19. Subsequent Events

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

NOTE 19 - Subsequent Events

Effective September 30, 2013, Stratus entered into a Merger Agreement with Canterbury Acquisition LLC, a wholly owned subsidiary of the Company (“Canterbury Merger Sub”), Hygeia Acquisition, Inc., a wholly owned subsidiary of the Company (“Hygeia Merger Sub”), Canterbury Laboratories, LLC (“Canterbury”), Hygeia Therapeutics, Inc. (“Hygeia”) and Yael Schwartz, Ph.D., as Holder Representative, pursuant to which Stratus will acquire all of the capital stock of Canterbury and Hygeia (the “Mergers”) with Canterbury and Hygeia becoming wholly owned subsidiaries of Stratus. The consideration for the Mergers will be the issuance by Stratus of an aggregate of 115,011,563 restricted shares of Stratus common stock to be issued to the stakeholders of Canterbury and Hygeia.

The Mergers were closed on November 18, 2013, resulting in a value of $4,933,996 for the 115,011,563 shares to be issued for the Mergers based on the closing market price of $0.0429 on that date. An independent valuation firm has been engaged by the Company to value the assets being acquired through the Merger. While this valuation has not been finalized, a valuation has been performed by the Company which indicates that the entire fair value of $4,933,996 for the Mergers will be allocated to the Yale License with no goodwill. The Company expects that the independent valuation will verify this allocation, although there can be no certainty that this will be the case. The Mergers are subject to rescission if Stratus has not raised $7.5 million or more in gross financing proceeds by January 15, 2014.

The Mergers are part of the Company’s plan to enter new businesses through acquisitions. If the Mergers had occurred on January 1, 2013, the combined statement of operations for the nine months ended September 30, 2013 would be as follows:

	Nine Months Ended September 30, 2013 (unaudited)
	Stratus Media			Hygeia/Canterbury			Pro Forma			Pro Forma Stratus, Canterbury
	Group, Inc.			Combined			Adjustments			& Hygeia
Revenues	$	71,667		$	127,167		$	–		$	198,834
Cost of revenues		–			89,387			–			89,387
Gross profit		71,667			37,780			–			109,447
Operating expenses		12,045,616			594,059			695,486	(a)		13,335,161
Loss from operations		(11,973,949	)		(556,279	)		(695,486	)		(13,225,714	)
Other (income)/expenses		(10,291,317	)		20,267			–			(10,271,050	)
Net loss attributed to non-controlling interests		28,065			–			–			28,065
Preferred dividends		171,625			–			–			171,625
Net loss attributable to Stratus Media Group common shareholders	$	(1,826,192	)	$	(576,546	)	$	(695,486	)	$	(3,098,224	)
Basic and diluted earnings per share	$	(0.01	)							$	(0.01	)
Basic and fully-diluted weighted average shares outstanding		264,660,276						115,011,563	(b)		379,671,839

__________________________

(a)	Represents $340,007 for additional salaries and related taxes that would be due under employment contracts for two officers for nine months ended September 30, 2013 and $355,479 amortization of the $4,993,996 value for Yale License that is amortized over the remaining average 132 month life of the patents.
(b)	Represents shares issued for Mergers with Canterbury and Hygeia.

If the Mergers had occurred on January 1, 2012, the combined statement of operations for the nine months ended September 30, 2012 would be as follows:

	Nine Months Ended September 30, 2012 (unaudited)
										Pro Forma
	Stratus Media			Hygeia/Canterbury			Pro Forma			Stratus, Canterbury
	Group, Inc.			Combined			Adjustments			& Hygeia
Revenues	$	374,542		$	80,245		$	–		$	454,787
Cost of revenues		235,803			38,505			–			274,308
Gross profit		138,739			41,740			–			180,479
Operating expenses		8,359,830			196,070			702,547	(a)		9,258,447
Loss from operations		(8,221,091	)		(154,330	)		(702,547	)		(9,077,968	)
Other (income)/expenses		14,576,565			–			–			14,576,565
Net loss attributed to non-controlling interests		5,951			–			–			5,951
Preferred dividends		365,417			–			–			365,417
Net loss attributable to Stratus Media Group common shareholders	$	(23,157,122	)	$	(154,330	)	$	(702,547	)	$	(24,013,999	)
Basic and diluted earnings per share	$	(0.01	)							$	(0.12	)
Basic and fully-diluted weighted average shares outstanding		89,220,298						115,011,563	(b)		204,231,861

