Offer to Amend and Exercise, the holders were asked to consent to the amendment to the PPO Warrants to remove the anti-dilution provisions contained in the outstanding PPO Warrants (the “Anti-Dilution Amendment”). 

 

Holders were given the opportunity to elect to participate in the Offer to Amend and Exercise with respect to some, all or none of their PPO Warrants. If a holder chose not to participate in the Offer to Amend and Exercise, the holder’s PPO Warrants would remain in full force and effect, as originally issued with an exercise price of $2.00 per share, and would retain in all respects their original terms and provisions. 

 

On April 6, 2015, the Company consummated the Offer to Amend and Exercise the PPO Warrants. Pursuant to the Offer to Amend and Exercise, PPO Warrants to purchase an aggregate of 6,467,004 shares of Common Stock at an exercise price of $0.50 per share were tendered by their holders and were amended and exercised in connection therewith for gross proceeds to the Company of $3,233,502 (before deducting placement agent fees and expenses of the Offer to Amend and Exercise of approximately $417,000).  

 

Effective on or prior to April 6, 2015, the Company and the holders of (a) 1,475,010 PPO Warrants, that chose not to participate in the Offer to Amend and Exercise (“Non-Participating Original Warrants”), and (b) all 968,300 Broker Warrants, approved an amendment to remove the price-based anti-dilution provisions in their warrants. As a result, the price-based anti-dilution provisions contained in these Non-Participating Original Warrants and Broker Warrants have been removed and are of no further force or effect as of April 6, 2015.  

 

The Warrant Agent for the Offer to Amend and Exercise was paid an aggregate commission of approximately $323,350 and was issued warrants to purchase an aggregate of 646,700 shares of the Company’s Common Stock at an exercise price of $0.50 per share for a term of five (5) years (“Warrant Agent Warrants”). 

 

Certain securities the Company issued in the 2014 PPO have price-based anti-dilution protection, if, within twenty-four (24) months after the final closing of the 2014 PPO, the Company issues additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions) for a consideration per share less than $1.00. Of the 9,680,355 original PPO Warrants, 1,738,341 still remain with these priced-based anti-dilution rights. With the consummation of the Offer to Amend and Exercise the PPO Warrants, the anti-dilution provisions were triggered and the non-participating warrant holders received (i) a reduction in the price of their PPO Warrants from $2.00 per share to $1.79 per share, (ii) 203,716 additional shares of Common Stock, and (iii) 203,716 additional warrants to purchase shares of Common Stock of the Company at an exercise price of $1.79 per share with terms identical to those of the original PPO warrants.  

 

The Company revalued the PPO Warrants and Broker Warrants on April 6, 2015, immediately prior to the Tender Offer, which resulted in a change in fair value recorded in other income (expense) in the condensed consolidated statement of operations. The Company applied extinguishment accounting and calculated the fair value of the consideration provided to extinguish the derivative liabilities including the modification of the warrants which resulted in a loss on extinguishment of derivative liabilities aggregating $464,686 which is included in other income (expenses) on the condensed consolidated statement of operations. 

 

 
12
 

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the period ended June 30, 2015. 

 

 

 

June 30,
2015

 

 

 

 

 

Balance at the beginning of year 

 

$ 3,800,229

 

 

 

 

 

 

Addition of new derivative liabilities  

 

 

68,091

 

 

 

 

 

 

Change in fair value of warrants 

 

 

(1,734,574 )
 

 

 

 

 

Extinguishment of derivative liabilities 

 

 

(1,378,374 )
 

 

 

 

 

Balance at the end of the period 

 

$ 755,372

 

 

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’s Common Stock, volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The weighted average per-share fair value of each Common Stock warrant of $0.357, $0.164 and $0.389 was determined at December 31, 2014, April 6, 2015 and June 30, 2015, respectively using the Black-Scholes pricing model using the following weighted average assumptions: 

 

 

 

Expected

Volatility

 

 

Risk-free

Interest Rate

 

 

Expected

Dividend Yield

 

 

Expected Life

(in years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014 

 

 

65.70 %

 

 

1.65 %

 

 

0 %

 

 

4.15

 

At April 6, 2015 

 

 

65.22 %

 

 

1.37 %

 

 

0 %

 

 

4.00

 

At June 30, 2015 

 

 

110.08 %

 

 

1.63 %

 

 

0 %

 

 

3.78

 

 

Note 6 – Common Stock

 

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

 

 
13
 

 

As a result of the three closings of the 2014 PPO on January 28, March 14, and March 28, 2014, a total of 9,680,355 shares of Common Stock were issued. Proceeds were received of approximately $9,680,000, before deducting placement agent fees and expenses of the 2014 PPO of approximately $1,500,000. PPO Warrants were issued that entitled their holders to purchase 9,680,355 shares of the Company’s Common Stock, with a term of five years and an exercise price of $2.00 per share and Broker Warrants were issued that entitled their holders to purchase 968,034 shares of the Company’s Common Stock, with a term of five years and an exercise price of $1.00 per share. See Note 5 for a discussion on modification of the warrants under the tender offer. 

 

As discussed in Note 5, certain securities the Company issued in the 2014 PPO have price-based anti-dilution protection, if, within twenty-four (24) months after the final closing of the 2014 PPO, the Company issues additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions) for a consideration per share less than $1.00. Of the 9,680,355 original PPO Warrants, 1,738,341 still remain with these priced-based anti-dilution rights. With the consummation of the Offer to Amend and Exercise the PPO Warrants, the anti-dilution provisions were triggered and the non-participating warrant holders are now entitled to receive (i) a reduction in the price of their PPO Warrants from $2.00 per share to $1.79 per share, (ii) 203,716 additional shares of Common Stock, and (iii) 203,716 additional warrants to purchase shares of Common Stock of the Company at an exercise price of $1.79 per share. 

