þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DELAWARE
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13-2640971
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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4126 Leonard Drive, Fairfax, VA
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22030
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨ (Do not check if a smaller reporting company)
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Smaller reporting company
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þ
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Page
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PART I - FINANCIAL INFORMATION
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Item 1 - Consolidated Financial Statements
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4 | ||
Consolidated Balance Sheets - December 31, 2015 (unaudited) and June 30, 2015
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4
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Consolidated Statements of Operations (unaudited) For the Three and Six Months ended December 31, 2015 and 2014
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5
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Consolidated Statements of Comprehensive Loss (unaudited) For the Three and Six Months ended December 31, 2015 and 2014
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6
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Consolidated Statements of Cash Flows - Six months Ended December 31, 2015 and 2014 (unaudited)
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7
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Notes to Consolidated Financial Statements (unaudited)
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8-27
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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operation
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28-34
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
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34
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Item 4 - Controls and Procedures
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34
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PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings
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35
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Item 1A - Risk Factors
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35
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
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35
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Item 3 - Default upon Senior Securities
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36
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Item 4 - Mine Safety Disclosures
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36
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Item 5 - Other Information
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36
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Item 6 - Exhibits
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36
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Signatures
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37
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December 31,
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June 30,
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|||||||
2015
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2015
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|||||||
Assets
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(unaudited)
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|||||||
Current Assets:
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||||||||
Cash
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$ | 25,392 | $ | 21,745 | ||||
Accounts receivable, net
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29,858 | 19,945 | ||||||
Prepaid expenses
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70,441 | 66,543 | ||||||
Marketable securities
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- | 2 | ||||||
Other current assets
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6,125 | 10,208 | ||||||
Total Current Assets
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131,816 | 118,443 | ||||||
Property and equipment, net of accumulated depreciation of $1,172,395 and $1,140,249 respectively
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19,316 | 51,462 | ||||||
Intangible assets, net of accumulated amortization of $174,117
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5,049,383 | - | ||||||
Deposits
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5,923 | 5,923 | ||||||
Other assets
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1,545 | 1,545 | ||||||
Total Assets
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$ | 5,207,983 | $ | 177,373 | ||||
Liabilities and Stockholders' Deficit
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||||||||
Current Liabilities:
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||||||||
Accounts payable and accrued liabilities
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$ | 1,516,863 | $ | 1,043,088 | ||||
Notes payable, current portion
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5,495,738 | 327,810 | ||||||
Capital lease payable, current portion
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1,399,668 | 886,356 | ||||||
Note payable, related party
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1,095,255 | 1,029,005 | ||||||
Loan payable, related party
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635,000 | 635,000 | ||||||
Deferred revenue
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62,604 | 85,407 | ||||||
Convertible notes payable, net of discount
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122,886 | 115,632 | ||||||
Derivative liability - warrants
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621,906 | 83,766 | ||||||
Derivative liability - embedded conversion option
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188,700 | 346,734 | ||||||
Total Current Liabilities
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11,138,620 | 4,552,798 | ||||||
Capital lease payable, long term portion
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- | 517,686 | ||||||
Total Liabilities
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11,138,620 | 5,070,484 | ||||||
Commitments and Contingencies (Note 13)
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||||||||
Stockholders' Deficit:
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||||||||
Series B convertible preferred stock ($.001 par value; 10,000,000 shares authorized; 626,667 shares issued and outstanding)
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626 | 626 | ||||||
Common stock ($.001 par value; 6,000,000,000 shares authorized; 966,928,504 and 912,466,204 shares issued and outstanding, respectively)
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966,928 | 912,466 | ||||||
Additional paid in capital
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49,241,951 | 48,984,686 | ||||||
