Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 10, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'Massive Interactive, Inc. | ' |
Entity Central Index Key | '0001481218 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-14 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 61,176,142 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2014 | ' |
Consolidated_Balance_Sheets_Un
Consolidated Balance Sheets (Unaudited) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
CURRENT ASSETS: | ' | ' |
Cash and cash equivalents | $148,527 | $1,121,181 |
Accounts receivable – trade, net | 1,551,815 | 1,243,958 |
Other receivable | 35,479 | 47,267 |
Prepayments | 102,359 | 144,694 |
Work in progress | 553,198 | 76,729 |
Other current assets | 34,734 | 0 |
Taxes refundable | 856,389 | 1,348,424 |
Total Current Assets | 3,282,501 | 3,982,253 |
PROPERTY AND EQUIPMENT: | ' | ' |
Property and equipment, net | 256,349 | 242,092 |
Capitalized software costs, net | 7,092,887 | 4,295,887 |
Trade name | 387,578 | 59,654 |
Goodwill | 9,517,202 | 0 |
Customer relationships, net | 751,766 | 39,538 |
Other assets, net | 16,978 | 16,321 |
Total non-current assets | 18,022,760 | 4,653,492 |
TOTAL ASSETS | 21,305,261 | 8,635,745 |
CURRENT LIABILITIES: | ' | ' |
Accounts payable | 1,052,476 | 422,392 |
Accrued expenses and other current liabilities | 401,391 | 330,236 |
Convertible notes payable | 5,651,466 | 151,466 |
Derivative liability | 1,411,317 | 29,317 |
Accrued compensation and related costs | 863,117 | 801,009 |
Deferred revenue | 184,352 | 2,103 |
Short-term borrowings | 0 | 357,640 |
Short-term notes borrowings, related parties | 0 | 921,415 |
Taxes payable | 205,961 | 0 |
Other current liabilities | 51,285 | 27,408 |
Total Current Liabilities | 9,821,365 | 3,042,986 |
Accrued compensation and other related costs - non-current | 54,633 | 80,733 |
Deferred tax liability | 190,371 | 190,371 |
Other long-term liabilities | 34,418 | 104,673 |
Total long-term liabilities | 279,422 | 375,777 |
TOTAL LIABILITIES | 10,100,787 | 3,418,763 |
STOCKHOLDERS' EQUITY: | ' | ' |
Preferred B shares | 0 | 0 |
Common stock | 61,186 | 61,186 |
Additional paid-in capital | 45,423,175 | 45,423,175 |
Accumulated deficit | -33,697,418 | -40,001,523 |
Accumulated other comprehensive loss | -582,469 | -265,856 |
Total Equity | 11,204,474 | 5,216,982 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT | $21,305,261 | $8,635,745 |
Consolidated_Statements_of_Ope
Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Revenues: | ' | ' | ' | ' |
Consultancy services | $89,858 | $0 | $368,393 | $0 |
License fee | 165,489 | 0 | 807,714 | 0 |
Project services | 3,007,661 | 0 | 8,522,512 | 0 |
Support services | 85,603 | 0 | 300,289 | 0 |
Other income | 227,426 | 0 | 404,571 | 0 |
TOTAL REVENUES | 3,576,037 | 0 | 10,403,479 | 0 |
OPERATING EXPENSES: | ' | ' | ' | ' |
General and administrative expenses | 3,652,378 | 60,282 | 9,070,755 | 1,263,385 |
Depreciation and amortization expense | 242,108 | 0 | 635,280 | 0 |
Total operating expenses | 3,894,486 | 60,282 | 9,706,035 | 1,263,385 |
Income (loss) from operations | -318,449 | -60,282 | 697,444 | -1,263,385 |
OTHER INCOME (EXPENSE) | ' | ' | ' | ' |
Other (expense) income | -3 | 40,000 | 73 | 40,000 |
Gain on debt forgiveness | 0 | 21,818 | 0 | 30,343 |
Gain (loss) on change in fair value of derivative liability | 3,674,000 | -14,149 | 5,693,000 | 121,025 |
Interest Income | 443 | 0 | 1,725 | 0 |
Interest expense | -113,771 | -12,815 | -354,102 | -36,539 |
Total other income | 3,560,669 | 34,854 | 5,340,696 | 154,829 |
Income from continuing operations before income taxes | 3,242,220 | -25,428 | 6,038,140 | -1,108,556 |
Income tax expense | -200,605 | 0 | 265,965 | 0 |
Income (loss) from continuing operations | 3,041,615 | -25,428 | 6,304,105 | -1,108,556 |
Loss from discontinued operations | 0 | -23,629 | 0 | -481,624 |
Net income (loss) | 3,041,615 | -49,057 | 6,304,105 | -1,590,180 |
Comprehensive income (loss): | ' | ' | ' | ' |
Foreign currency translation adjustment | -504,427 | 0 | -316,613 | 0 |
Total comprehensive income (loss) | 2,537,188 | -49,057 | 5,987,492 | -1,590,180 |
Net income (loss) | 3,041,615 | -49,057 | 6,304,105 | -1,590,180 |
Deemed dividend - amortization of beneficial conversion feature | -324,334 | 0 | -1,189,226 | 0 |
Net income (loss) attributable to Massive Interactive Inc. common stockholders | $2,717,281 | ($49,057) | $5,114,879 | ($1,590,180) |
Basic earnings (loss) per share: | ' | ' | ' | ' |
Net income (loss) from continuing operations | $0.04 | ($0.01) | $0.08 | ($0.58) |
Net incom (loss) from discontinued operations | $0 | ($0.01) | $0 | ($0.25) |
Net income (loss) | $0.04 | ($0.02) | $0.08 | ($0.83) |
Weighted average common shares - basic | 61,176,142 | 3,657,843 | 61,176,142 | 1,897,110 |
Diluted earnings (loss) per share: | ' | ' | ' | ' |
Net income (loss) from continuing operations | ($0.01) | ($0.01) | $0 | ($0.58) |
Net income (loss) from discontinued operations | $0 | ($0.01) | $0 | ($0.25) |
Net income (loss) | ($0.01) | ($0.02) | $0 | ($0.83) |
Weighted average common shares - diluted | 77,722,331 | 3,657,843 | 91,406,465 | 1,897,110 |
CONSOLIDATED_INTERIM_STATEMENT
CONSOLIDATED INTERIM STATEMENTS OF CONVERTIBLE PREFERRED STOCK (USD $) | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2014 |
Common Stock | Common Stock | Preferred Shares | Preferred Shares | Additional Paid-In Capital | Additional Paid-In Capital | Accumulated Deficit | Foreign Currency Translation Adjustment | |
Beginning Balance, Amount | $61,186 | $61,186 | ' | ' | $45,423,175 | $45,423,175 | ($40,001,523) | ($265,856) |
Beginning Balance, Shares | 61,176,142 | 61,176,142 | 55 | 55 | ' | ' | ' | ' |
Net loss | ' | ' | ' | ' | ' | ' | 6,304,105 | -316,613 |
Ending Balance, Amount | $61,186 | $61,186 | ' | ' | $45,423,175 | $45,423,175 | ($33,697,418) | ($582,469) |
Ending Balance, Shares | 61,176,142 | 61,176,142 | 55 | 55 | ' | ' | ' | ' |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net income (loss) | $6,304,105 | ($1,108,556) |
Add back: loss from discontinued operations | 0 | -481,624 |
Net income (loss) | 6,304,105 | -1,590,180 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ' | ' |
Depreciation and amortization | 635,280 | 0 |
Bad debt expense | 345,872 | ' |
Preferred stock issued for services | 0 | 1,484,660 |
Common stock issued for services | 0 | 25,554 |
Loss on disposal of property and equipment | 999 | 0 |
Derivative income | -5,693,000 | -121,025 |
Gain on debt forgiveness | 0 | -48,784 |
Change in assets and liabilities, net of assets acquired and liabilities assumed: | ' | ' |
Accounts receivable | -652,073 | 0 |
Development work in process | -476,469 | 0 |
Taxes refundable | 492,035 | 0 |
Other current assets | -24,807 | 0 |
Accounts payable and accrued expenses | 465,122 | -183,725 |
Other current liabilities | 202,070 | 0 |
Other receivables | 11,788 | -45,205 |
Taxes payable | 205,961 | 0 |
Deferred revenue | 182,249 | 0 |
Net cash provided by (used in) operating activities - continuing operations | 1,999,132 | -478,705 |
Net cash provided by operating activities - discontinued operations | 0 | 44,575 |
Net cash provided by (used in) operating activities | 1,999,132 | -434,130 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Capital software expenditures | -1,367,462 | 0 |
Cash received in acquisition | 20,203 | 0 |
Purchases of property and equipment | -63,169 | 0 |
Net cash used in investing activities - continuing operations | -1,410,428 | 0 |
Net cash provided by investing activities - discontinued operations | 0 | 376,178 |
Net cash (used in) provided by investing activities | -1,410,428 | 376,178 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Proceeds from advances - related parties | 0 | 50,000 |
Repayment of advances - related parties | -843,523 | -15,760 |
Repayment of bank loans | -357,640 | 0 |
Proceeds from notes payable | 0 | 9,700 |
Repayment of short-term borrowings | -67,298 | 0 |
Net cash (used in) provided by financing activities - continuing operations | -1,268,461 | 43,940 |
Net cash (used in) provided by financing activities - discontinued operations | 0 | 0 |
Net cash (used in) provided by financing activities | -1,268,461 | 43,940 |
Effect of exchange rates on cash and cash equivalents | -292,897 | 0 |
Net change in cash and cash equivalents | -972,654 | -14,012 |
Cash and cash equivalents at beginning of period | 1,121,181 | 26,354 |
Cash and cash equivalents at end of period | 148,527 | 12,342 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ' | ' |
Cash paid for interest | 50,690 | 36,539 |
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: | ' | ' |
Fair Value of convertible note issued for Acquisition, net of cash received | $12,554,797 | $0 |
1_Basis_of_Presentation
1. Basis of Presentation | 9 Months Ended |
Sep. 30, 2014 | |
Accounting Policies [Abstract] | ' |
1. Basis of Presentation | ' |
Massive Interactive, Inc. (the “Company”) a leading provider of innovative solutions for the management, delivery and streaming of Internet Protocol (IP)-based video and media assets. The Company’s comprehensive software platform enables enterprise customers to acquire, manage and distribute their video assets across just about every device used by consumers including Games Consoles, Smart TV’s, Tablets, Smart Phones, Internet-Enabled Set Top Boxes and other internet linked devices. The Company’s suite of products include, MDK, a cross-device software development solution, MUI, a cross devices suite of User Interfaces, MSM, a powerful video management Content Management System (CMS), and MVP, a complete end-to-end managed video platform. The Company’s offers its solutions over the Internet as a subscription service model using a software-as-a-service (SaaS) or an on-demand model, and by installing software onsite for clients as part of an enterprise licensing model. The Company’s software addresses the unique needs found across different industry verticals, each with the shared aim of offering video to consumers across multiple devices. The verticals the Company addresses are across Telecommunications, Media, Technology, Hospitality, Automotive, Travel, Leisure and Publishing. The Company has an average ‘Win’ ratio of 92%, as its solutions significantly enhance the way its clients can monetize and manage their media assets by helping to drive sales and drastically reducing the overall cost of ownership of enterprise grade video management and merchandising for its customers. | |
In addition to the Company’s software business, it operates design services and technical services businesses. The Company’s services work includes: creative interface design, branding strategies, strategic planning and technical/systems integration services. The Company currently provides its software solutions, professional and creative services internationally through its offices in New York, London, Prague and Sydney. | |
In the fourth quarter of 2013, as part of the acquisition of Massive Media Pty Ltd., the Company proceeded to exit the oil and gas operations related to the properties owned while the entity operated as Xtreme Oil and Gas (“Xtreme”). As such, the Company reported all activity related to Xtreme as discontinued operations beginning with the financial results presented in the Annual Report on form 10-K for the year ended December 31, 2013. See Note 4. | |
Organizational History | |
Xtreme Technologies, Inc. was incorporated in the state of Washington in 2003 with a focus on telecommunications technologies. By early 2006 that business ceased operations and had no assets, becoming a shell company at that time. In December 2006, Xtreme Technologies, Inc. acquired Emerald Energy Partners, LLC for 7,960,000 shares of Common Stock and changed its name to Xtreme Oil & Gas, Inc. Immediately prior to its acquisition of Emerald Energy Partners, LLC, Xtreme Technologies, Inc. effected a one for 500 reverse stock split resulting in 185,516 shares outstanding. | |
The acquisition of Emerald Energy Partners, LLC is treated for accounting purposes as an acquisition of Xtreme Technologies, Inc. by Emerald Energy Partners and a re-capitalization of the limited liability company. With the acquisition of Emerald Energy Partners LLC, Xtreme began to acquire and to develop additional oil and gas properties. | |