 

Prior to the Contribution, eleven stockholders of the Company (“Pre-Contribution Transaction Stockholders”), entered into an agreement with the Company (“Side Sale Agreement”) pursuant to which they agreed to cancel a portion of their shares after the initial closing of the 2014 PPO such that the aggregate number of shares they collectively held following such cancellation would be equal to 19.9% of the total outstanding shares of the Company’s Common Stock. Subsequent to the initial closing of the 2014 PPO, approximately 715,280 shares were cancelled in connection with the Side Sale Agreement. Terms included in the Side Sale Agreement discussed the issuance of additional shares to the Pre-Contribution Transaction Stockholders in the event there were additional closings of the 2014 PPO following the initial closing so as to maintain their 19.9% Common Stock ownership position, in the aggregate. As a result of the second and third closings of the 2014 PPO, an aggregate of approximately 1,379,631 restricted shares of Common Stock were issued to the Pre-Contribution Transaction Stockholders (the “Adjustment Shares”). The Company recorded $1,379,631 of stock based compensation expense during the six months ended June 30, 2014 in connection with the issuance of the Adjustment Shares with a fair value per share of $1.00. 

 

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

 

 
14
 

 

On December 17, 2014 the Company entered into a contract with a consultant pursuant to which the Company issued shares in exchange for advisory services. Pursuant to the services agreement the Company was obligated to issue 100,000 shares of restricted Common Stock in prepayment of services to be provided under the agreement. These shares were issued on December 17, 2014 at a fair value of $1.00 per share. Approximately $42,000 of the expense is considered a prepaid expense on the balance sheet of the Company at June 30, 2015. 

 

On February 28, 2015 the company entered into a contract with a consultant pursuant to which the Company issued shares in exchange for providing investor relations services. Pursuant to the services agreement, the Company was obligated to issue 25,000 shares of restricted Common Stock in prepayment of services to be provided under the agreement. These shares were issued on February 28, 2015 at a fair value of $1.00 per share. 

 

On December 29, 2014 the company entered into a contract with an executive recruiter pursuant to which the Company was obligated to issue shares in connection with the identification and subsequent employment of a candidate into an executive position. The Company was obligated to issue shares of restricted Common Stock equivalent to $28,250. On March 30, 2015, 44,699 shares of restricted Common Stock were issued at a 10-day weighted average value of $0.63 per share. 

 

Note 7 – Common Stock Warrants

 

Concurrent with the closings of the Contribution and the 2014 PPO, discussed above, the Company issued PPO Warrants with respect to an aggregate of 9,680,355 underlying common shares to the investors in the 2014 PPO. Each PPO Warrant has a term of five years to purchase one share of Common Stock at $2.00 per share. The PPO Warrants had weighted average anti-dilution and price protection, and a cashless exercise provision, which were subject to customary exceptions. 

 

In addition, the placement agent in the 2014 PPO, and its sub-agents, received warrants exercisable for a period of five years to purchase a number of shares of Common Stock equal to 10% of the number of shares of Common Stock sold to investors introduced by it, with a per share exercise price of $1.00 (the “Broker Warrants”). As a result of the foregoing, the placement agent in the 2014 PPO, and its sub-agents, were issued Broker Warrants with respect to an aggregate of 968,034 underlying shares of the Company’s Common Stock.  

 

On April 6, 2015, the Company consummated the Offer to Amend and Exercise the PPO Warrants. Pursuant to the Offer to Amend and Exercise, PPO Warrants to purchase an aggregate of 6,467,004 shares of Common Stock at an exercise price of $0.50 per share were tendered by their holders and were amended and exercised in connection therewith for gross proceeds to the Company of $3,233,502 (before deducting placement agent fees and expenses of the Offer to Amend and Exercise of approximately $417,000).  

 

Effective on or prior to April 6, 2015, the Company and the holders of (a) 1,475,010 PPO Warrants, that chose not to participate in the Offer to Amend and Exercise (“Non-Participating Original Warrants”), and (b) all 968,300 Broker Warrants, approved an amendment to remove the price-based anti-dilution provisions in their warrants. As a result, the price-based anti-dilution provisions contained in these Non-Participating Original Warrants and Broker Warrants have been removed and are of no further force or effect as of April 6, 2015. 

 

 
15
 

 

The Warrant Agent for the Offer to Amend and Exercise was paid an aggregate commission of approximately $323,350 and was issued warrants to purchase an aggregate of 646,700 shares of the Company’s Common Stock at an exercise price of $0.50 per share for a term of five (5) years (“Warrant Agent Warrants”). 

 

As discussed in Note 5, certain securities the Company issued in the 2014 PPO have price-based anti-dilution protection, if, within twenty-four (24) months after the final closing of the 2014 PPO, the Company issues additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions) for a consideration per share less than $1.00. Of the 9,680,355 original PPO Warrants, 1,738,341 still remain with these priced-based anti-dilution rights. With the consummation of the Offer to Amend and Exercise the PPO Warrants, the anti-dilution provisions were triggered and the non-participating warrant holders are now entitled to receive (i) a reduction in the price of their PPO Warrants from $2.00 per share to $1.79 per share, (ii) 203,716 additional shares of Common Stock, and (iii) 203,716 additional warrants to purchase shares of Common Stock of the Company at an exercise price of $1.79 per share. 