Accumulated deficit
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(56,046,142 | ) | (54,696,891 | ) | ||||
Accumulated other comprehensive loss
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(81,000 | ) | (80,998 | ) | ||||
Treasury stock, at cost, (406 shares)
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(13,000 | ) | (13,000 | ) | ||||
Total Stockholders' Deficit
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(5,930,637 | ) | (4,893,111 | ) | ||||
Total Liabilities and Stockholders' Deficit
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$ | 5,207,983 | $ | 177,373 |
Three Months Ended
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Six Months Ended
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|||||||||||||||
December 31,
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December 31,
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|||||||||||||||
2015
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2014
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2015
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2014
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Sales
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$ | 215,020 | $ | 223,631 | $ | 457,493 | $ | 461,520 | ||||||||
Cost of sales
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62,058 | 212,002 | 160,356 | 455,774 | ||||||||||||
Gross profit (loss)
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152,962 | 11,629 | 297,137 | 5,746 | ||||||||||||
Operating expenses:
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||||||||||||||||
Sales and marketing
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23,236 | 41,813 | 51,310 | 77,598 | ||||||||||||
Depreciation and amortization
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176,534 | 37,292 | 186,479 | 81,091 | ||||||||||||
Technical
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51,563 | 75,493 | 114,552 | 191,938 | ||||||||||||
General and administrative
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151,928 | 222,048 | 530,967 | 475,831 | ||||||||||||
Total Operating Expenses
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403,261 | 376,646 | 883,308 | 826,458 | ||||||||||||
Loss from Operations
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(250,299 | ) | (365,017 | ) | (586,171 | ) | (820,712 | ) | ||||||||
Other income (expenses):
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||||||||||||||||
Gain on sale of assets
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10,000 | 3 | 10,000 | 3,628 | ||||||||||||
Gain/(loss) from change of fair value of derivative liability
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(446,666 | ) | (2,687 | ) | (444,411 | ) | 406,903 | |||||||||
Gain on extinguishment of debt
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46,041 | - | 46,041 | - | ||||||||||||
Interest expense
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(238,098 | ) | (91,960 | ) | (374,709 | ) | (287,394 | ) | ||||||||
Total other income (expenses)
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(628,723 | ) | (94,644 | ) | (763,079 | ) | 123,137 | |||||||||
Net loss
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$ | (879,022 | ) | $ | (459,661 | ) | $ | (1,349,250 | ) | $ | (697,575 | ) | ||||
Loss per common share basic and diluted
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$ | 0.00 | $ | (0.07 | ) | $ | 0.00 | $ | (0.08 | ) | ||||||
Weighted average common shares outstanding - basic and diluted
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945,888,068 | 6,257,889 | 945,463,839 | 8,639,616 |
Three Months Ended
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Six Months Ended
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December 31,
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December 31,
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2015
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2014
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2015
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2014
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Net loss
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$ | (879,022 | ) | $ | (459,661 | ) | $ | (1,349,250 | ) | $ | (697,575 | ) | ||||
Other comprehensive income/(loss), net of tax:
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||||||||||||||||
Unrealized gain (loss) on securities
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(2 | ) | (8 | ) | (2 | ) | - | |||||||||
Other comprehensive income/(loss)
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(2 | ) | (8 | ) | (2 | ) | - | |||||||||
Comprehensive loss
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$ | (879,024 | ) | $ | (459,669 | ) | $ | (1,349,252 | ) | $ | (697,575 | ) |
Six Months Ended
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||||||||
December 31,
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||||||||
2015
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2014
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NET CASH USED IN OPERATING ACTIVITIES
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$ | (127,113 | ) | $ | (519,751 | ) | ||
CASH FLOWS USED IN INVESTING ACTIVITIES:
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||||||||
Purchase of property and equipment
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- | (10,947 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES
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- | (10,947 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||
Payments on notes payable
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(129,990 | ) | (275,455 | ) | ||||
Payment on convertible note payable
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(50,500 | ) | - | |||||
Proceeds from notes payable
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195,000 | - | ||||||
Proceeds from notes payable, related party
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66,250 | 760,489 | ||||||
Proceeds from sale of restricted stock
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50,000 | - | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
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130,760 | 485,034 | ||||||
NET INCREASE (DECREASE) IN CASH
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3,647 | (45,664 | ) | |||||
CASH - beginning of period
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21,745 | 56,827 | ||||||
CASH - end of period
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$ | 25,392 | $ | 11,163 | ||||
Supplemental disclosure of cash flow information:
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||||||||
Cash paid for interest
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$ | 43,631 | $ | 33,381 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES:
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||||||||
Conversion of convertible note into common stock
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$ | 11,635 | $ | 281,679 | ||||
Shares issued for acquisition
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$ | 223,500 | $ | - |