On November 7, 2013, Xtreme sold 55 shares of redeemable preferred B stock and 55,000,000 of common stock to Southport Lane, LP, through its subsidiaries and Southport Equity II, LLC, a wholly owned subsidiary of Southport Lane, LP, respectively, in exchange for an aggregate of $5,500,000. | |
Southport Equity II now owns approximately 90% of the Company’s outstanding common stock and is the controlling shareholder of the Company. Southport Equity II, LLC used its available cash as capitalized by its parent, Southport Lane, LP, to fund its purchase of the common stock. There was no controlling party of the Company prior to this investment by Southport Equity II, LLC. | |
On November 15, 2013 Xtreme acquired all of the issued and outstanding capital stock of Massive Media Pty Ltd. (“Massive Media”) a proprietary limited company organized under the laws of New South Wales, Australia, from the shareholders of Massive in exchange for $4,167,190 pursuant to a stock purchase agreement dated October 17, 2013. Of the proceeds, approximately $866,000 was to be paid to settle certain debts of Massive Media simultaneously as part of the acquisition; the remaining proceeds of $3.3 million was transferred at settlement for the stock. | |
On November 25, 2013 Xtreme changed its name to Massive Interactive, Inc. | |
On May 1, 2014, Massive Interactive, Inc. consummated the purchase of all outstanding shares of Wunderkind Group Pty Ltd. (“Wunderkind”) pursuant to a Stock Purchase Agreement in exchange for a convertible promissory note issued by the Company. The principal amount of the promissory note is $5.5 million and it is convertible into 45% of the total shares of the Company common stock issued and outstanding on a fully diluted basis on the date of conversion. The promissory note has a term of one year and bears interest at the rate of 0.5% annually. |
NOTE_2_Summary_of_Significant_
NOTE 2 b Summary of Significant Accounting Policies | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Accounting Policies [Abstract] | ' | ||||||||||||||||||||||||
NOTE 2 b Summary of Significant Accounting Policies | ' | ||||||||||||||||||||||||
Basis of Presentation | |||||||||||||||||||||||||
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, the accompanying consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position and results of operations and cash flows for the periods presented. | |||||||||||||||||||||||||
All significant intercompany accounts and transactions are eliminated in consolidation. Certain items in these financial statements have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company’s balance sheet, results of operations, stockholders’ equity or cash flows. | |||||||||||||||||||||||||
The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2013 should be read in conjunction with these consolidated financial statements. Results of operations for interim periods are not necessarily indicative for the results of operations for a full year. | |||||||||||||||||||||||||
Going Concern and Plan of Operation | |||||||||||||||||||||||||
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2014, the Company's continuing operations had cash of $148,527, and a working capital balance of $523,919. As of December 31, 2013, continuing operations had cash of $1,121,181 and a working capital balance of $1,120,050. Working capital is defined as current assets minus current liabilities, excluding restricted cash, convertible loan notes, derivative liability and discontinued operations. | |||||||||||||||||||||||||
The Company took aggressive steps to become debt free in the nine months to September 30, 2014 and has repaid $1,201,163 of borrowings in order to become free of debt constraints. This was nonrecurring and one off. Excluding the repayment of these borrowings, the Company was cash flow positive for the nine months ended September 30, 2014. | |||||||||||||||||||||||||
The Company is comfortable that the convertible loan note due for payment on May 1, 2015 will be settled for shares, this assumption is based on the fact that the principal noteholder is Mr. Ron Downey who is also a director of Massive. | |||||||||||||||||||||||||
The Company believes that the currently available cash and cash flows from future operations will be sufficient to satisfy the Company's anticipated working capital requirements for the foreseeable future. | |||||||||||||||||||||||||
Principles of Consolidation | |||||||||||||||||||||||||
The consolidated financial statements include the financial statements of the Company and its subsidiaries, Massive Media Pty Ltd, Massive Interactive Media Ltd, and Wunderkind Group Pty Ltd. As part of the acquisition of Massive Media Pty Ltd and its controlled entities by the Company, it discontinued all oil and gas operations related to properties owned in Texas and Oklahoma. Financial results related to the oil and gas operations is reported as discontinued operations beginning with the financial results presented within this document as of September 30, 2013 (See Note 4). | |||||||||||||||||||||||||
Use of Estimates | |||||||||||||||||||||||||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | |||||||||||||||||||||||||
On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable allowance, the useful lives of long-lived assets and other intangible assets, and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities as well as reported revenue and expenses during the periods presented. | |||||||||||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||||||||||
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: | |||||||||||||||||||||||||
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |||||||||||||||||||||||||
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life. | |||||||||||||||||||||||||
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. | |||||||||||||||||||||||||
The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities. | |||||||||||||||||||||||||
Accounts Receivable | |||||||||||||||||||||||||
Receivables from services are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. | |||||||||||||||||||||||||
Management periodically reviews receivables for collectability. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Uncollectible receivables are charged off against the allowance account. An allowance for doubtful accounts of $345,872 and $0 was recorded as of September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
The Company did not have any off balance-sheet credit exposure relating to its customers, suppliers or others. | |||||||||||||||||||||||||
Concentration of Credit Risk | |||||||||||||||||||||||||
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable for which the carrying amounts approximate fair value. The Company places their cash and cash equivalents with financial institutions with high-credit ratings and quality. | |||||||||||||||||||||||||
The Company conducts credit evaluations of customers and generally does not require collateral or other security from customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific customers. The amount of receivables ultimately not collected by the Company has generally been consistent with management’s expectations and the allowance established for doubtful accounts. | |||||||||||||||||||||||||
Major customers | |||||||||||||||||||||||||
For the nine month period ended September 30, 2014, the Company had two significant customers which individually accounted for 21% and 13%, respectively, of the revenues. The Company’s sales to its top five customers accounted for approximately 58% of revenues during the nine month period ended September 30, 2014. These customers accounted for approximately 40% and 59% of accounts receivable balance as of September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
Major suppliers | |||||||||||||||||||||||||
The Company had purchases from seven vendors that accounted for approximately 32% of purchases during the nine month period ended September 30, 2014. These vendors accounted for approximately 35% and 20% of the accounts payable balance as of period ended September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
Segment Reporting | |||||||||||||||||||||||||
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Group’s chief operating decision maker is the Chief Executive Officer, who reviews consolidated results of operations prepared in accordance with US GAAP when making decisions about allocating resources and assessing performance of the Group; hence, the Group has only one operating segment, namely the software development services. | |||||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||||
The Company recognizes deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial accounting bases and income tax bases of assets and liabilities. Deferred income taxes are measured by applying currently enacted income tax rates. The Company accounts for uncertainty in income taxes for income tax positions taken or expected to be taken in an income tax return. Only income tax positions that meet the more-likely-than-not recognition threshold will be recognized. | |||||||||||||||||||||||||
This process includes an analysis of whether tax positions the Company takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under the standards. Management believes that tax positions taken by the Company with regard to income and deduction do not constitute any uncertain tax positions under the standards. | |||||||||||||||||||||||||
Goods and Services Tax/Value Added Tax | |||||||||||||||||||||||||
The Company's Australian operations are subject to the Goods and Services Tax on revenue sales of 10%. The Company's United Kingdom operations are subject to the Value Added Tax on revenue sales of 20%. | |||||||||||||||||||||||||
Revenue Recognition | |||||||||||||||||||||||||
The Company recognizes revenue when it is realized and earned. Specifically, the Company recognizes revenue when services are performed and projects are completed and accepted by the customer. | |||||||||||||||||||||||||
Project Services Revenue | |||||||||||||||||||||||||
Revenue derived from services primarily includes consulting, implementation, and training. Fees are primarily billed under time and materials arrangements and are recognized as services are performed. | |||||||||||||||||||||||||
License Revenue | |||||||||||||||||||||||||
License revenue in connection with license agreements for standard proprietary software is recognized upon delivery of the software, provided collection is considered probable and the fee is fixed or determinable. | |||||||||||||||||||||||||
Maintenance Revenue | |||||||||||||||||||||||||
Revenue derived from technical support contracts primarily includes telephone consulting and on-site support as well as error reporting and correction services. Maintenance contracts are typically sold for a separate fee with initial contractual period of one year with renewal for additional periods thereafter. Technical support service revenue is recognized ratably over the term of the service agreement. | |||||||||||||||||||||||||
Deferred Revenue | |||||||||||||||||||||||||
Deferred revenue represents advance payments or billings for software licenses, services, and maintenance. | |||||||||||||||||||||||||
Cost of Revenues | |||||||||||||||||||||||||
Cost of revenues for licenses includes amortization of capitalized computer software development costs. Costs for maintenance and services revenues include the cost of personnel to conduct implementations, customer support and consulting, and other personnel-related expenses. | |||||||||||||||||||||||||
Foreign Currency Translation | |||||||||||||||||||||||||
The functional currency of the Company is Australian Dollars (“AUD”), and the functional currency of Massive Interactive Media Ltd is Great British Pounds ("GBP"). | |||||||||||||||||||||||||