 

Common Stock warrant activity during the six months ended June 30, 2015 was as follows: 

 

 

 

Common Stock

Warrants Outstanding

 

 

 

Warrants Outstanding

 

 

Weighted-Average

Exercise Price

 

 

 

 

 

 

 

 

Balance as of December 31, 2014 

 

 

10,648,389

 

 

$ 1.91

 

Granted 

 

 

850,416

 

 

 

0.81

 

Cancelled/Forfeited 

 

 

-

 

 

 

-

 

Exercised 

 

 

(6,467,004 )

 

 

0.50

 

Balance as of June 30, 2015 

 

 

5,031,801

 

 

$ 1.53

 

 

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

 

Expected

Volatility

Risk-free

Interest Rate

Expected

Dividend Yield

Expected

Life (in years)

At issuance 

67.62 

1.59 

00 

%

 

5.00 

 

 
16
 

 

Note 8 - Equity Incentive Awards

 

Stock Compensation Plans

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 
17
 

 

Stock Options

 

Option activity during the six months ended June 30, 2015 was as follows: 

 

 

 

Options Outstanding

 

 

 

Outstanding Options

 

 

Weighted-Average Exercise Price

 

 

Weighted-Average Remaining Contractual Term

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2015 

 

 

3,663,095

 

 

$ 0.69

 

 

 

7.7

 

Granted 

 

 

305,000

 

 

$ 0.68

 

 

 

 

 

Cancelled/Forfeited 

 

 

(46,369 )

 

$ 1.00

 

 

 

 

 

Exercised 

 

 

(50,465 )

 

$ 0.04

 

 

 

 

 

Repurchased 

 

 

-

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015 

 

 

3,871,261

 

 

$ 0.70

 

 

 

7.6

 

Exercisable June 30, 2015 

 

 

1,665,564

 

 

$ 0.50

 

 

 

 

 

 

Valuation of Awards

 

Under ASC 718, the weighted average grant date fair value of options granted was $0.48 for options granted for the six months ended June 30, 2015. The per-share fair value of each stock option was determined on the date of grant using the Black-Scholes model using the following weighted average assumptions: 

 

 

 

Six Months Ended

June 30, 2015

 

Exercise Price 

 

$ 0.68

 

Expected life (years) 

 

 

6.00

 

Risk-free interest rate 

 

 

1.52 %

Expected volatility 

 

 

88.05 %

Expected dividend yield 

 

 

0 %

 

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

 

Stock-based Compensation Expense

 

As of June 30, 2015, total compensation cost related to stock options granted, but not yet recognized, was $796,512 which the Company expects to recognize over a weighted-average period of approximately 1.50 years. Stock-based compensation expenses related to all employee and non-employee stock-based awards were $173,805 and $133,662 for the six months ended June 30, 2015 and 2014, respectively. 

 

 
18
 

 

Restricted Stock Awards

 

The Company has issued restricted stock awards with respect to 316,331 underlying shares under the 2008 Plan. The restricted stock awards vested over a term of four years with 25% per year. As of December 31, 2014 and June 30, 2015, 269,093 and 281,195 restricted common shares were outstanding but not yet issued under these awards, respectively. The Company is obligated to issue these awards upon request by the holder of the award. During each of the six month periods ended June 30, 2015 and 2014, the Company recorded stock based compensation of $559 and $919, respectively. As of June 30, 2015, unrecognized stock based compensation expense related to restricted stock awards granted, but not yet vested was $315 which the Company expects to recognize over a weighted average period of less than one year. 

 

Note 9 – Commitments and Contingencies

 

Rovi

 

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

 

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

 

Expenses related to the Rovi agreement for the six months ended June 30, 2015 were approximately $310,000. 

 

Zuora

 

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

 

Expenses related to the Zuora agreement for the six months ended June 30, 2015, were approximately $56,000. 

 

 
19
 

 

MediaNet Digital, Inc.

 

On November 10, 2014 the Company entered into a service agreement with MediaNet Digital, Inc. (“MediaNet”), which provides the Company with a catalog of sound recordings and metadata which enables and provides for the delivery of sound recordings to end users of the Company’s CÜR Music application. The service agreement remains in effect for a period of three years following the effective date of November 7, 2014. The service agreement will automatically renew for successive one year terms unless terminated by MediaNet or the Company. 

 

The Company will pay a set-up fee to MediaNet. In addition, the Company will pay MediaNet a monthly technology licensing fee during the initial term, a monthly usage fee and will pay for any additional professional services and technical assistance or customization. 

 

Expenses related to the MediaNet agreement for the six months ended June 30, 2015 were approximately $53,000. 

 

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

 

Twelve Months Ended June 30,

 

Total

 

 

 

 

 

2016 

 

$ 759,412 *
 

 

 

 

 

2017 

 

 

830,364 *
 

 

 

 

 

2018 

 

 

848,435 *
 

 

$ 2,438,211

 

 

* Additional contract terms include per subscriber, stream or percentage of revenue charges which are not reflected in this table. 

 

Note 10 – Subsequent Events

 

Board Approval of Stock Split 

 

On May 26, 2015 the Board of Directors approved and authorized the Company to effect a reverse stock split (the “Reverse Stock Split”) at a ratio of not less than 1-for-5 and not more than 1-for-15 (the “Reverse Split Ratio”), the exact Reverse Split Ratio for the Reverse Stock Split to be determined by the Board in its sole discretion based upon the market price of the Company’s Common Stock on the date of such determination, and with such Reverse Stock Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion, it being understood that the sole purpose of such Reverse Stock Split is to attempt to obtain a listing on Nasdaq or the NYSE. At a Special Meeting of Stockholders held August 11, 2015, the Company’s stockholders approved a proposal to give the Board discretion to effect the Reverse Stock Split within the Reverse Split Ratio.

 

 
20
 

 

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

 

Forward-Looking Statements

 

The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in our Annual Report, as updated in subsequent filings we have made with the SEC, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.  