1. | Wireless and fiber broadband service; | |
2. | Co-location, which includes the licensing of cabinet and power; | |
3. | Interconnection services, such as cross connects; | |
4. | Managed infrastructure services. |
● | Revenues from recurring revenue streams are generally billed monthly and recognized ratably over the term of the contract, generally one to three years for data center space customers. We generally recognize revenue beginning on the date the customer commences use of our services. | |
● | Implementation and set-up fees are recognized at the time those services are completed and service is working. | |
● | For services that are billed according to customer usage, revenue is recognized in the month in which the usage is provided. | |
● | Professional services are recognized in the period services are provided. | |
● | Amounts that have been invoiced are recorded in accounts receivable and revenue |
Estimated Life
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December 31,
2015
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June 30,
2015
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|||||||
Equipment
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3 years
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$ | 1,125,304 | $ | 1,125,304 | ||||
Computer Software
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3 years
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59,694 | 59,694 | ||||||
Vehicle
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3 years
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1,979 | 1,979 | ||||||
Leasehold Improvements
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3 years
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4,734 | 4,734 | ||||||
1,191,711 | 1,191,711 | ||||||||
Less: Accumulated Depreciation
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(1,164,223 | ) | (1,140,249 | ) | |||||
Net, Property and Equipment
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$ | 27,488 | $ | 51,462 |
December 31,
2015
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June 30,
2015
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|||||||
IWEB Growth Fund
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$ | 185,000 | $ | 185,000 | ||||
Forbearance Fee
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101,990 | - | ||||||
Power Up Lending Group, LTD.
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124,286 | 48,315 | ||||||
Deirdre Leane
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5,000,000 | - | ||||||
Other Notes Payable
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84,462 | 94,495 | ||||||
$ | 5,495,738 | $ | 327,810 |
2016
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$ | 1,170,000 | ||
2017
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273,356 | |||
Total future payments
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1,443,356 | |||
Less amount representing interest
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43,688 | |||
Present value of future minimum payments
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1,399,668 | |||
Less current portion
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1,399,668 | |||
Long-term portion
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$ | - |
Three Months Ended
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Six Months Ended
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|||||||||||||||
December 31,
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December 31,
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|||||||||||||||
2015
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2014
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2015
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2014
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|||||||||||||
Customer A
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16 | % | 6 | % | 13 | % | 10 | % | ||||||||
Customer B
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9 | % | 5 | % | 7 | % | 5 | % | ||||||||
Customer C
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7 | % | 3 | % | 5 | % | 4 | % | ||||||||
All others
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68 | % | 86 | % | 75 | % | 81 | % | ||||||||
100 | % | 100 | % | 100 | % | 100 | % |
December 31,
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June 30,
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|||||||
2015
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2015
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|||||||
Customer A
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22 | % | 44 | % | ||||
Customer B
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16 | % | 17 | % | ||||
Customer C
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15 | % | 13 | % | ||||
All others
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47 | % | 26 | % | ||||
100 | % | 100 | % |
Gross
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Gross
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|||||||||||||||
Unrealized
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Unrealized
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Fair
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||||||||||||||
December 31, 2015
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Cost
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Gains
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Losses
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Value
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||||||||||||
Publicly traded equity securities
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$ | 81,000 | $ | - | $ | (81,000 | ) | $ | - | |||||||
Total
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$ | 81,000 | $ | - | $ | (81,000 | ) | $ | - |
Gross
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Gross
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|||||||||||||||
Unrealized
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Unrealized
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Fair
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||||||||||||||
June 30, 2015
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Cost
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Gains
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Losses
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Value
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||||||||||||
Publicly traded equity securities
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$ | 81,000 | $ | - | $ | (80,998 | ) | $ | 2 | |||||||
Total
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$ | 81,000 | $ | - | $ | (80,998 | ) | $ | 2 |
Three Months Ended
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Six Months Ended
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|||||||||||||||
December 31,
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December 31,
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|||||||||||||||
2015
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2014
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2015
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2014