For financial reporting purposes, the financial statements of the Company and its subsidiaries, which are prepared using each entity's functional currency, are translated into the Company’s reporting currency, the United States Dollar (“USD”). Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity. | |||||||||||||||||||||||||
The exchange rates applied are as follows: | |||||||||||||||||||||||||
Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||
30-Sep-14 | 30-Sep-14 | 31-Dec-13 | |||||||||||||||||||||||
Period end AUD to USD exchange rate | 0.9138 | 0.9138 | 0.8941 | ||||||||||||||||||||||
Period end GBP to USD exchange rate | 1.6687 | 1.6687 | 1.6561 | ||||||||||||||||||||||
Average AUD to USD exchange rate | 0.8718 | 0.9117 | 0.9578 | ||||||||||||||||||||||
Average GBP to USD exchange rate | 1.621 | 1.656 | 1.5669 | ||||||||||||||||||||||
Capitalized Computer Software Development Costs | |||||||||||||||||||||||||
The Company capitalizes software development costs in accordance with the FASB ASC Topic 985-20 Costs of Software to be Sold, Leased or Marketed. All software development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. | |||||||||||||||||||||||||
The Company makes ongoing evaluations of the recoverability of its capitalized software projects by comparing the net amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, the Company writes off the amount by which the unamortized software development costs exceed net realizable value. The Company's capitalized computer software development costs are being amortized ratably based on the projected revenues associated with the related software or on a straight-line basis over five years, whichever method results in a higher level of amortization. | |||||||||||||||||||||||||
Derivative Instruments | |||||||||||||||||||||||||
The Company’s debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability. | |||||||||||||||||||||||||
The identification of, and accounting for, derivative instruments is complex. The Company’s derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options related to the notes issued in 2011 (see Note 9) that are accounted for as derivative instrument liabilities, the Company determines the fair value of these instruments using the binomial option pricing model. That model requires assumptions related to the remaining term of the instrument and risk-free rates of return, the Company’s current Common Stock price and expected dividend yield, and the expected volatility of the Company’s Common Stock price over the life of the option. | |||||||||||||||||||||||||
For the bifurcated conversion option related to the convertible note issued in 2014 (see Note 9) in connection with the Wunderkind Acquisition, the Company determined the fair value of the instruments using the Monte Carlo Valuation Model, due to the multitude of possible outcomes for the instrument. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return, the Company's current Common Stock price and expected dividend yield, and the expected volatility of the Company's Common Stock price over the life of the option. | |||||||||||||||||||||||||
Deemed dividend | |||||||||||||||||||||||||
The Company incurred a deemed dividend on Series B Preferred Redeemable Stock. As the conversion rate was less than the deemed fair value of the Common Stock of $0.50, the Series B Preferred Redeemable Stock contains a beneficial conversion feature as described in ASC 470. The difference in the stated conversion price and estimated fair value of the Common Stock is accounted for as a beneficial conversion feature and affects EPS. The potential impact of the beneficial conversion feature on EPS has been disclosed in the Consolidated Interim Statements of Operations and Comprehensive Income (Loss), and a reconciliation between basic and dilutive EPS is shown below. | |||||||||||||||||||||||||
Earnings (Loss) per Share | |||||||||||||||||||||||||
The Company adopted ASC 260, "Earnings Per Share" ("EPS"), which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive. | |||||||||||||||||||||||||
The following sets forth the computation of diluted EPS for the three and nine months ended September 30, 2014: | |||||||||||||||||||||||||
Three months ended Sept 30, 2014 | Nine months ended Sept 30, 2014 | ||||||||||||||||||||||||
Net income (Numerator) | Shares (Denominator) | Per Share Amount | Net income (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||
Basic EPS | $ | 2,717,281 | 61,176,142 | $ | 0.04 | $ | 5,114,879 | 61,176,142 | $ | 0.08 | |||||||||||||||
Change in fair value of derivative instruments | (3,674,000 | ) | - | (5,693,000 | ) | - | |||||||||||||||||||
Dilutive shares related to notes and warrants | - | 16,546,189 | - | 30,230,323 | |||||||||||||||||||||
Dilutive EPS | $ | (956,719 | ) | 77,722,331 | $ | (0.01 | ) | $ | (578,121 | ) | 91,406,465 | $ | 0 | ||||||||||||
Basic net income per share is based on the weighted average number of common and common equivalent shares outstanding. Potential common shares includable in the computation of fully diluted per share results are not presented for the nine months ended September 30, 2014 and the periods ended September 30, 2013 in the consolidated financial statements as their effect would be anti-dilutive. The total number of shares issuable upon conversion of preferred shares that were not included in dilutive earnings per share for the three and nine months ended September 30, 2014 were 11,666,842 and 5,402,740. | |||||||||||||||||||||||||
Commitments and Contingencies | |||||||||||||||||||||||||
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, product and environmental liability, and tax matters. In accordance with ASC 450-20, Accounting for Contingencies, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Historically, the Company has not experienced any material service liability claims. | |||||||||||||||||||||||||
Recent Accounting Pronouncements | |||||||||||||||||||||||||
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2014-09”). This guidance is intended to improve the transparency of items reclassified out of accumulated other comprehensive income to net income. The standard requires an entity to present, in a single location, information about the amounts reclassified out of accumulated other comprehensive income, by component, including the income statement line items affected by the reclassification. The amendments in this standard are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In March 2013 the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard is an update to clarify existing guidance for the release of cumulative translation adjustments into net income when a parent sells all or a part of its investment in a foreign entity or achieves a business combination of a foreign entity in stages. The amendments in this Update are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In July 2013 the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance to require standard presentation of an unrecognized tax benefit when a carryforward related to net operating losses or tax credits exists. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for public companies for annual periods beginning after December 15, 2016 (fiscal 2018) and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance. |
3_Acquisitions
3. Acquisitions | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Business Combinations [Abstract] | ' | ||||||||||||||||
3. Acquisition of Massive Media | ' | ||||||||||||||||
The following transactions were accounted for using the acquisition method which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined business. | |||||||||||||||||
Massive Media | |||||||||||||||||
On November 15, 2013 the Company acquired all of the issued and outstanding capital stock of Massive Media, a proprietary limited company organized under the laws of New South Wales, Australia, from the shareholders of Massive Media in exchange for $3,301,907 in cash pursuant to a stock purchase agreement dated October 17, 2013. The Company also assumed short term borrowings of $1,979,220. It was determined that the Company had entered into a bargain purchase transaction, in which the fair value of the acquired assets exceeded the consideration transferred by $726,010. The final purchase consideration for the 2013 acquisition of Massive Media was $6,007,137. | |||||||||||||||||
Unaudited pro forma results of operations data for the three and nine months ended September 30, 2013 are shown below as if the Company and the entities described above had been combined on January 1, 2013. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future. The below table excludes balances for operations that were discontinued; see Note 4 below for additional information. | |||||||||||||||||
Unaudited Pro Forma Results of Operations | |||||||||||||||||
For the nine months | For the three months | ||||||||||||||||
ended September 30, 2013 | ended September 30, 2013 | ||||||||||||||||
Revenues from continuing operations | $ | 5,440,197 | $ | 2,272,046 | |||||||||||||
Loss from continuing operations | $ | (1,724,979 | ) | $ | (52,867 | ) | |||||||||||
Net loss from continuing operations | $ | (1,368,038 | ) | $ | (170,382 | ) | |||||||||||
Basic loss per share: | $ | (0.02 | ) | $ | (0.00 | ) | |||||||||||
Diluted loss per share: | $ | (0.02 | ) | $ | (0.00 | ) | |||||||||||
Proforma shares outstanding | 55,560,947 | 55,560,947 | |||||||||||||||
Wunderkind | |||||||||||||||||
On May 1, 2014, the Company consummated the purchase of all outstanding shares of Wunderkind pursuant to a Stock Purchase Agreement in exchange for a convertible promissory note (the “Wunderkind Promissory Note”) issued by the Company. The principal amount of the promissory note is $5.5 million and it is convertible into 45% of the total shares of the Company common stock issued and outstanding on a fully diluted basis on the date of conversion. The Wunderkind Promissory Note has a term of one year and bears interest at the rate of 0.5% annually. | |||||||||||||||||
The Stock Purchase Agreement was entered into in accordance with the terms of a binding letter of intent with the Company’s Chief Executive Officer, Ronald Downey, as earlier disclosed in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on April 1, 2014. Mr. Downey is the majority shareholder of Wunderkind. The Stock Purchase Agreement contains customary representations and warranties and covenants of each party. Breaches of the representations and warranties will be subject to customary indemnification provisions. | |||||||||||||||||
The purchase price is calculated as follows: | |||||||||||||||||
Convertible note | $ | 5,500,000 | |||||||||||||||
Fair value of conversion feature | 7,075,000 | ||||||||||||||||
Total estimated purchase price | $ | 12,575,000 | |||||||||||||||
The preliminary purchase price allocation as of the date of acquisition is set forth in the table below and reflects various fair value estimates and analysis. These estimates were determined through established and generally accepted valuation techniques including preliminary work performances by third-party valuation specialists, and are subject to change during the purchase price allocation period (up to one year from the acquisition date) as valuations are finalized. | |||||||||||||||||
Cash and cash equivalents | $ | 20,203 | |||||||||||||||
Trade names and Trademarks | 360,000 | ||||||||||||||||
Developed Software | 2,100,000 | ||||||||||||||||
Customer relationships | 780,000 | ||||||||||||||||
Goodwill | 9,517,202 | ||||||||||||||||
Property, plant and equipment | 2,860 | ||||||||||||||||
Net working capital, net of cash | (205,265 | ) | |||||||||||||||
Total allocation of purchase price | $ | 12,575,000 | |||||||||||||||
Unaudited pro forma results of operations data for the three and nine months ended September 30, 2013 are shown below as if the Company and the entities described above had been combined on January 1, 2013. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future. The below table excludes balances for operations that were discontinued; see Note 4 below for additional information. | |||||||||||||||||
Unaudited Pro Forma Results of Operations | Unaudited Pro Forma Results of Operations | ||||||||||||||||