 

Basis of Presentation

 

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

 

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

 

The audited financial statements for our fiscal year ended December 31, 2014,contained in our Annual Report, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these audited financial statements. All such adjustments are of a normal recurring nature. 

 

References in this section to “CÜR Media,” “we,” “us,” “our,” “the Company” and “our Company” refer to CÜR Media, Inc., and its consolidated subsidiary, CÜR Media, LLC. 

 

General Overview 

 

We were incorporated in the State of Delaware as Duane Street Corp. on November 17, 2011. Our original business was manufacturing and marketing baby products. Prior to the Contribution (as defined below), our Board of Directors (“Board”) determined to discontinue operations in this area and to seek a new business opportunity.  

 

 
21
 

 

On January 28, 2014, we consummated a contribution transaction (the “Contribution”) with CÜR Media, LLC, a limited liability company organized in the State of Connecticut on February 15, 2008, pursuant to a Contribution Agreement by and among the Company, CÜR Media, LLC, and the holders of a majority of CÜR Media, LLC’s limited liability company membership interests (the “Contribution Agreement”). In connection with the Contribution, and in accordance with the terms and conditions of the Contribution Agreement, all outstanding securities of CÜR Media, LLC were exchanged for securities of ours.  

 

CÜR Media, LLC’s activities since inception were devoted primarily to the development and commercialization of Raditaz, a DMCA compliant internet radio product. Raditaz was launched in early 2012 and the platform was continually developed and improved through November 2013 when its iOS, Android and web products were removed from the market, to allow us to focus on the further development of our CÜR Music product. 

 

The Raditaz music streaming platform and products were under development since 2010 and, prior to the 2014 PPO (as defined below) were financed primarily from angel investments in the aggregate amount of approximately $4,858,000, $150,000 of financing from a promissory note from CT Innovations, Incorporated, and a $100,000 promissory note and a $100,000 grant from the State of Connecticut Department of Economic Development. 

 

As a result of the Contribution, CÜR Media, LLC became our wholly owned subsidiary, and we adopted the business of CÜR Media, LLC, which is to develop and commercialize a streaming music experience for listening on the web and mobile devices, as our sole line of business. 

 

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

 

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

 

Further, on January 31, 2014, our Board authorized a 16.503906-for-1 forward split of our Common Stock, in the form of a dividend, pursuant to which each shareholder of our Common Stock as of the record date received 15.503906 additional shares of Common Stock for each one share owned. Share and per share numbers in this report relating to our Common Stock have been retrospectively adjusted to give effect to this forward stock spilt, unless otherwise stated. 

 

In a private placement financing we conducted with respect to which closings occurred on January 28, 2014, March 14, 2014 and March 28, 2014 (the “2014 PPO”), we sold an aggregate of 9,680,380 shares of our Common Stock, and a warrants to purchase an aggregate of 9,680,355 shares of our Common Stock at an exercise price of $2.00 per share for a term of five (5) years (“PPO Warrants”), for gross proceeds of approximately $9,680,000 (before deducting placement agent fees and expenses of the 2014 PPO estimated at approximately $1,529,000). 

 

The placement agent for the 2014 PPO and its sub-agent were paid an aggregate commission of approximately $968,000 and were issued warrants to purchase an aggregate of 968,300 shares of our Common Stock at an exercise price of $1.00 per share for a term of five (5) years (“Broker Warrants”). 

 

 
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On April 6, 2015, we consummated an offer to amend and exercise the PPO Warrants (the “Offer to Amend and Exercise Warrants”). The PPO Warrants of holders who elected to participate in the Offer to Amend and Exercise Warrants were amended to, among other things, remove the price-based anti-dilution provisions contained therein and reduce the exercise price from $2.00 to $0.50 per share of Common Stock. Pursuant to the Offer to Amend and Exercise Warrants, an aggregate of 6,467,004 PPO Warrants were amended and exercised by their holders, for gross proceeds of approximately $3,234,000 (before deducting warrant agent fees and expenses of the Offer to Amend and Exercise estimated at approximately $417,000). 

 

Effective on or prior to April 6, 2015, the Company and the holders of (a) 1,475,010 PPO Warrants, that chose not to participate in the Offer to Amend and Exercise Warrants (“Non-Participating Original Warrants”), and (b) all 968,300 Broker Warrants, approved an amendment to remove the price-based anti-dilution provisions in their warrants. As a result, the price-based anti-dilution provisions contained in these Non-Participating Original Warrants and Broker Warrants have been removed and are of no further force or effect as of April 6, 2015.  

 

The warrant agent for the Offer to Amend and Exercise Warrants was paid an aggregate commission of approximately $323,350 and was issued warrants to purchase an aggregate of 646,700 shares of our Common Stock at an exercise price of $0.50 per share for a term of five (5) years (“Warrant Agent Warrants”). 

 

Certain securities we issued in the 2014 PPO have price-based anti-dilution protection, if, within twenty-four (24) months after the final closing of the 2014 PPO, we issue additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions) for a consideration per share less than $1.00. Of the 9,680,344 PPO Warrants, 1,738,341 still remain with these priced-based anti-dilution rights. With the consummation of the exercise and amendment of the PPO Warrants, the anti-dilution provisions were triggered and the non-participating warrant holders received (i) 203,716 additional shares of Common Stock (ii) a reduction in the price of their PPO Warrants from $2.00 per share to $1.79 per share, and (iii) 203,716 additional warrants to purchase shares of Common Stock of the Company at an exercise price of $1.79 per share. 

 

As of June 30, 2015, we had devoted substantially all of our efforts to product development, raising capital and building our technology infrastructure. As of that date, we did not receive any revenues from our planned principal operations.