__________________________

(a)	Represents $347,068 for additional salaries and related taxes that would be due under employment contracts for two officers for nine months ended September 30, 2013 and $355,479 amortization of the $4,993,996 value for Yale License that is amortized over the remaining average 132 month life of the patent.
(b)	Represents shares issued for Mergers with Canterbury and Hygeia.

On October 4, 2013, the Company and Histogen, Inc. (“Histogen”) executed a non-binding letter of intent pursuant to which the Company agreed to acquire all of the capital stock of Histogen for 350,000,000 pre-reverse split shares of the Company’s common stock. Discussions regarding this potential acquisition have halted and the Company does not intend to further pursue this potential acquisition.

In connection with the acquisition of Canterbury/Hygeia and the ongoing efforts to convert the Company’s liabilities into common stock, the Company intends to conduct private placements of its securities (the “Private Placements”) requiring the issuance of additional shares of common stock and/or securities convertible into or exercisable for common shares. On October 31, 2013, the Company filed a preliminary Information Statement on Form 14C to notify stockholders that stockholders holding a majority of the voting power of the common stock of the Company have executed a written consent in lieu of a meeting to approve an amendment to our articles of incorporation to approve a reverse split of the Company’s outstanding common stock at a ratio of between 1-for-50 and 1-for-100, based on the decision of the Company’s board of directors given the facts and circumstances in effect at that time. Based on the number of shares of common stock outstanding as of the record date of October 15, 2013, there will be a reduction in the number of outstanding common shares to a range of approximately 4,223,000 shares to 8,446,000 shares, depending on the stock split ratio determined by the board as mentioned above, before giving effect to the issuance of common shares from the Canterbury/Hygeia acquisitions, any additional acquisitions and the Private Placements.

On November 1, 2013, the Company filed a Report on Form 8-K to report that effective November 1, 2013, Sol J. Barer, Ph.D. and Isaac Blech were elected by the Company’s board of directors (the “Board”) as new directors. Dr. Barer was also named Chairman of the Board and Mr. Blech was named Vice Chairman of the Board. Dr. Barer and Mr. Blech have also been appointed to serve on the Company’s Audit and Compensation Committees. Their compensation as board members has not yet been determined. Also effective November 1, 2013, Jerold Rubinstein resigned as Chairman of the Board but remains as Chairman of the Board’s Audit Committee and Chief Executive Officer.

In January 2013, the Company signed a term sheet (“Term Sheet”) with an outside financial firm (“Financial Firm”) to have the Financial Firm acquire certain portions of the Company’s liabilities to creditors, employees and former employees (“Creditors”) in exchange for common stock. The Financial Firm entered into agreements in July 2013 with such Creditors to acquire $1,865,386 of liabilities and filed a complaint on July 29, 2013 with the Second Judicial Circuit, Leon County, Florida seeking a judgment against the Company for this amount. A court order based on this complaint was issued on October 7, 2013, resulting in the transfer of these $1,865,386 million of liabilities to the Financial Firm (see Footnote 4 for additional information). Subsequent to September 30, 2013, the Company entered into agreement with holders of $225,000 of promissory notes to extinguish those notes in exchange for the issuance of 3,750,000 shares of common stock.