For the nine months | For the three months | For the nine months | For the three months | ||||||||||||||
ended September 30, 2013 | ended September 30, 2013 | ended September 30, 2014 | ended September 30, 2014 | ||||||||||||||
Revenues from continuing operations | $ | 339,123 | $ | 128,199 | 167,795 | $ | 59,694 | ||||||||||
(Loss) income from continuing operations | $ | (1,051,903 | ) | $ | 11,106 | (168,356 | ) | $ | (147,220 | ) | |||||||
Net (loss) income from continuing operations | $ | (1,051,903 | ) | $ | 11,106 | 5,230,870 | $ | 3,423,527 | |||||||||
Basic (loss) income per share | $ | (0.02 | ) | $ | 0 | 0.09 | $ | 0.06 | |||||||||
Diluted (loss) income per share | $ | (0.02 | ) | $ | 0 | 0.06 | $ | 0.04 | |||||||||
Proforma shares outstanding - Basic | 55,560,947 | 55,560,947 | 61,176,142 | 61,176,142 | |||||||||||||
Proforma shares outstanding - Diluted | 55,560,947 | 55,560,947 | 91,512,342 | 77,722,331 |
4_Discontinued_Operations
4. Discontinued Operations | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||||||||||
4. Discontinued Operations | ' | ||||||||||||||||
In the fourth quarter of 2013, as part of the acquisition of Massive Media Pty Ltd., the Company’s management decided to exit the oil and gas operations related to the properties owned while the entity operated as Xtreme. The Company completed the sale of the Oklahoma and Kansas assets for approximately $341,000 in cash, plus the transfer of approximately $1.3 million in liabilities to the purchaser. In addition, the leases expired on all the remaining assets in Texas and Xtreme secured a release from the leaseholder for all future liabilities. | |||||||||||||||||
The following table shows certain components of the results of operations of the Company’s discontinued operations: | |||||||||||||||||
Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues | $ | - | $ | 74,929 | $ | - | $ | - | |||||||||
Income (loss) from discontinued operations | $ | - | $ | (481,624 | ) | $ | - | $ | (23,629 | ) | |||||||
Provision for income tax | $ | - | $ | - | $ | - | $ | - | |||||||||
Income (loss) from discontinued operations | $ | - | $ | (481,624 | ) | $ | - | $ | (23,629 | ) | |||||||
Basic earnings (loss) per share attributable to discontinued operations: | $ | - | $ | (0.25 | ) | $ | - | $ | (0.01 | ) | |||||||
Diluted earnings (loss) per share attributable to discontinued operations: | $ | - | $ | (0.25 | ) | $ | - | $ | (0.01 | ) | |||||||
5_Intangible_Assets
5. Intangible Assets | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||||||||||||||||||
Intangible Assets | ' | ||||||||||||||||||||||||
Intangible assets consist of the following: | |||||||||||||||||||||||||
30-Sep-14 | December 31, 2013 | ||||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
Capitalized Software Costs | $ | 7,878,283 | $ | (785,396 | ) | $ | 7,092,887 | $ | 4,360,000 | $ | (64,113 | ) | $ | 4,295,887 | |||||||||||
Trade names | 420,000 | (32,422 | ) | 387,578 | 60,000 | (346 | ) | 59,654 | |||||||||||||||||
Customer Relationships | 820,000 | (68,234 | ) | 751,766 | 40,000 | (462 | ) | 39,538 | |||||||||||||||||
Goodwill | 9,517,202 | - | 9,517,202 | - | - | - | |||||||||||||||||||
Total | $ | 18,635,485 | $ | (886,052 | ) | $ | 17,749,433 | $ | 4,460,000 | $ | (64,921 | ) | $ | 4,395,079 | |||||||||||
Amortization expense amounted to $821,131 and $0 for the nine month periods ended September 30, 2014 and 2013, respectively. The amortization expense will be subject to foreign exchange movements. | |||||||||||||||||||||||||
The Company amortizes intangible assets on a straight line basis over their estimated useful lives, generally as follows: four to nine years for software, ten to twenty years for customer relationships and trade names, and one to five years for other intangible assets, except goodwill. Goodwill is not amortized, but subject to impairment testing. | |||||||||||||||||||||||||
Amortization of the remaining intangible assets is expected to be $1,243,141 for 2014, $1,688,041 for years 2015 through 2018, and $1,058,055 in aggregate for years thereafter through 2019. | |||||||||||||||||||||||||
The following table sets forth the changes in the Company’s goodwill during the nine-month period ended September 30, 2014 resulting from the acquisition by the Company of its operating subsidiary. | |||||||||||||||||||||||||
The following table summarizes the Company’s goodwill as of September 30, 2014 and December 31, 2013: | |||||||||||||||||||||||||
Goodwill | |||||||||||||||||||||||||
31-Dec-13 | $ | - | |||||||||||||||||||||||
Acquisition of Wunderkind | 9,517,202 | ||||||||||||||||||||||||
Balance at September 30, 2014 | $ | 9,517,202 | |||||||||||||||||||||||
The Wunderkind Group Pty Ltd acquisition was only completed a short time ago and the operations are still being integrated into the existing business model. Management continues to evaluate the post-acquisition integration and should the business not progress as originally anticipated then a goodwill impairment may be necessary. |
6_Fair_Value_Measurements
6. Fair Value Measurements | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Fair Value Disclosures [Abstract] | ' | ||||||||||||||||
6. Fair Value Measurements | ' | ||||||||||||||||
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. The Company evaluates the fair value of certain assets and liabilities using the following fair value hierarchy which ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value: | |||||||||||||||||
• | Level 1 — quoted prices in active markets for identical assets and liabilities | ||||||||||||||||
• | Level 2 — inputs other than Level 1 quoted prices that are directly or indirectly observable | ||||||||||||||||
• | Level 3 — unobservable inputs that are not corroborated by market data | ||||||||||||||||
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and nonrecurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the Company. The following table sets forth the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, by level within the fair value hierarchy: | |||||||||||||||||
Amounts at | Fair Value Measurement Using | ||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||
As of September 30, 2014 | |||||||||||||||||
Liabilities | |||||||||||||||||
Conversion feature | $ | 1,382,000 | $ | - | $ | - | $ | 1,382,000 | |||||||||
Warrant liability | 7,717 | - | - | 7,717 | |||||||||||||
Note liability | 21,600 | - | - | 21,600 | |||||||||||||
As of December 31, 2013 | |||||||||||||||||
Liabilities | |||||||||||||||||
Warrant liability | $ | 7,717 | $ | - | $ | - | $ | 7,717 | |||||||||
Note liability | 21,600 | - | - | 21,600 | |||||||||||||
The carrying amounts of the Company’s long-term liabilities approximate their fair value because the interest rate is reflective of rates that the Company could currently obtain on debt with similar terms and conditions. See Note 9 for additional information about the changes in the fair value for the items above. | |||||||||||||||||
7_Accrued_Expenses_and_other_c
7. Accrued Expenses and other current liabilities | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Payables and Accruals [Abstract] | ' | ||||||||
7. Accrued Expenses and other current liabilities | ' | ||||||||
Accrued expenses and other current liabilities at September 30, 2014 and December 31, 2013 comprises of the following | |||||||||
September 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Credit Cards | $ | 63,319 | $ | 16,763 | |||||
Accrued Expenses | 338,072 | 313,473 | |||||||
Accrued Expenses and Other Current Liabilities | $ | 401,391 | $ | 330,236 | |||||
Accrued expenses constitute trade creditor balances where invoices have not yet been received. | |||||||||
8_Accrued_compensation_and_rel
8. Accrued compensation and related costs | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Accrued Compensation And Related Costs | ' | ||||||||
8. Accrued compensation and related costs | ' | ||||||||
Accrued compensation and related costs at September 30, 2014 and December 31, 2013 were as follows: | |||||||||
September 30, | December 31, | ||||||||
Current | 2014 | 2013 | |||||||
Payable to Staff | - | 5,499 | |||||||
Long Service Leave Provision | 193,697 | 188,118 | |||||||
Annual Leave Provision | 326,667 | 328,842 | |||||||
Employee Pension Plan | 140,075 | 110,966 | |||||||
Federal Payroll Tax | 185,691 | 152,681 | |||||||
Other Payroll Tax | 16,987 | 14,903 | |||||||
Accrued compensation and related costs | $ | 863,117 | $ | 801,009 | |||||
Non-Current | 30-Sep-14 | 31-Dec-13 | |||||||
Long Service Leave Provision-non current | $ | 54,633 | $ | 80,733 | |||||
Accrued compensation and related costs-non current | $ | 54,633 | $ | 80,733 | |||||
9_Borrowings
9. Borrowings | 9 Months Ended | ||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||
Debt Disclosure [Abstract] | ' | ||||||||||||||||||||
9. Borrowings | ' | ||||||||||||||||||||
Convertible Notes Payable | |||||||||||||||||||||
On September 12, 2011, Xtreme raised $2,360,000 in convertible notes (the “9/12 Notes”). The 9/12 Notes bear an interest rate of 12% per annum and matured on September 12, 2013. Under the convertible note agreements, the lender has the right to convert all or any part of the outstanding and unpaid principal and interest into shares of the Company’s common stock; provided however, that in no event shall the lender be entitled to convert any portion of the 9/12 Notes that would result in the beneficial ownership by it and its affiliates to be more than 9.99% of the outstanding shares of our common stock. The 9/12 Notes are convertible at a fixed conversion price of $0.28 per share. In addition, Xtreme issued warrants (the “Warrants”) to acquire 6,810,269 shares of the Company’s common stock at a strike price of $0.28 per share. The Warrants expire on September 12, 2016. The conversion price of the 9/12 Notes and Warrants will be reduced in the event the Company issues or sells any shares of common stock less than the conversion price. | |||||||||||||||||||||
Xtreme delayed scheduled payments on the 9/12 Notes for the seven months ending December 31, 2012. As a result the remaining 9/12 Notes totaling $151,466 as of September 30, 2014 remain in default. The Company is accruing interest at the default rate of 18% as a result. | |||||||||||||||||||||
The conversion features of the 9/12 Notes and Warrants are accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date, due to anti-dilution reset features. The fair value was estimated on the date of grant using a binomial option-pricing model that incorporated the following weighted-average assumptions: expected dividend yield of 0%; expected volatility of 290%; risk-free interest rate of 0.05% and an expected holding period of 24 months for the 9/12 Notes and 60 months for the Warrants. The resulting values, at the date of issuance, were allocated to the proceeds received and applied as a discount to the face value of the 9/12 Notes and Warrants. Xtreme recorded a derivative expense on the 9/12 Notes of $649,212 at inception and a further derivative expense on the Warrants of $2,431,437 at inception based on the guidance in ASC 815-10 and ASC 815-40-15 due to a reset feature on the exercise price. | |||||||||||||||||||||
On May 1, 2014, in connection with the acquisition of Wunderkind (See note 3), the Company issued a Convertible Promissory Note (“Wunderkind Note”) in the amount of $5.5M, plus interest of 0.5% compounded annually. All outstanding and unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable in full on May 1, 2015, unless this Wunderkind Note shall have been previously converted. Pursuant to section 2.1 of the Wunderkind Note, Wunderkind will have the right to convert all or part of the outstanding principal on the note into a number of shares of the Company Common Stock equal to 45% of the total shares of the Company Common Stock issued and outstanding on a fully diluted basis (or the appropriate pro rata amount, in case of conversion of part of the outstanding principal) on the date of conversion. | |||||||||||||||||||||