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|||||||||||||
Net gains/(loss) on investments in publicly traded equity securities
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$ | (2 | ) | $ | (8 | ) | $ | (2 | ) | $ | - | |||||
Net gains/(loss) on investments
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$ | (2 | ) | $ | (8 | ) | $ | (2 | ) | $ | - |
Quoted
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Significant
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|||||||||||
Prices
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Other
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Significant
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||||||||||
in Active
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Observable
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Unobservable
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||||||||||
Markets
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Inputs
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Inputs
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||||||||||
December 31, 2015
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(Level 1)
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(Level 2)
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(Level 3)
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|||||||||
Marketable Equity Securities
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$ | - | $ | - | $ | - | ||||||
Derivative liabilities, warrants
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$ | - | $ | - | $ | 621,906 | ||||||
Derivative liabilities, convertible debt
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$ | - | $ | - | $ | 188,700 | ||||||
June 30, 2015
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||||||||||||
Marketable Equity Securities
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$ | 2 | $ | - | $ | - | ||||||
Derivative liabilities, warrants
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$ | - | $ | - | $ | 83,766 | ||||||
Derivative liabilities, convertible debt
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$ | - | $ | - | $ | 346,734 |
December 31,
2015
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June 30,
2015
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|||||||
December 2013 $60,000 Convertible Note, 10% interest, due December 2014
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$ | 54,600 | $ | 60,000 | (1) | |||
January 2015 $53,500 Convertible Note, 8% interest, due October 2015
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50,265 | 53,500 | (2) | |||||
February 2015 $33,000 Convertible Note, 8% interest, due November 2015
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- | 33,000 | (3) | |||||
April 2015 $30,500 Convertible Note, 12% interest, due April 2017, with a 10% original issue discount
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27,500 | 30,500 | (4) | |||||
May 2015 $33,000 Convertible Note, 8% interest, due February 2016
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15,500 | 33,000 | (5) | |||||
147,865 | 210,000 | |||||||
Less: Debt Discount
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(24,979 | ) | (94,368 | ) | ||||
$ | 122,886 | $ | 115,632 |
(1)
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The Company borrowed $60,000 in December 2013, due December 2014, with interest at 10%. This note is currently in default. The Company believes the holder of the note intends to convert at some point in the future. The holder of the note has the right, after the first one hundred eighty days of the note to convert the note and accrued interest into common stock at a price per share equal to 60% (representing a discount rate of 40%) of the lowest trading price for the Common Stock during the fifteen trading day period ending one trading day prior to the date of Conversion Notice, with a floor of $0.001 per share. The Company recorded a derivative liability at inception of the note of $60,000. Interest expense of $2,100 was recorded during the six month period ended December 31, 2015. Also, see Note 12.
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(2)
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The Company borrowed $53,500 in January 2015, due October 2015, with interest at 8%. This note is currently in default. The holder of the note intends to convert at some point in the future. The holder of the note has the right, after the first one hundred eighty days of the note to convert the note and accrued interest into common stock at a price per share equal to 58% of the average of the lowest three trading prices during the 10 trading days previous to the conversion. The agreement includes a ratchet provision resulting in the recording of a derivative liability. The Company recorded a derivative liability of $81,133 at inception of the note of which $53,500 was recorded as a debt discount. During the six months ended December 31, 2015, the Company recorded amortization of debt discount of $20,806 resulting in a debt discount of $0 at December 31, 2015. Interest expense of $2,011 was recorded during the six month period ended December 31, 2015. Also, see Note 12.
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(3)
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The Company borrowed $33,000 in February 2015, due November 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note to convert the note and accrued interest into common stock at a price per share equal to 58% of the average of the lowest three trading prices during the 10 trading days previous to the conversion. The agreement includes a ratchet provision resulting in the recording of a derivative liability. The Company recorded a derivative liability of $127,624 at inception of the note of which $33,000 was recorded as a debt discount. During the six months ended December 31, 2015, the Company recorded amortization of debt discount of $18,333 resulting in a debt discount of $0 at December 31, 2015. Interest expense of $120 was recorded during the six months ended December 31, 2015. Also, see Note 12.
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(4)
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The Company borrowed $30,500 in April 2015, due April 2017, with a one-time interest charge of 12%. The holder of the note has the right, after the first one hundred eighty days of the note to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.03 per share or 60% (representing a discount rate of 40%) of the lowest trade price of the Company's common stock in the twenty-five days prior to the date of Conversion Notice. The note has an original issue discount of $3,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $2,500 related to the conversion feature of the note, along with a derivative liability of $50,833 of which $30,500 was recorded as a debt discount in April, 2015. During the six month period ended December 31, 2015, the Company recorded amortization of $8,250 resulting in a debt discount of $21,312 at December 31, 2015. Interest expense of $375 was recorded during the three month period ended December 31, 2015. Also, see Note 12.