 

Our Strategy

 

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

 

In addition to revenue from subscriptions, our business plan includes a second revenue stream of personalized advertising, which will not interrupt a stream, but will target a user’s listening habits. The advertising may be in the form of, display ads, email and text messages. Our business plan further includes a third revenue stream from the sale of music, concert tickets and merchandise through our music streaming service, to be tailored to each listeners taste based on prior listening trends. We plan to sell music downloads and sales of concert tickets and merchandise subsequent to launch. 

 

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

 

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

 

We plan to launch our CÜR’s music streaming product and platform later in 2015.

 

Recent Developments 

 

On May 26, 2015 the Board of Directors approved and authorized the Company to effect a reverse stock split (the “Reverse Stock Split”) at a ratio of not less than 1-for-5 and not more than 1-for-15 (the “Reverse Split Ratio”), the exact Reverse Split Ratio for the Reverse Stock Split to be determined by the Board in its sole discretion based upon the market price of the Company’s Common Stock on the date of such determination, and with such Reverse Stock Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion, it being understood that the sole purpose of such Reverse Stock Split is to attempt to obtain a listing on Nasdaq or the NYSE. At a Special Meeting of Stockholders held August 11, 2015, the Company’s stockholders approved a proposal to give the Board discretion to effect the Reverse Stock Split within the Reverse Split Ratio.

 

Results of Operations 

 

Three Month Period Ended June 30, 2015 Compared to Three Month Period Ended June 30, 2014

 

Revenues

 

We have not generated any material revenues for the three months ended June 30, 2015 or 2014. 

 

Operating Expenses

 

Overview

 

Total operating expenses for the three months ended June 30, 2015 and 2014 were $2,778,700 and $1,346,739, respectively. The increase in total operating expenses of $1,432,000, or approximately 106%, was primarily related to an increase in research and development of $1,201,000. The increase in development was driven by an increase in employee compensation for the software development team of approximately $550,000 relating to staffing increases from 14 to 26 employees, an increase in the cost associated with music content of approximately $250,000, an increase in consulting services of approximately $200,000 primarily related to development of the backend support and user experience development, and an increase in marketing and advertising and other expenses of approximately $150,000. In addition, general and administrative expenses increased by approximately $146,000, driven by an increase of approximately $124,000 for legal, accounting and investor relations related to label negotiations, investor relations and fund raising. Non-cash compensation expense for stock and stock option issuances of increased by approximately $84,000. 

 

Research and Development Expenses

 

For the three months ended June 30, 2015 and 2014, research and development expenses were $2,156,198 and $955,112, respectively. Research and development expenses increased by $1,201,000, or approximately 126%, primarily due to an increase in employee wages associated with the application development of approximately $550,000, an increase in content costs of $250,000, an increase in consultant fees for application and back-end development of approximately $200,000, an increase in other expenses for marketing and other expenses of approximately $150,000 and an increase in hosting of approximately $50,000.  

 

 
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General and Administrative Expenses

 

For the three months ended June 30, 2015 and 2014, general and administrative expenses were $454,953 and $308,852, respectively. General and administrative expenses increased by $146,000, or approximately 47%, primarily due to an increase of $124,000 in professional expenses, legal and accounting fees, primarily related to the activities associated with the label negotiations, fundraising, filing fees. General and administrative expenses include wages expenses, facilities and professional fees. 

 

Stock based Compensation Expenses 

 

For the three months ended June 30, 2015 and 2014, stock based compensation expenses were $160,579 and $76,512, respectively. Stock based compensation expenses increased due to the increase in options granted year over year and the associated expense to be recognized on those grants. 

 

Other Income (Expense) 

 

For the three months ended June 30, 2015 and 2014, other income (expense) was $(1,075,096) and $440,907, respectively. Other income (expense) decreased primarily due to a decrease in the stock price at the revaluation of the PPO Warrants immediately prior to the Tender Offer which resulted in a change in fair value recorded in other income of approximately $1.3 million. In addition, the 2014 PPO warrants remaining with anti-dilution provisions subsequent to the close of the Offer to Exercise and Amend were require periodic market adjustment. Partially offsetting the derivative adjustments were expenses of approximately $465,000 to recognize costs associated with the issuance of additional warrants and stock to non-participating warrant holders, issuance of warrants to broker agents and reflect effect of the price-protection from the Offer to Exercise and Amend transaction.

 

Six Month Period Ended June 30, 2015 Compared to Six Month Period Ended June 30, 2014

 

Revenues

 

We have not generated any material revenues for the six months ended June 30, 2015 or 2014. 

 

Operating Expenses

 

Overview

 

Total operating expenses for the six months ended June 30, 2015 and 2014 were $4,581,057 and $3,571,563, respectively. The increase in total operating expenses of $1,009,000, or approximately 28%, was primarily related to the issuance of Common Stock to pre-Contribution shareholders in 2014 of approximately $1,379,631, offset by an increase in development operations and general and administrative expenses of approximately $1,949,000 and $391,000, respectively, for CÜR Music in 2015. The increase in development and general and administrative was driven by an increase in employee compensation of approximately $970,000 relating to staffing increases from 14 to 26 employees, an increase in professional fees of $265,000 and consulting services of approximately $236,000 primarily related to legal, investor relations, fund raising and back-end and user experience development, an increase in marketing and business development of approximately $210,000 for public relations, investor relations and fund raising, an increase in content cost of approximately $353,000 for licensing of content during development, and an increase in other operating expenses of approximately $141,000. Subscription services and recruiting increased by approximately $112,000. 