The conversion features of the Wunderkind Note are accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date, due to anti-dilution reset features as well as the feature that provides for conversion into a variable number of shares equal to 45% of the total value of outstanding shares, on a diluted basis. The fair value was estimated on the date of grant using a Monte Carlo valuation model that incorporated the following weighted-average assumptions: expected dividend yield of 0%; expected volatility of 70%; risk-free interest rate of 0.10%, an expected holding period of 12 months and the likelihood of a dilutive event of 5%. The resulting values, at the date of issuance, were allocated to the dilutive and non-dilutive conversion features. The Company recorded a gain on change in fair value on the Wunderkind Note of $5,693,000 at September 30, 2014 due to a change in market value of the convertible features. | |||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||
Derivative liability | 12/31/13 | New Borrowings | Fair Value Adjustments | Redemptions | Total | ||||||||||||||||
Conversion feature, non-dilution | $ | - | $ | 7,075,000 | $ | (5,693,000 | ) | $ | - | $ | 1,382,000 | ||||||||||
Warrants | 7,717 | - | - | - | 7,717 | ||||||||||||||||
Note | 21,600 | - | - | - | 21,600 | ||||||||||||||||
$ | 29,317 | $ | 7,075,000 | $ | (5,693,000 | ) | $ | - | $ | 1,411,317 | |||||||||||
10_Borrowings_Related_Party
10. Borrowings b Related Party | 9 Months Ended |
Sep. 30, 2014 | |
Related Party Transactions [Abstract] | ' |
Borrowings b Related Party | ' |
Short-term borrowings | |
The total available Trade finance facility with Bank of Queensland is $369,152 (AUD 400,000). The repayment term is usually at 90 days or the payment receipt of the particular invoice security. The interest expense related to the Trade finance loan for the nine month period ended September 30, 2014 and the year ending December 31, 2013 was $8,638 and $9,976 respectively. The amount outstanding as of September 30, 2014 and December 31, 2013 on this facility was $0 and $357,640, respectively. | |
During the year ended December 31, 2013, a director advanced $357,627 to the Company. Interest is accrued on these advances at the rate of 43% per annum. The advances and accrued interest are payable on demand and unsecured. This loan was repaid in January 2014. | |
During the year ended December 31, 2013, a director advanced $48,788 to the Company. Interest is accrued on these advances at the rate of 9% per annum. The advances and accrued interest are payable on demand and unsecured. This loan was repaid in June 2014. | |
During the year ended December 31, 2013, an investor advanced $515,000 to the Company. Interest is accrued on these advances at the rate of 4% per annum. The advances and accrued interest are payable on demand and unsecured. This loan was repaid in January 2014. | |
11_Taxes_Payable_Refundable
11. Taxes (Payable) Refundable | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Taxes Payable [Abstract] | ' | |||||||||
Taxes (Payable) Refundable | ' | |||||||||
30-Sep-14 | 31-Dec-13 | |||||||||
Goods and Services Taxes Payable | Australia | $ | 15,055 | $ | 75,907 | |||||
Withholding Tax Payable | Australia | - | - | |||||||
Fringe Benefit Tax Payable | Australia | 356 | (813 | ) | ||||||
Value Added Tax Payable | United Kingdom | 8,810 | 53,079 | |||||||
Income Tax Refundable | Australia | (880,610 | ) | (1,476,597 | ) | |||||
Taxes Refundable | $ | (856,389 | ) | $ | (1,348,424 | ) | ||||
The above income tax refundable includes a Research and Development (R&D) tax incentive, which provides a tax offset for eligible R&D activities and is targeted toward R&D that benefits Australia. The incentive, being a refundable tax offset, is available for those entities engaging in eligible activities whose aggregated turnover is less than $20 million. | ||||||||||
12_Income_Taxes
12. Income Taxes | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||||||||||
12. Income Taxes | ' | ||||||||||||||||
Income tax expense for the three month periods ended September 30, 2014 and 2013 is comprised of foreign income tax expense of $200,605 and $0, respectively. Income tax expense for the nine month periods ended September 30, 2014 and 2013 is comprised of foreign income tax benefit of $265,965 and $0, respectively. | |||||||||||||||||
The following summarizes the difference between the income tax benefit and the amount computed by applying the statutory federal income tax rate of 34% to income before income tax: | |||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Federal income tax expense (benefit) at statutory rate | 1,102,355 | (8,646 | ) | 2,052,968 | (376,909 | ) | |||||||||||
Foreign taxes at less than federal statutory rate | (189,870 | ) | 1,017 | 90,428 | - | ||||||||||||
Non-deductible (non-assessable) items / losses not recognised | (1,113,090 | ) | 7,629 | (2,143,396 | ) | 376,909 | |||||||||||
Add: tax incentive | - | - | 265,965 | - | |||||||||||||
Total | $ | (200,605 | ) | $ | - | $ | 265,965 | - |
13_Employee_defined_contributi
13. Employee defined contribution plan | 9 Months Ended |
Sep. 30, 2014 | |
Compensation and Retirement Disclosure [Abstract] | ' |
13. Employee defined contribution plan | ' |
Employees of the Company participate in government mandated defined contribution plan, pursuant to which certain pension benefits are provided to employees. The government mandate requires certain percentages of the employees’ salaries be paid into Trust accounts for the benefit of the employees. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $203,861 and $174,872 for the nine month periods ended September 30, 2014 and 2013, respectively. | |
14_Stockholders_equity
14. Stockholders' equity | 9 Months Ended | ||
Sep. 30, 2014 | |||
STOCKHOLDERS' EQUITY: | ' | ||
14. Stockholders' equity | ' | ||
Capital Structure | |||
The Company is authorized to issue up to 200,000,000 shares of common stock, $0.001 par value per share. The holders of the common stock do not have any preemptive right to subscribe for, or purchase, any shares of any class of stock. | |||
The Company is authorized to issue up to 50,000,000 shares of preferred stock, $0.001 par value per share of which 55 were issued and outstanding as of December 31, 2013. | |||
The Company has redeemed and canceled its one class of Non-transferable Preferred Stock. The Non-transferable Preferred Stock, which consisted of 1,000 shares, was returned to the Company by Mr. McAndrew upon his resignation as the Company’s Chief Executive Officer, on September 6, 2013. | |||
Reverse Split | |||
On August 17, 2013 Xtreme received approval to complete a 1 for 100 reverse split of all outstanding shares of Xtreme's Common Stock by filing a Certificate of Amendment with the Nevada Secretary of State. Each issued and outstanding share of Common Stock would automatically be changed into a fraction of a share of Common Stock in accordance with the ratio of 1 for 100. The par value of the Common Stock would remain unchanged at $0.001 per share, and the number of authorized shares of Common Stock would remain unchanged as well. Any fractional shares resulting from the Reverse Split have been rounded up to the nearest whole number. The reverse split became effective after filing a Certificate of Amendment with the Nevada Secretary of State and upon the completion of the review and comment process with FINRA on August 17, 2013. The Company has retroactively reflected the reverse split in the accompanying financial statements. | |||
Preferred Stock | |||
The shares of Preferred Stock, other than the Nontransferable Preferred Stock, could be issued from time to time by the Company’s Board of Directors in its sole discretion without further approval or authorization by the stockholders, in one or more series, each of which series could have any particular distinctive designations as well as relative rights and preferences as determined by the Board of Directors. The relative rights and preferences that may be determined by the Board of Directors in its discretion from time to time include but are not limited to the following: | |||
• | the rate of dividend and whether the dividends are to be cumulative and the priority, if any, of dividend payments relative to other series in the class; | ||
• | whether the shares of any such series may be redeemed, and if so, the redemption price and the terms and conditions of redemption; | ||
• | the amount payable with respect to such series in the event of voluntary or involuntary liquidation and the priority, if any, of each series relative to other series in the class with respect to amounts payable upon liquidation and sinking fund provision, if any, for the redemption or purchase of the shares of that series; and | ||
• | the terms and conditions, if any, on which the shares of a series may be converted into or exchanged for shares of any class, whether common or preferred, or into shares of any series of the same class, and if provision is made for conversion or exchange, the times, prices, rates, adjustments and other terms. | ||
On November 7, 2013, the Company sold 55 shares of redeemable preferred B stock and 55,000,000 of common stock to Southport Lane, LP, through its subsidiaries and Southport Equity II, LLC, a wholly owned subsidiary of Southport Lane, LP, respectively, in exchange for an aggregate of $5,500,000. The Preferred Stock accrues an annual dividend of $6,750 per share. The Preferred Stock is redeemable by the Company at any time prior to November 16, 2016. Southport Lane Equity II, LLC may convert the Preferred Stock following the 3rd anniversary of the date of issuance. The Preferred Stock is convertible at $0.60, 120% of the closing bid price of the Company’s common stock on November 1, 2013. The conversion price changes for certain diluting issuances in accordance with the agreement. | |||
15_Business_and_Geographic_Seg
15. Business and Geographic Segment Information | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Segment Reporting [Abstract] | ' | ||||||||||||||||
Business and Geographic Segment Information | ' | ||||||||||||||||
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer, who reviews consolidated results of operations prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Group; hence, the Group has only one operating segment, namely the software development services. | |||||||||||||||||
For the three and nine month periods ended September 30, 2014 and 2013, the Company’s revenues were generated in the following geographic regions: | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
United Kingdom | $ | 2,405,662 | $ | - | $ | 5,634,464 | $ | - | |||||||||
Australia | 1,170,375 | - | 4,769,015 | - | |||||||||||||
Consolidated total | $ | 3,576,037 | $ | - | $ | 10,403,479 | $ | - | |||||||||
At September 30, 2014 and December 31, 2013, long-lived assets by geographic area consist of property and equipment and are as follows: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
United Kingdom | $ | 125,143 | $ | 39,326 | |||||||||||||
Australia | 131,206 | 202,766 | |||||||||||||||
Consolidated total | $ | 256,349 | $ | 242,092 |
16_Subsequent_Events
16. Subsequent Events | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
16. Subsequent Events | ' |
On October 24, 2014, the Company entered into a Note and Warrant Purchase Agreement (the “Note and Warrant Purchase Agreement”) with Gil Orbach (“Investor”) to issue a $1,000,000 in principal amount promissory note (the “Note”) and warrants (the “Warrants”) to purchase an aggregate of 100,000 shares of the common stock, $0.001 par value (the “Common Stock”), of the Company (the “Offering”). The Note and Warrants were issued by the Company to the Investor on October 24, 2014. | |
The Note bears interest at a rate of 10.0% per annum, payable quarterly on the dates that are 3, 6, 9, and 12 months from the date of the Note. The Note will mature on October 24, 2015. The Company may not prepay the Note, unless approved in writing by Investor. The Note holds first precedence with regard to any other creditors, instruments, or contractual obligations of the Company, and cannot be subordinated without the written approval of the Investor. In the event that a party other than Investor or his affiliate (which specifically includes any entity controlled by Zachary Venegas or Scott Ogur) acquires 20% or more of the equity or assets of the Company (a “Change in Control”), Investor may demand that the principal and interest for one year shall become immediately due and payable. | |