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(5)
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The Company borrowed $33,000 in May 2015, due February 2016, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note to convert the note and accrued interest into common stock at a price per share equal to 58% of the average of the lowest three trading prices during the 10 trading days previous to the conversion. The agreement includes a ratchet provision resulting in the recording of a derivative liability. The Company recorded a derivative liability of $75,223 at inception of the note of which $33,000 was recorded as a debt discount. During the six month period ended December 31, 2015, the Company recorded amortization of debt discount of $22,000 resulting in a debt discount of $3,667 at December 31, 2015. Interest expense of $1,203 was recorded during the six month period ended December 31, 2015. Also, see Note 12.
|
Value
|
No. of Warrants
|
|||||||
Balance at June 30, 2015 - Derivative liability - warrants
|
$ | 83,766 | 64,436,748 | |||||
Increase in fair value of derivative warrant liability
|
538,140 | |||||||
Balance at December 31, 2015 - Derivative liability - warrants
|
$ | 621,906 | 1,135,449,986 | |||||
Value
|
||||||||
Balance at June 30, 2015 - Derivative liability - embedded conversion option
|
$ | 346,734 | ||||||
Decrease in derivative liability related to conversion of convertible debt
|
(18,264 | ) | ||||||
Increase in derivative liability related to issuance of convertible debt
|
- | |||||||
Decrease in fair value of derivative liability due to extinguishment of debt
|
(46,041 | ) | ||||||
Decrease in fair value of derivative liability
|
(93,729 | ) | ||||||
Balance at December 31, 2015 - Derivative liability - embedded conversion option
|
$ | 188,700 |
December 31,
2015
|
||||
Current exercise price
|
$ | 0.00085 | ||
Time to expiration
|
.75 years
|
|||
Risk-free interest rate
|
1.06 | % | ||
Estimated volatility
|
775.59 | % | ||
Dividend
|
$ | 0 | ||
Stock price on December 31, 2015
|
$ | 0.00110 | ||
Expected forfeiture rate
|
0% to 99%
|
For the Year Ending,
|
||||
June 30,
|
Amount
|
|||
2016
|
$ | 24,588 | ||
2017
|
15,385 | |||
2018
|
- | |||
$ | 39,973 |
1.
|
The Company was named as the defendant in a legal proceeding brought by FedEx Customer Information Services, Inc. (the plaintiff) on May 28, 2010 in the Circuit Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff obtained a judgment for $16,322 plus interest and costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $19,000 as of December 31, 2015.
|
2.
|
The Company was named as the defendant in a legal proceeding brought by FedEx Customer Information Services, Inc. (the plaintiff) on September 15, 2010 in the General District Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff obtained a Consent Judgment for $12,900 in compensatory damages plus $58 in costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $18,500 as of December 31, 2015.
|
3.
|
The Company was named as the defendant in a legal proceeding brought by i-Cubed Information LLC (the plaintiff) on August 10, 2012 in the General District Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay for delivery of services provided by plaintiff. The plaintiff was granted a judgment by consent in the amount of $12,920. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $13,600 as of December 31, 2015.
|
4.
|
The Company was named as the defendant in a legal proceeding brought by Pelligrino and Associates (the plaintiff) on August 14, 2014 in the Marion County Superior Court, Marion County, Indiana. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff is seeking $20,159 plus attorney’s fees, interest and costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $20,500 as of December 31, 2015.
|
|
●
|
change our company’s name from "IceWEB, Inc." to “UnifiedOnline, Inc.”;
|
|
●
|
increase the number of authorized shares of our common stock from 5,000,000,000 to 6,000,000,000 shares; and
|
|
●
|
effect a reverse stock split of our outstanding common stock on the basis of one for four hundred (1:400).