If the transfer of $1,865,386 of liabilities to the Financial Firm and the exchange of 3,750,000 shares of common stock for $225,000 of promissory notes had occurred on September 30, 2013, the following would be the pro forma change in the Consolidated Balance Sheets and Consolidated Statements of Operations:

				Pro Forma Impact of
							Reduction						Pro Forma
	As Reported for			Transfer of			of Rent			Note			Adjusted for
	September 30, 2013			Liabilities			Accrual			Conversion			September 30, 2013
Current liabilities
Accounts payable	$	1,540,706		$	(764,172	)	$	–		$	–		$	776,534
Deferred salary		1,425,365			(1,000,514	)		–			–			424,851
Accrued interest		207,593			–			–			–			207,593
Other accrued expenses and liabilities		2,350,011			–			–			–			2,350,011
Payable to officer and former officer		211,358			–			–			–			211,358
Rent liability for facilities no longer occupied		1,260,644			(100,700	)		(38,449	)		–			1,121,495
Notes payable		2,575,002			–			–			(225,000	)		2,350,002
Total current liabilities	$	9,570,679		$	(1,865,386	)	$	(38,449	)	$	(225,000	)	$	7,441,844
Shareholder's deficit
Common stock		420,966			20,727			–			3,750			445,443
Additional paid-in capital		53,237,549			2,217,736			–			401,250			55,856,535
Accumulated Deficit		(59,966,621	)		(373,077	)		38,449			(180,000	)		(60,481,249	)
Total Stratus shareholder's deficit		(6,308,106	)		1,865,386			38,449			225,000			(4,179,271	)
Non-controlling interest deficit		(28,065	)		–			–			–			(28,065	)
Total shareholder's deficit		(6,336,171	)		1,865,386			38,449			225,000			(4,207,336	)
Total liabilities and shareholder's deficit	$	3,234,508		$	–		$	–		$	–		$	3,234,508

				Pro Forma Impact of									Pro Forma
	As Reported for						Reduction						Adjusted for
	3 Months Ended			Transfer of			of Rent			Note			3 Months Ended
	September 30, 2013			Liabilities			Accrual			Conversion			September 30, 2013
Loss from operations	$	(1,555,152	)	$	–		$	–		$	–		$	(1,555,152	)
Other (income)/expenses
Other (income)/expenses		(51,444	)		373,077			(38,449	)		180,000			463,184
Interest expense		35,203			–			–			–			35,203
Total other (income)/expenses		(16,241	)		373,077			(38,449	)		180,000			498,387
Net loss/(income)		(1,538,911	)		(373,077	)		38,449			(180,000	)		(2,053,539	)
Net loss attributed to non-controlling interests		13,634			–			–			–			13,634
Net loss attributed to Stratus Media Group common shareholders	$	(1,525,277	)	$	(373,077	)	$	38,449		$	(180,000)		$	(2,039,905	)

				Pro Forma Impact of									Pro Forma
	As Reported for						Reduction						Adjusted for
	9 Months Ended			Transfer of			of Rent			Note			9 Months Ended
	September 30, 2013			Liabilities			Accrual			Conversion			September 30, 2013
Loss from operations	$	(11,973,949	)	$	–		$	–		$	–		$	(11,973,949	)
Other (income)/expenses
(Gain)/loss on adjustments to fair value of derivative liability		(8,980,077	)		–			–			–			(8,980,077	)
Gain on extinguishment of derivative liability		(1,409,530	)		–			–			–			(1,409,530	)
Other (income)/expenses		(54,498	)		373,077			(38,449	)		180,000			460,130
Interest expense		152,788			–			–			–			152,788
Total other (income)/expenses		(10,291,317	)		373,077			(38,449	)		180,000			(9,776,689	)
Net income/(loss)		(1,682,632	)		(373,077	)		38,449			(180,000)			(2,197,260	)
Net loss attributed to non-controlling interests		28,065			–			–			–			28,065
Net income/(loss) attributed to Stratus Media Group		(1,654,567	)		(373,077	)		38,449			(180,000)			(2,169,195	)
Preferred dividends		171,625			–			–			–			171,625
Net income/(loss) attributable to Stratus Media Group common shareholders	$	(1,826,193	)	$	(373,077	)	$	38,449		$	(180,000	)	$	(2,340,821	)

With regard to the rent liability for facilities no longer occupied, the landlord for one lease agreed to accept $100,700 in full settlement of a liability that was recorded at $139,149 on the Company’s balance sheet, resulting in an additional reduction of rent liability for facilities no longer occupied of $38,449.