The Warrants expire three years after their initial issuance date and may be exercised for a purchase price equal to $0.25 per share of Common Stock, subject to customary anti-dilution adjustments. In the event of a Change in Control, the exercise price of the Warrant shall reset to $0.05 per share and the number of shares of Common Stock underlying the Warrant shall increase to 550,000. | |
The Company intends to use the proceeds of the Offering for general corporate purposes. |
1_Basis_of_Presentation_Polici
1. Basis of Presentation (Policies) | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Basis Of Presentation Policies | ' | ||||||||||||||||||||||||
Basis of Presentation | ' | ||||||||||||||||||||||||
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, the accompanying consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position and results of operations and cash flows for the periods presented. | |||||||||||||||||||||||||
All significant intercompany accounts and transactions are eliminated in consolidation. Certain items in these financial statements have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company’s balance sheet, results of operations, stockholders’ equity or cash flows. | |||||||||||||||||||||||||
The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2013 should be read in conjunction with these consolidated financial statements. Results of operations for interim periods are not necessarily indicative for the results of operations for a full year. | |||||||||||||||||||||||||
Going Concern and Plan of Operation | ' | ||||||||||||||||||||||||
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2014, the Company's continuing operations had cash of $148,527, and a working capital balance of $523,919. As of December 31, 2013, continuing operations had cash of $1,121,181 and a working capital balance of $1,120,050. Working capital is defined as current assets minus current liabilities, excluding restricted cash, convertible loan notes, derivative liability and discontinued operations. | |||||||||||||||||||||||||
The Company took aggressive steps to become debt free in the nine months to September 30, 2014 and has repaid $1,201,163 of borrowings in order to become free of debt constraints. This was nonrecurring and one off. Excluding the repayment of these borrowings, the Company was cash flow positive for the nine months ended September 30, 2014. | |||||||||||||||||||||||||
The Company is comfortable that the convertible loan note due for payment on May 1, 2015 will be settled for shares, this assumption is based on the fact that the principal noteholder is Mr. Ron Downey who is also a director of Massive. | |||||||||||||||||||||||||
The Company believes that the currently available cash and cash flows from future operations will be sufficient to satisfy the Company's anticipated working capital requirements for the foreseeable future. | |||||||||||||||||||||||||
Consolidation Policy | ' | ||||||||||||||||||||||||
The consolidated financial statements include the financial statements of the Company and its subsidiaries, Massive Media Pty Ltd, Massive Interactive Media Ltd, and Wunderkind Group Pty Ltd. As part of the acquisition of Massive Media Pty Ltd and its controlled entities by the Company, it discontinued all oil and gas operations related to properties owned in Texas and Oklahoma. Financial results related to the oil and gas operations is reported as discontinued operations beginning with the financial results presented within this document as of September 30, 2013 (See Note 4). | |||||||||||||||||||||||||
Accounting Estimates | ' | ||||||||||||||||||||||||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. | |||||||||||||||||||||||||
On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable allowance, the useful lives of long-lived assets and other intangible assets, and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities as well as reported revenue and expenses during the periods presented. | |||||||||||||||||||||||||
Fair Value of Financial Instruments | ' | ||||||||||||||||||||||||
Pursuant to the Accounting Standards Codification (“ASC”) No. 820, “Disclosures About Fair Value of Financial Instruments”, the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: | |||||||||||||||||||||||||
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. | |||||||||||||||||||||||||
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life. | |||||||||||||||||||||||||
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. | |||||||||||||||||||||||||
The carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities. | |||||||||||||||||||||||||
Receivables | ' | ||||||||||||||||||||||||
Receivables from services are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. | |||||||||||||||||||||||||
Management periodically reviews receivables for collectability. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Uncollectible receivables are charged off against the allowance account. An allowance for doubtful accounts of $345,872 and $0 was recorded as of September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
The Company did not have any off balance-sheet credit exposure relating to its customers, suppliers or others. | |||||||||||||||||||||||||
Concentration of Risk | ' | ||||||||||||||||||||||||
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable for which the carrying amounts approximate fair value. The Company places their cash and cash equivalents with financial institutions with high-credit ratings and quality. | |||||||||||||||||||||||||
The Company conducts credit evaluations of customers and generally does not require collateral or other security from customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific customers. The amount of receivables ultimately not collected by the Company has generally been consistent with management’s expectations and the allowance established for doubtful accounts. | |||||||||||||||||||||||||
Major customers | ' | ||||||||||||||||||||||||
For the nine month period ended September 30, 2014, the Company had two significant customers which individually accounted for 21% and 13%, respectively, of the revenues. The Company’s sales to its top five customers accounted for approximately 58% of revenues during the nine month period ended September 30, 2014. These customers accounted for approximately 40% and 59% of accounts receivable balance as of September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
Major suppliers | ' | ||||||||||||||||||||||||
The Company had purchases from seven vendors that accounted for approximately 32% of purchases during the nine month period ended September 30, 2014. These vendors accounted for approximately 35% and 20% of the accounts payable balance as of period ended September 30, 2014 and December 31, 2013, respectively. | |||||||||||||||||||||||||
Segment Reporting | ' | ||||||||||||||||||||||||
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Group’s chief operating decision maker is the Chief Executive Officer, who reviews consolidated results of operations prepared in accordance with US GAAP when making decisions about allocating resources and assessing performance of the Group; hence, the Group has only one operating segment, namely the software development services. | |||||||||||||||||||||||||
Income Taxes | ' | ||||||||||||||||||||||||
The Company recognizes deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial accounting bases and income tax bases of assets and liabilities. Deferred income taxes are measured by applying currently enacted income tax rates. The Company accounts for uncertainty in income taxes for income tax positions taken or expected to be taken in an income tax return. Only income tax positions that meet the more-likely-than-not recognition threshold will be recognized. | |||||||||||||||||||||||||
This process includes an analysis of whether tax positions the Company takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under the standards. Management believes that tax positions taken by the Company with regard to income and deduction do not constitute any uncertain tax positions under the standards. | |||||||||||||||||||||||||
Goods and Services Tax/Value Added Tax | ' | ||||||||||||||||||||||||
The Company's Australian operations are subject to the Goods and Services Tax on revenue sales of 10%. The Company's United Kingdom operations are subject to the Value Added Tax on revenue sales of 20%. | |||||||||||||||||||||||||
Revenue Recognition | ' | ||||||||||||||||||||||||
The Company recognizes revenue when it is realized and earned. Specifically, the Company recognizes revenue when services are performed and projects are completed and accepted by the customer. | |||||||||||||||||||||||||
Project Services Revenue | ' | ||||||||||||||||||||||||
Revenue derived from services primarily includes consulting, implementation, and training. Fees are primarily billed under time and materials arrangements and are recognized as services are performed. | |||||||||||||||||||||||||
License Revenue | ' | ||||||||||||||||||||||||
License revenue in connection with license agreements for standard proprietary software is recognized upon delivery of the software, provided collection is considered probable and the fee is fixed or determinable. | |||||||||||||||||||||||||
Maintenance Revenue | ' | ||||||||||||||||||||||||
Revenue derived from technical support contracts primarily includes telephone consulting and on-site support as well as error reporting and correction services. Maintenance contracts are typically sold for a separate fee with initial contractual period of one year with renewal for additional periods thereafter. Technical support service revenue is recognized ratably over the term of the service agreement. | |||||||||||||||||||||||||
Deferred Revenue | ' | ||||||||||||||||||||||||
Deferred revenue represents advance payments or billings for software licenses, services, and maintenance. | |||||||||||||||||||||||||
Cost of Revenues | ' | ||||||||||||||||||||||||
Cost of revenues for licenses includes amortization of capitalized computer software development costs. Costs for maintenance and services revenues include the cost of personnel to conduct implementations, customer support and consulting, and other personnel-related expenses. | |||||||||||||||||||||||||
Foreign Currency Translation | ' | ||||||||||||||||||||||||
The functional currency of the Company is Australian Dollars (“AUD”), and the functional currency of Massive Interactive Media Ltd is Great British Pounds ("GBP"). | |||||||||||||||||||||||||
For financial reporting purposes, the financial statements of the Company and its subsidiaries, which are prepared using each entity's functional currency, are translated into the Company’s reporting currency, the United States Dollar (“USD”). Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity. | |||||||||||||||||||||||||
The exchange rates applied are as follows: | |||||||||||||||||||||||||
Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||
30-Sep-14 | 30-Sep-14 | 31-Dec-13 | |||||||||||||||||||||||
Period end AUD to USD exchange rate | 0.9138 | 0.9138 | 0.8941 | ||||||||||||||||||||||
Period end GBP to USD exchange rate | 1.6687 | 1.6687 | 1.6561 | ||||||||||||||||||||||
Average AUD to USD exchange rate | 0.8718 | 0.9117 | 0.9578 | ||||||||||||||||||||||
Average GBP to USD exchange rate | 1.621 | 1.656 | 1.5669 | ||||||||||||||||||||||
Capitalized Computer Software Development Costs | ' | ||||||||||||||||||||||||
The Company capitalizes software development costs in accordance with the FASB ASC Topic 985-20 Costs of Software to be Sold, Leased or Marketed. All software development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. | |||||||||||||||||||||||||