 

 
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Research and Development Expenses

 

For the six months ended June 30, 2015 and 2014, research and development expenses were $3,566,169 and $1,617,443, respectively. Research and development expenses increased by $1,949,000, or approximately 120%, primarily due to an increase in employee wages associated with the application development of approximately $940,000, an increase in costs for business development of approximately $211,000, an increase in content costs of $353,000, an increase in consultant fees for application and business development of approximately $236,000, and an increase in other expenses for recruiting, travel, office and other expenses of approximately $142,000.  

 

General and Administrative Expenses

 

For the six months ended June 30, 2015 and 2014, general and administrative expenses were $824,023 and $433,335, respectively. General and administrative expenses increased by $391,000, or approximately 90%, primarily due to an increase of $265,000 in professional expenses, legal and accounting fees, primarily related to the activities associated with the label negotiations, filing and fund raising, $33,000 in compensation, and $112,000 for subscription contract costs and recruiting. General and administrative expenses include wages expenses, facilities and professional fees. 

 

Stock based Compensation Expenses 

 

For the six months ended June 30, 2015 and 2014, stock based compensation expenses were $173,805 and $1,513,293, respectively. Stock based compensation expenses decreased due to the grant of additional shares in 2014 to our pre-Contribution shareholders in connection with the 2014 PPO pursuant to a side sale agreement (the “PPO Side Sale Agreement”) as well as an increase in the forfeiture rate. 

 

Other Income (Expense) 

 

For the six months ended June 30, 2015 and 2014, other income (expense) was $1,272,842 and $479,620, respectively. Other income (expense) increased primarily due to the decrease in the stock price in the first quarter of 2015 which resulted in a gain on mark to market of the derivative liability. In addition, the revaluation of the PPO Warrants immediately prior to the Tender Offer resulted in a change in fair value recorded in other income. The mark to market adjustments were partially offset by loss on extinguishment of the derivative liabilities. 

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

As of June 30, 2015, cash and cash equivalents were approximately $1,980,515, as compared to $3,228,938 at December 31, 2014. The decrease of $1,248,423 was related to the development of CÜR Music of approximately $4,035,000 offset by an increase in cash from the warrant exercises of $2,819,000.  

 

As of June 30, 2015, we had excess working capital of $593,000. As of December 31, 2014, we had a working capital deficit of $904,359. The increase of $1,500,000, or 166%, in working capital was attributable to a decrease in cash related to development, which was offset by the change in derivative liability associated with the reduction in outstanding warrants issued in connection with the 2014 PPO that contained anti-dilution and price-protection provisions. 

 

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

 

 
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We raised aggregate gross proceeds of approximately $9,680,000 in our 2014 PPO (before deducting placement agent fees and expenses of the 2014 PPO of approximately $1,529,000).  

 

On April 6, 2015, we raised aggregate gross proceeds of approximately $3,234,000 in our Offer to Amend and Exercise Warrants (before deducting placement agent fees and expenses of the Offer to Amend and Exercise of approximately $417,000). 

 

We currently do not have sufficient cash on hand to support our operations for the next twelve months and we will need to raise additional capital prior to our planned launch of CÜR Music later in 2015. 

 

In order to launch our music service, we have to complete the development of our backend systems, complete the user interface of CÜR Music, complete the development of our iOS, Android and web applications, complete Beta testing, complete formal contracts with major music labels including Universal, SONY and Warner, and enter into content licensing agreements with certain independent music labels, music publishers and publisher rights organizations. We are currently working on the user interface and user experience of CÜR’s iPhone, iPad and Android applications, our website, and our backend systems, and will continue to do so through launch. The cost of entering into content licensing agreements with major music labels, publisher rights organizations and publishers is expected to include legal and consulting fees as well as advances or prepayments to content providers. We have a team of software engineers, led by our Chief Technology Officer and Chief Operating Officer, working on developing the technology platform, as well as the iOS and Android applications and the CÜR Music website. We have made significant progress in the development of CÜR Music’s applications, website and backend systems, and our Beta testing is underway with approximately 500 testers. Our Chief Marketing Officer is developing the marketing strategy for the launch of CÜR. 

 

Not including non-cash expenses, we expect to spend approximately $12.4 million on research and development, sales and marketing and general and administrative costs to complete the development of the CÜR Music, for the time period since our 2014 PPO in January 2014 through the third quarter of 2015. We expect to spend a total of approximately $7.2 million on research and development prior to our launch. In addition, we expect to spend approximately $1.6 million in sales and marketing as we head towards launch of CÜR Music. We expect to spend approximately $3.6 million on general and administrative costs prior to our launch. In addition to the aforementioned costs, we expect to pay up to $10.0 million dollars as prepayments in connection with the agreements that we plan to have with the major music labels, independent labels and publishers. Of the $12.4 million we anticipate spending to bring CÜR Music to market, $10 million, or approximately 80 percent, was expensed through June 30, 2015. The remaining $2.4 million anticipated cost of development, sales and marketing and general and administrative costs will be incurred in the third quarter of this year. 

 

We plan to bring CÜR Music to market later in 2015. We contemplate raising an additional $15-$20 million in conjunction with the planned launch of CÜR Music, to implement our business plan, market CÜR Music, provide content license costs, and for general working capital. This fundraising has not yet begun, and no specific terms have been set. There can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to seek a buyer for our business or another entity with which we could create a joint venture. If all of these alternatives fail, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws. 

 

 
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Net Cash Used in Operating Activities

 

Net cash used in operating activities was $4,035,346 for the six months ended June 30, 2015, as compared to net cash used of $2,148,998 for the six months ended June 30, 2014. The increase of $1,886,000, or 88%, in net cash used in operations was primarily due to a decrease in the warrant liability of $1,253,000, a decrease of $1,339,000 in non-cash compensation resulting from the issuance of shares associated with the PPO Side Sale Agreement in 2014 offset by charges associated with the extinguishment of the warrants of $465,000, and changes to working capital of $299,000.