The Company makes ongoing evaluations of the recoverability of its capitalized software projects by comparing the net amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, the Company writes off the amount by which the unamortized software development costs exceed net realizable value. The Company's capitalized computer software development costs are being amortized ratably based on the projected revenues associated with the related software or on a straight-line basis over five years, whichever method results in a higher level of amortization. | |||||||||||||||||||||||||
Derivative Instruments | ' | ||||||||||||||||||||||||
The Company’s debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability. | |||||||||||||||||||||||||
The identification of, and accounting for, derivative instruments is complex. The Company’s derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options related to the notes issued in 2011 (see Note 9) that are accounted for as derivative instrument liabilities, the Company determines the fair value of these instruments using the binomial option pricing model. That model requires assumptions related to the remaining term of the instrument and risk-free rates of return, the Company’s current Common Stock price and expected dividend yield, and the expected volatility of the Company’s Common Stock price over the life of the option. | |||||||||||||||||||||||||
For the bifurcated conversion option related to the convertible note issued in 2014 (see Note 9) in connection with the Wunderkind Acquisition, the Company determined the fair value of the instruments using the Monte Carlo Valuation Model, due to the multitude of possible outcomes for the instrument. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return, the Company's current Common Stock price and expected dividend yield, and the expected volatility of the Company's Common Stock price over the life of the option. | |||||||||||||||||||||||||
Deemed dividend | ' | ||||||||||||||||||||||||
The Company incurred a deemed dividend on Series B Preferred Redeemable Stock. As the conversion rate was less than the deemed fair value of the Common Stock of $0.50, the Series B Preferred Redeemable Stock contains a beneficial conversion feature as described in ASC 470. The difference in the stated conversion price and estimated fair value of the Common Stock is accounted for as a beneficial conversion feature and affects EPS. The potential impact of the beneficial conversion feature on EPS has been disclosed in the Consolidated Interim Statements of Operations and Comprehensive Income (Loss), and a reconciliation between basic and dilutive EPS is shown below. | |||||||||||||||||||||||||
Earnings Per Share | ' | ||||||||||||||||||||||||
The Company adopted ASC 260, "Earnings Per Share" ("EPS"), which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive. | |||||||||||||||||||||||||
The following sets forth the computation of diluted EPS for the three and nine months ended September 30, 2014: | |||||||||||||||||||||||||
Three months ended Sept 30, 2014 | Nine months ended Sept 30, 2014 | ||||||||||||||||||||||||
Net income (Numerator) | Shares (Denominator) | Per Share Amount | Net income (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||
Basic EPS | $ | 2,717,281 | 61,176,142 | $ | 0.04 | $ | 5,114,879 | 61,176,142 | $ | 0.08 | |||||||||||||||
Change in fair value of derivative instruments | (3,674,000 | ) | - | (5,693,000 | ) | - | |||||||||||||||||||
Dilutive shares related to notes and warrants | - | 16,546,189 | - | 30,230,323 | |||||||||||||||||||||
Dilutive EPS | $ | (956,719 | ) | 77,722,331 | $ | (0.01 | ) | $ | (578,121 | ) | 91,406,465 | $ | 0 | ||||||||||||
Basic net income per share is based on the weighted average number of common and common equivalent shares outstanding. Potential common shares includable in the computation of fully diluted per share results are not presented for the nine months ended September 30, 2014 and the periods ended September 30, 2013 in the consolidated financial statements as their effect would be anti-dilutive. The total number of shares issuable upon conversion of preferred shares that were not included in dilutive earnings per share for the three and nine months ended September 30, 2014 were 11,666,842 and 5,402,740. | |||||||||||||||||||||||||
Commitments and Contingencies | ' | ||||||||||||||||||||||||
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, product and environmental liability, and tax matters. In accordance with ASC 450-20, Accounting for Contingencies, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Historically, the Company has not experienced any material service liability claims. | |||||||||||||||||||||||||
Net Income (Loss) Attributable to Common Shares | ' | ||||||||||||||||||||||||
The Company is required to provide basic and dilutive earnings per common share information. The basic net income per common share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. | |||||||||||||||||||||||||
Recent Accounting Pronouncements | ' | ||||||||||||||||||||||||
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2014-09”). This guidance is intended to improve the transparency of items reclassified out of accumulated other comprehensive income to net income. The standard requires an entity to present, in a single location, information about the amounts reclassified out of accumulated other comprehensive income, by component, including the income statement line items affected by the reclassification. The amendments in this standard are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In March 2013 the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard is an update to clarify existing guidance for the release of cumulative translation adjustments into net income when a parent sells all or a part of its investment in a foreign entity or achieves a business combination of a foreign entity in stages. The amendments in this Update are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In July 2013 the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance to require standard presentation of an unrecognized tax benefit when a carryforward related to net operating losses or tax credits exists. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's results of operations, cash flows or financial position. | |||||||||||||||||||||||||
In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for public companies for annual periods beginning after December 15, 2016 (fiscal 2018) and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance. |
3_Acquisitions_Tables
3. Acquisitions (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Massive Media | ' | ||||||||||||||||
Pro forma results | ' | ||||||||||||||||
Unaudited Pro Forma Results of Operations | |||||||||||||||||
For the nine months | For the three months | ||||||||||||||||
ended September 30, 2013 | ended September 30, 2013 | ||||||||||||||||
Revenues from continuing operations | $ | 5,440,197 | $ | 2,272,046 | |||||||||||||
Loss from continuing operations | $ | (1,724,979 | ) | $ | (52,867 | ) | |||||||||||
Net loss from continuing operations | $ | (1,368,038 | ) | $ | (170,382 | ) | |||||||||||
Basic loss per share: | $ | (0.02 | ) | $ | (0.00 | ) | |||||||||||
Diluted loss per share: | $ | (0.02 | ) | $ | (0.00 | ) | |||||||||||
Proforma shares outstanding | 55,560,947 | 55,560,947 | |||||||||||||||
Wunderkind | ' | ||||||||||||||||
Pro forma results | ' | ||||||||||||||||
Unaudited Pro Forma Results of Operations | Unaudited Pro Forma Results of Operations | ||||||||||||||||
For the nine months | For the three months | For the nine months | For the three months | ||||||||||||||
ended September 30, 2013 | ended September 30, 2013 | ended September 30, 2014 | ended September 30, 2014 | ||||||||||||||
Revenues from continuing operations | $ | 339,123 | $ | 128,199 | 167,795 | $ | 59,694 | ||||||||||
(Loss) income from continuing operations | $ | (1,051,903 | ) | $ | 11,106 | (168,356 | ) | $ | (147,220 | ) | |||||||
Net (loss) income from continuing operations | $ | (1,051,903 | ) | $ | 11,106 | 5,230,870 | $ | 3,423,527 | |||||||||
Basic (loss) income per share | $ | (0.02 | ) | $ | 0 | 0.09 | $ | 0.06 | |||||||||
Diluted (loss) income per share | $ | (0.02 | ) | $ | 0 | 0.06 | $ | 0.04 | |||||||||
Proforma shares outstanding - Basic | 55,560,947 | 55,560,947 | 61,176,142 | 61,176,142 | |||||||||||||
Proforma shares outstanding - Diluted | 55,560,947 | 55,560,947 | 91,512,342 | 77,722,331 | |||||||||||||
Final purchase consideration for the 2013 acquisition of Massive Media | ' | ||||||||||||||||
The purchase price is calculated as follows: | |||||||||||||||||
Convertible note | $ | 5,500,000 | |||||||||||||||
Fair value of conversion feature | 7,075,000 | ||||||||||||||||
Total estimated purchase price | $ | 12,575,000 | |||||||||||||||
The preliminary purchase price allocation as of the date of acquisition is set forth in the table below and reflects various fair value estimates and analysis. These estimates were determined through established and generally accepted valuation techniques including preliminary work performances by third-party valuation specialists, and are subject to change during the purchase price allocation period (up to one year from the acquisition date) as valuations are finalized. | |||||||||||||||||
Cash and cash equivalents | $ | 20,203 | |||||||||||||||
Trade names and Trademarks | 360,000 | ||||||||||||||||
Developed Software | 2,100,000 | ||||||||||||||||
Customer relationships | 780,000 | ||||||||||||||||
Goodwill | 9,517,202 | ||||||||||||||||
Property, plant and equipment | 2,860 | ||||||||||||||||
Net working capital, net of cash | (205,265 | ) | |||||||||||||||
Total allocation of purchase price | $ | 12,575,000 |
4_Discontinued_Operations_Tabl
4. Discontinued Operations (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||||||||||
Company's discontinued operations | ' | ||||||||||||||||
Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues | $ | - | $ | 74,929 | $ | - | $ | - | |||||||||
Income (loss) from discontinued operations | $ | - | $ | (481,624 | ) | $ | - | $ | (23,629 | ) | |||||||
Provision for income tax | $ | - | $ | - | $ | - | $ | - | |||||||||
Income (loss) from discontinued operations | $ | - | $ | (481,624 | ) | $ | - | $ | (23,629 | ) | |||||||
Basic earnings (loss) per share attributable to discontinued operations: | $ | - | $ | (0.25 | ) | $ | - | $ | (0.01 | ) | |||||||
Diluted earnings (loss) per share attributable to discontinued operations: | $ | - | $ | (0.25 | ) | $ | - | $ | (0.01 | ) |
5_Intangible_Assets_Tables
5. Intangible Assets (Tables) | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||||||||||||||||||
Intangible assets | ' | ||||||||||||||||||||||||
30-Sep-14 | December 31, 2013 | ||||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
Capitalized Software Costs | $ | 7,878,283 | $ | (785,396 | ) | $ | 7,092,887 | $ | 4,360,000 | $ | (64,113 | ) | $ | 4,295,887 | |||||||||||
Trade names | 420,000 | (32,422 | ) | 387,578 | 60,000 | (346 | ) | 59,654 | |||||||||||||||||
Customer Relationships | 820,000 | (68,234 | ) | 751,766 | 40,000 | (462 | ) | 39,538 | |||||||||||||||||
Goodwill | 9,517,202 | - | 9,517,202 | - | - | - | |||||||||||||||||||
Total | $ | 18,635,485 | $ | (886,052 | ) | $ | 17,749,433 | $ | 4,460,000 | $ | (64,921 | ) | $ | 4,395,079 | |||||||||||
Goodwill | ' | ||||||||||||||||||||||||
Goodwill | |||||||||||||||||||||||||
31-Dec-13 | $ | - | |||||||||||||||||||||||
Acquisition of Wunderkind | 9,517,202 | ||||||||||||||||||||||||
Balance at September 30, 2014 | $ | 9,517,202 |
6_Fair_Value_Measurements_Tabl
6. Fair Value Measurements (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Fair Value Disclosures [Abstract] | ' | ||||||||||||||||
Companybs assets and liabilities that were measured at fair value on a recurring basis | ' | ||||||||||||||||
Amounts at | Fair Value Measurement Using | ||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||
As of September 30, 2014 | |||||||||||||||||
Liabilities | |||||||||||||||||
Conversion feature | $ | 1,382,000 | $ | - | $ | - | $ | 1,382,000 | |||||||||
Warrant liability | 7,717 | - | - | 7,717 | |||||||||||||
Note liability | 21,600 | - | - | 21,600 | |||||||||||||
As of December 31, 2013 | |||||||||||||||||