 

Net Cash Used in Investing Activities

 

During the six months ended June 30, 2015 and 2014, we used $17,596 and $50,742, respectively, of cash in investing activities. The cash used in investing activities in the six months ended June 30, 2015 was for the purchase of computers and related hardware, software, other office equipment such as phones and tablets associated with additional staff and development and testing as well as the purchase of a trademark for CÜR.  

 

Net Cash Provided by Financing Activities

 

During the six months ended June 30, 2015, we received $2,819,000 in net proceeds from the sale of Common Stock. Approximately $2,817,000 was received in connection with the Offer to Amend and Exercise Warrants. The remaining proceeds resulted from the exercise of options granted through the Employee Incentive Program. During the six months ended June 30, 2014, we received $8,303,225 in proceeds from the sale of Common Stock and/or warrants of the Company in the 2014 PPO. There were debt repayments of $14,846 and $164,486 in the six months ended June 30, 2015 and 2014, respectively. 

 

Going Concern

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Contractual Obligations 

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

 
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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures 

 

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

 

In connection with the preparation of this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our senior management, currently consisting of Thomas Brophy, our President and Chief Executive Officer (Principal Executive Officer), and Kelly Sardo, our Chief Financial Officer and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of our predecessor’s disclosure controls and procedures existing as of June 30, 2015. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, Thomas Brophy, our President and Chief Executive Officer (Principal Executive Officer), and Kelly Sardo, our Chief Financial Officer and Treasurer (Principal Financial Officer), concluded that our disclosure controls and procedures were not effective as of such date. 

 

Changes in Internal Control over Financial Reporting  

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of June 30, 2015, that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None. 

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

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

 

Warrant Tender Offer 

 

On April 6, 2015, we consummated our Offer to Amend and Exercise Warrants. The PPO Warrants of holders who elected to participate in the Offer to Amend and Exercise were amended to, among other things, remove the price-based anti-dilution provisions contained therein and reduce the exercise price from $2.00 to $0.50 per share of Common Stock. Pursuant to the Offer to Amend and Exercise, an aggregate of 6,467,004 PPO Warrants were amended and exercised by their holders, for gross proceeds of approximately $3,233,500 (before deducting warrant agent fees and expenses of the Offer to Amend and Exercise estimated at approximately $417,000). 

 

Effective on or prior to April 6, 2015, the Company and the holders of 1,475,010 Non-Participating Original Warrants, and (b) all 968,300 Broker Warrants, approved an amendment to remove the price-based anti-dilution provisions in their warrants. As a result, the price-based anti-dilution provisions contained in these Non-Participating Original Warrants and Broker Warrants have been removed and are of no further force or effect as of April 6, 2015.  

 

The warrant agent for the Offer to Amend and Exercise was paid an aggregate commission of approximately $323,350 and was issued Warrant Agent Warrants to purchase an aggregate of 646,700 shares of our Common Stock at an exercise price of $0.50 per share for a term of five (5) years. 

 

Certain securities the Company issued in the 2014 PPO have price-based anti-dilution protection, if, within twenty-four (24) months after the final closing of the 2014 PPO, the Company issues additional shares of Common Stock or Common Stock equivalents (subject to customary exceptions) for a consideration per share less than $1.00. Of the 9,680,344 PPO Warrants, 1,738,341 still remain with these priced-based anti-dilution rights. With the consummation of the exercise and amendment of the PPO Warrants, the anti-dilution provisions were triggered and the non-participating warrant holders received (i) a reduction in the price of their PPO Warrants from $2.00 per share to $1.79 per share (ii) 203,716 additional shares of Common Stock, and (iii) 203,716 additional warrants to purchase shares of Common Stock of the Company at an exercise price of $1.79 per share. 

 

The Offer to Amend and Exercise, and the issuance of the shares of Common Stock and warrants in connection therewith, were exempt from registration under Section 4(a)(2) of the Securities Act, in reliance upon the exemptions provided by Rule 506 of Regulation D and/or Regulation S promulgated by the SEC thereunder. 

 

 
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Issuance of Shares to a Consultant 

 

As of March 30, 2015, in consideration for services provided pursuant to a consulting agreement, we issued 44,699 shares of our Common Stock to a consultant, which were valued at an aggregate of $28,250.  

 

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

 

Issuance of Shares in connection with Exercises of Stock Options

 

As of June 11, 2015, non-statutory stock options to purchase 45,369 and 5,096 shares of our Common Stock, which were issued under our 2014 Equity Incentive Plan, were exercised by their holder at per share exercise prices of $0.04 and $0.08, respectively. 

 

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

 

Stock Option Grants 

 

Between May 16, 2015 and August 14, 2015, we issued an aggregate of 10,000 non-statutory stock options under our 2014 Equity Incentive Plan (“2014 Plan”) to employees of the Company at an exercise prices of $0.65 per share, the closing sale prices of our Common Stock on the OTC Markets OTC marketplace on the dates of grant.  

 

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

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None. 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable. 

 

ITEM 5. OTHER INFORMATION

 

Reverse Stock Split 

 

On May 26, 2015, our Board adopted an amendment to Article IV of our amended and restated certificate of incorporation (the “Certificate of Amendment”) effecting a reverse split of our Common Stock (the “Reverse Split”) at a ratio of not less than one-for-five and not more than one-for-fifteen (the “Reverse Split Ratio”), with such ratio to be determined by the Board and in its sole discretion, with such Reverse Split to be effected at such time and date, if at all, as determined by the Board in its sole discretion.  