Liabilities | |||||||||||||||||
Warrant liability | $ | 7,717 | $ | - | $ | - | $ | 7,717 | |||||||||
Note liability | 21,600 | - | - | 21,600 |
7_Accrued_Expenses_and_other_c1
7. Accrued Expenses and other current liabilities (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Payables and Accruals [Abstract] | ' | ||||||||
Accrued expenses and other current liabilities | ' | ||||||||
September 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Credit Cards | $ | 63,319 | $ | 16,763 | |||||
Accrued Expenses | 338,072 | 313,473 | |||||||
Accrued Expenses and Other Current Liabilities | $ | 401,391 | $ | 330,236 |
8_Accrued_compensation_and_rel1
8. Accrued compensation and related costs (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Accrued Compensation And Related Costs Tables | ' | ||||||||
Accrued compensation and related costs | ' | ||||||||
Accrued compensation and related costs at September 30, 2014 and December 31, 2013 were as follows: | |||||||||
September 30, | December 31, | ||||||||
Current | 2014 | 2013 | |||||||
Payable to Staff | - | 5,499 | |||||||
Long Service Leave Provision | 193,697 | 188,118 | |||||||
Annual Leave Provision | 326,667 | 328,842 | |||||||
Employee Pension Plan | 140,075 | 110,966 | |||||||
Federal Payroll Tax | 185,691 | 152,681 | |||||||
Other Payroll Tax | 16,987 | 14,903 | |||||||
Accrued compensation and related costs | $ | 863,117 | $ | 801,009 | |||||
Non-Current | 30-Sep-14 | 31-Dec-13 | |||||||
Long Service Leave Provision-non current | $ | 54,633 | $ | 80,733 | |||||
Accrued compensation and related costs-non current | $ | 54,633 | $ | 80,733 | |||||
9_Borrowings_Tables
9. Borrowings (Tables) | 9 Months Ended | ||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||
Borrowings Tables | ' | ||||||||||||||||||||
Derivative liability | ' | ||||||||||||||||||||
30-Sep-14 | |||||||||||||||||||||
Derivative liability | 12/31/13 | New Borrowings | Fair Value Adjustments | Redemptions | Total | ||||||||||||||||
Conversion feature, non-dilution | $ | - | $ | 7,075,000 | $ | (5,693,000 | ) | $ | - | $ | 1,382,000 | ||||||||||
Warrants | 7,717 | - | - | - | 7,717 | ||||||||||||||||
Note | 21,600 | - | - | - | 21,600 | ||||||||||||||||
$ | 29,317 | $ | 7,075,000 | $ | (5,693,000 | ) | $ | - | $ | 1,411,317 |
11_Taxes_Payable_Refundable_Ta
11. Taxes (Payable) Refundable (Tables) | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Taxes Payable [Abstract] | ' | |||||||||
Taxes (Payable) Refundable | ' | |||||||||
30-Sep-14 | 31-Dec-13 | |||||||||
Goods and Services Taxes Payable | Australia | $ | 15,055 | $ | 75,907 | |||||
Withholding Tax Payable | Australia | - | - | |||||||
Fringe Benefit Tax Payable | Australia | 356 | (813 | ) | ||||||
Value Added Tax Payable | United Kingdom | 8,810 | 53,079 | |||||||
Income Tax Refundable | Australia | (880,610 | ) | (1,476,597 | ) | |||||
Taxes Refundable | $ | (856,389 | ) | $ | (1,348,424 | ) |
12_Income_Taxes_Tables
12. Income Taxes (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||||||||||
Income Taxes | ' | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Federal income tax expense (benefit) at statutory rate | 1,102,355 | (8,646 | ) | 2,052,968 | (376,909 | ) | |||||||||||
Foreign taxes at less than federal statutory rate | (189,870 | ) | 1,017 | 90,428 | - | ||||||||||||
Non-deductible (non-assessable) items / losses not recognised | (1,113,090 | ) | 7,629 | (2,143,396 | ) | 376,909 | |||||||||||
Add: tax incentive | - | - | 265,965 | - | |||||||||||||
Total | $ | (200,605 | ) | $ | - | $ | 265,965 | - |
15_Business_and_Geographic_Seg1
15. Business and Geographic Segment Information (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Segment Reporting [Abstract] | ' | ||||||||||||||||
Segment reporting | ' | ||||||||||||||||
For the three and nine month periods ended September 30, 2014 and 2013, the Company’s revenues were generated in the following geographic regions: | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
United Kingdom | $ | 2,405,662 | $ | - | $ | 5,634,464 | $ | - | |||||||||
Australia | 1,170,375 | - | 4,769,015 | - | |||||||||||||
Consolidated total | $ | 3,576,037 | $ | - | $ | 10,403,479 | $ | - | |||||||||
At September 30, 2014 and December 31, 2013, long-lived assets by geographic area consist of property and equipment and are as follows: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
United Kingdom | $ | 125,143 | $ | 39,326 | |||||||||||||
Australia | 131,206 | 202,766 | |||||||||||||||
Consolidated total | $ | 256,349 | $ | 242,092 | |||||||||||||
2_Summary_of_Significant_Accou
2. Summary of Significant Accounting Policies (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Summary Of Significant Accounting Policies Details | ' | ' | ' | ' |
Net income (Numerator) Basic | $2,717,281 | ' | $5,114,879 | ' |
Change in fair value of derivative instruments | -3,674,000 | ' | -5,693,000 | ' |
Net income (Numerator) Diluted | ($956,719) | ' | ($578,121) | ' |
Shares Basic | 61,176,142 | 3,657,843 | 61,176,142 | 1,897,110 |
Dilutive shares related to notes and warrants | 16,546,189 | ' | 30,230,323 | ' |
Shares Dilutive | 77,722,331 | 3,657,843 | 91,406,465 | 1,897,110 |
Earnings per share basic | $0.04 | ' | $0.08 | ' |
Earnings per share diluted | ($0.01) | ($0.02) | $0 | ($0.83) |
3_Acquisitions_Details
3. Acquisitions (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Massive Media | ' | ' | ' | ' |
Revenues from continuing operations | ' | $2,272,046 | ' | $5,440,197 |
Loss from continuing operations | ' | -52,867 | ' | -1,724,979 |
Net income (loss) from continuing operations | ' | -170,382 | ' | -1,368,038 |
Basic income (loss) per share: | ' | $0 | ' | ($0.02) |
Diluted income (loss) per share: | ' | $0 | ' | ($0.02) |
Proforma shares outstanding - Basic | ' | 55,560,947 | ' | 55,560,947 |
Wunderkind | ' | ' | ' | ' |
Revenues from continuing operations | 59,694 | 128,199 | 167,795 | 339,123 |
Loss from continuing operations | -147,220 | 11,106 | -168,356 | -1,051,903 |
Net income (loss) from continuing operations | $3,423,527 | $11,106 | $5,230,870 | ($1,051,903) |
Basic income (loss) per share: | $0.06 | $0 | $0.09 | ($0.02) |
Diluted income (loss) per share: | $0.04 | $0 | $0.06 | ($0.02) |
Proforma shares outstanding - Basic | 61,176,142 | 55,560,947 | 61,176,142 | 55,560,947 |
Proforma shares outstanding - Diluted | 77,722,331 | 55,560,947 | 91,512,342 | 55,560,947 |
3_Acquisitions_Details_1
3. Acquisitions (Details 1) (Wunderkind, USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Wunderkind | ' |
Convertible note | $5,500,000 |
Fair value of conversion feature | 7,075,000 |
Total consideration | $12,575,000 |
3_Acquisition_of_Massive_Media
3. Acquisition of Massive Media (Details 2) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Goodwill | $9,517,202 | $0 |
Wunderkind | ' | ' |
Cash and cash equivalents | 20,203 | ' |
Trade names, net | 360,000 | ' |
Developed Software | 2,100,000 | ' |
Customer relationships, net | 780,000 | ' |
Goodwill | 9,517,202 | ' |
Property, plant and equipment | 2,860 | ' |
Net working capital, net of cash | -205,265 | ' |
Net assets acquired | $12,575,000 | ' |
4_Discontinued_Operations_Deta
4. Discontinued Operations (Details 1) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Discontinued Operations Details 1 | ' | ' | ' | ' |
Revenues | $0 | $0 | $0 | $74,929 |
Income (loss) fromB discontinued operations | 0 | -23,629 | 0 | -481,624 |
Provision for income tax | 0 | 0 | 0 | 0 |
Income (loss) from discontinued operations | $0 | ($23,629) | $0 | ($481,624) |
Basic loss per share attributable to discontinued operations: | $0 | ($0.01) | $0 | ($0.25) |
Diluted loss per share attributable to discontinued operations: | $0 | ($0.01) | $0 | ($0.25) |
5_Intangible_Assets_Details
5. Intangible Assets (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Gross Amount | $18,635,485 | $4,460,000 |
Accumulated Amortization | -886,052 | -64,921 |
Goodwill | 9,517,202 | 0 |
Net Amount | 17,749,433 | 4,395,079 |
Capitalized Software Costs | ' | ' |
Gross Amount | 7,878,283 | 4,360,000 |
Accumulated Amortization | -785,396 | -64,113 |
Net Amount | 7,092,887 | 4,295,887 |
Tradenames | ' | ' |
Gross Amount | 420,000 | 60,000 |
Accumulated Amortization | -32,422 | -346 |
Net Amount | 387,578 | 59,654 |
Customer Relationships | ' | ' |
Gross Amount | 820,000 | 40,000 |
Accumulated Amortization | -68,234 | -462 |
Net Amount | $751,766 | $39,538 |
5_Intangible_Assets_Details_1
5. Intangible Assets (Details 1) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 |
Wunderkind | |||
Goodwill | $9,517,202 | $0 | $9,517,202 |
Goodwill attributable to Acquisition of Wunderkind | ' | ' | $9,517,202 |
6_Fair_Value_Measurements_Deta
6. Fair Value Measurements (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Liabilities | ' | ' |
Conversion feature | $1,382,000 | ' |
Warrant liability | 7,717 | 7,717 |
Note liability | 21,600 | 21,600 |
Level 1 | ' | ' |
Liabilities | ' | ' |
Conversion feature | 0 | ' |
Warrant liability | 0 | 0 |
Note liability | 0 | 0 |
Level 2 | ' | ' |
Liabilities | ' | ' |
Conversion feature | 0 | ' |
Warrant liability | 0 | 0 |
Note liability | 0 | 0 |
Level 3 | ' | ' |
Liabilities | ' | ' |
Conversion feature | 1,382,000 | ' |
Warrant liability | 7,717 | 7,717 |
Note liability | $21,600 | $21,600 |
7_Accrued_Expenses_and_other_c2
7. Accrued Expenses and other current liabilities (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Payables and Accruals [Abstract] | ' | ' |
Credit Cards | $63,319 | $16,763 |
Accrued Expenses | 338,072 | 313,473 |
Accrued Expenses and Other Current Liabilities | $401,391 | $330,236 |
8_Accrued_compensation_and_rel2
8. Accrued compensation and related costs (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current | ' | ' |
Payable to Staff | $0 | $5,499 |
Long Service Leave Provision | 193,697 | 188,118 |
Annual Leave Provision | 326,667 | 328,842 |
Employee Pension Plan | 140,075 | 110,966 |
Federal Payroll Tax | 185,691 | 152,681 |
Other Payroll Tax | 16,987 | 14,903 |
Accrued compensation and related costs | 863,117 | 801,009 |
Long Service Leave Provision-non current | 54,633 | 80,733 |
Accrued compensation and related costs-non current | $54,633 | $80,733 |
9_Borrowings_Details
9. Borrowings (Details) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Dec. 31, 2013 | |
Derivative liability | $1,411,317 | $29,317 |
New Borrowings | 7,075,000 | ' |
Fair Value Adjustments | -5,693,000 | ' |
Notes | ' | ' |
Derivative liability | 21,600 | 21,600 |
Warrant | ' | ' |
Derivative liability | 7,717 | 7,717 |
Conversion feature, non-dilution | ' | ' |
Derivative liability | $1,382,000 | $0 |
11_Taxes_Payable_Refundable_De
11. Taxes (Payable) Refundable (Details) (USD $) | Sep. 30, 2014 | Sep. 30, 2013 |
Notes to Financial Statements | ' | ' |
Goods and Services Taxes Payable - Australia | $15,055 | $75,907 |
Withholding Tax Payable - Australia | 0 | 0 |
Fringe Benefit Tax Payable - Australia | 356 | -813 |
Value Added Tax Payable - United Kingdom | 8,810 | 53,079 |
Income Tax Refundable - Australia | -880,610 | -1,476,597 |
Taxes Refundable | ($856,389) | ($1,348,424) |
12_Income_Taxes_Details
12. Income Taxes (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Income Tax Disclosure [Abstract] | ' | ' | ' | ' |
Federal income tax expense (benefit) at statutory rate | $1,102,355 | ($8,646) | $2,052,968 | ($376,909) |
Foreign taxes at less than federal statutory rate | -189,870 | 1,017 | 90,428 | ' |
Non-deductible (non-assessable) items / losses not recognised | -1,113,090 | 7,629 | -2,143,396 | 376,909 |
Add: tax incentive | ' | ' | 265,965 | ' |
Total | ($200,605) | $0 | $265,965 | $0 |
15_Business_and_Geographic_Seg2
15. Business and Geographic Segment Information (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Revenues | $3,576,037 | $0 | $10,403,479 | $0 | ' |
Property and equipment | 256,349 | ' | 256,349 | ' | 242,092 |
United Kingdom | ' | ' | ' | ' | ' |
Revenues | 2,405,662 | 0 | 5,634,464 | 0 | ' |
Property and equipment | 125,143 | ' | 125,143 | ' | 39,326 |
Australia | ' | ' | ' | ' | ' |
Revenues | 1,170,375 | 0 | 4,769,015 | 0 | ' |
Property and equipment | $131,206 | ' | $131,206 | ' | $202,766 |