 

 
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If the Board determines to effect the Reverse Split, the intent is to increase the stock price of our Common Stock, which is currently trading on the OTCQB marketplace, to a level sufficiently above the minimum bid price requirement that is required for initial listing on either The Nasdaq Capital Market or the NYSE MKT (each, an “Exchange”) such that the Board, in its sole discretion, may apply for initial listing on one of the Exchanges, at such time as we otherwise meet the other quantitative and qualitative requirements for listing. Upon determination by the Board that it will pursue listing on one of the Exchanges (and we otherwise meet the listing criteria) and the stock price of our Common Stock is trading below such minimum bid price requirement, the Board will select an appropriate ratio and file the Certificate of Amendment with the Secretary of State of the State of Delaware, subject to stockholder approval.  

 

Effecting the Reverse Split requires that Article IV of our amended and restated certificate of incorporation be amended by filing the Certificate of Amendment with the Secretary of State of the State of Delaware. If approved, the amendment will be effective upon the filing of the Certificate of Amendment (or on such date and time as specified therein) with the Secretary of State of the State of Delaware, with such filing to occur, if at all, by the Board in its sole discretion.  

 

A Special Meeting of Stockholders of the Company (the “Special Meeting”) was held at our corporate offices, located at 2217 New London Turnpike, South Glastonbury, CT 06073, on August 11, 2015, at 2:00 p.m., local time, pursuant to notice duly given. As of June 24, 2015, the record date for the Special Meeting, we had 31,720,247 shares of Common Stock outstanding and entitled to vote. There were present at the Special Meeting, either in person or represented by proxy, the holders of 20,300,493 shares of Common Stock, constituting a quorum. 

 

At the Special Meeting, our stockholders were asked to consider and vote on the proposal to grant the Board discretionary authority to file the Certificate of Amendment to effectuate the Reverse Split at the Reverse Split Ratio, it being understood that the purpose of such Reverse Split is to attempt to obtain a listing on The Nasdaq Capital Market or the NYSE MKT. A canvas of the votes cast at the meeting by stockholders and proxies with respect to the proposal showed that they voted as follows: 

 

Vote For: 19,679,577 

Vote Against: 598,522 

Abstain: 22,394 

 

ITEM 6. EXHIBITS

 

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

 

 

·

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

 

 

 

·

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

 

 

 

·

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

 

 

 

·

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

 
32
 

 

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

 

The following exhibits are included as part of this report: 

 

Exhibit No.

SEC

Report

Reference

No.

Description

 

 

 

 

 

4.1 

99d2 

Form of Warrant Agent Warrant of the Registrant (1) 

 

 

 

 

 

10.1 

99d1 

Warrant Agent Agreement, dated February 13, 2015, between the Registrant and Katalyst Securities LLC (1) 

 

 

 

 

 

31.1 

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

 

 

 

 

 

31.2 

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

 

 

 

 

 

32.1 

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

 

 

 

 

 

32.2 

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

 

 

 

 

 

101.INS 

XBRL Instance Document 

 

 

 

 

 

101.SCH 

XBRL Taxonomy Extension Schema Document 

 

 

 

 

 

101.CAL 

XBRL Taxonomy Extension Calculation Linkbase Document 

 

 

 

 

 

101.DEF 

XBRL Taxonomy Extension Definition Linkbase Document 

 

 

 

 

 

101.LAB 

XBRL Taxonomy Extension Label Linkbase Document 

 

 

 

 

 

101.PRE 

XBRL Taxonomy Extension Presentation Linkbase Document 

_______________ 

*

Filed herewith

(1)

Filed with the Securities and Exchange Commission on March 9, 2015, as an exhibit, numbered as indicated above, to the Registrants’ Schedule TO, dated March 9, 2015, which exhibit is incorporated herein by reference.

 

 
33
 

 

SIGNATURES

 

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

 

 

CÜR MEDIA, INC. 

Dated: August 14, 2015 

By:  

/s/ Thomas Brophy 

Name: 

Thomas Brophy 

Title: 

President and Chief Executive Officer 

(Principal Executive Officer) 

  

Dated: August 14, 2015 

By:  

/s/ Kelly Sardo 

Name: 

Kelly Sardo 

Title: 

Chief Financial Officer and Treasurer 

(Principal Financial Officer) 

 

 
34
 

 

EXHIBIT INDEX

 

Exhibit No. 

SEC

Report

Reference

No.

Description 

 

 

 

 

 

4.1 

99d2 

Form of Warrant Agent Warrant of the Registrant (1) 

 

 

 

 

 

10.1 

99d1 

Warrant Agent Agreement, dated February 13, 2015, between the Registrant and Katalyst Securities LLC (1) 

 

 

 

 

 

31.1 

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

 

 

 

 

 

31.2 

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

 

 

 

 

 

32.1 

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

 

 

 

 

 

32.2 

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

 

 

 

 

 

101.INS 

XBRL Instance Document 

 

 

 

 

 

101.SCH 

XBRL Taxonomy Extension Schema Document 

 

 

 

 

 

101.CAL 

XBRL Taxonomy Extension Calculation Linkbase Document 

 

 

 

 

 

101.DEF 

XBRL Taxonomy Extension Definition Linkbase Document 

 

 

 

 

 

101.LAB 

XBRL Taxonomy Extension Label Linkbase Document 

 

 

 

 

 

101.PRE 

XBRL Taxonomy Extension Presentation Linkbase Document 

______________ 

*

Filed herewith

(1)

Filed with the Securities and Exchange Commission on March 9, 2015, as an exhibit, numbered as indicated above, to the Registrants’ Schedule TO, dated March 9, 2015, which exhibit is incorporated herein by reference.

 

 

35