|
●
|
No dividends are payable on the Series B Convertible Preferred Stock. So long as these shares are outstanding, we cannot pay dividends on our common stock nor can it redeem any shares of its common stock, the shares of Series B Convertible Preferred Stock do not have any voting rights, except as may be provided under Delaware law,
|
●
|
So long as the shares are outstanding, we cannot change the designations of the Series B Convertible Preferred Stock, create a class of securities that in the instance of payment of dividends or distribution of assets upon our liquidation ranks senior to or pari passu with the Series B Convertible Preferred Stock or increase the number of authorized shares of Series B Convertible Preferred Stock,
|
●
|
Each share of Series B Convertible Preferred Stock is convertible at the option of the holder into one share of our common stock based upon an initial conversion value of $0.2727 per share. The conversion ratio is subject to adjustment in the event of stock dividends, stock splits or reclassification of our common stock. No conversion of the Series B Convertible Preferred Stock may occur if a conversion would result in the holder, and any of its affiliates beneficially owning more than 4.9% of our outstanding common shares following such conversion. This provision may be waived or amended only with the consent of the holders of all of the Series B Convertible Preferred Stock and the consent of the holders of a majority of our outstanding shares of common stock who are not affiliates, and
|
●
|
the shares of Series B Convertible Preferred Stock automatically convert into shares of our common stock in the event of change of control of the Company.
|
●
|
At December 31, 2015, there were 626,667 shares of Series B Convertible Preferred Stock outstanding.
|
Number of
|
Weighted Average
|
|||||||
Warrants
|
Exercise Price
|
|||||||
Balance at June 30, 2015
|
64,436,748 | $ | 0.07480 | |||||
Granted (due to ratchet provisions)
|
1,145,431,870 | 0.00085 | ||||||
Granted
|
3,940,110 | 0.02538 | ||||||
Exercised
|
- | - | ||||||
Forfeited
|
(78,358,742 | ) | - | |||||
Balance at December 31, 2015
|
1,135,449,986 | $ | 0.00279 |
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||
Number Outstanding at
|
Weighted Average
|
Weighted Average
|
Number Exercisable at
|
Weighted Average
|
|||||||||||
December 31, 2015
|
Remaining Life
|
Exercise Price
|
December 31, 2015
|
Exercise Price
|
|||||||||||
1,131,412,847 |
.75 Years
|
$ | 0.00085 | 1,131,412,847 | $ | 0.00085 | |||||||||
76,222 |
.9 Years
|
$ | 11.20000 | 76,222 | $ | 11.20000 | |||||||||
20,807 |
1.5 Years
|
$ | 60.00000 | 20,807 | $ | 60.00000 | |||||||||
3,940,110 |
5 Years
|
$ | 0.02538 | 3,940,110 | $ | 0.02538 | |||||||||
1,135,449,986 |
.75 Years
|
$ | 0.00279 | 1,135,449,986 | $ | 0.00279 |
Nine Months Ended June 30, 2014
|
||||
Expected volatility
|
13% - 278 | % | ||
Expected term
|
1 -3 Years
|
|||
Risk-free interest rate
|
0.01% - 0.34 | % | ||
Forfeiture rate
|
0.00 | % | ||
Expected dividend yield
|
0.00 | % |
Number of
|
Weighted Average
|
|||||||
Options
|
Exercise Price
|
|||||||
Balance at June 30, 2015
|
7,232 | $ | 33.47 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Balance at December 31, 2015
|
7,232 | $ | 33.47 |
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
Range of
Exercise Price
|
Number
Outstanding at
12/31/2015
|
Weighted Average
Remaining Life
|
Weighted Average
Exercise Price
|
Number
Outstanding at
12/31/2015
|
Weighted Average
Exercise Price
|
||||||||||||||
$ | 0.07700 | 625 |
1.70 Years
|
$ | 30.80 | 625 | $ | 30.80 | |||||||||||
$ | 0.0847 - $0.081 | 6,607 |
1.70 Years
|
$ | 33.79 | 6,607 | $ | 33.79 | |||||||||||
7,232 |
1.70 Years
|
$ | 33.53 | 7,232 | $ | 33.53 |
Note payable due October 27, 2020
|
$ | 5,000,000 | ||
Fair value of common stock issued to seller valued at quoted market price
|
223,500 | |||
$ | 5,223,500 |
Intangible Assets
|
$ | 5,223,500 | ||
$ | 5,223,500 |
● |
Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.
|
|
● |
Critical Accounting Policies.
|
|
● |
Results of Operations. An analysis of our financial results comparing the three months ended December 31, 2015 to the three months ended December 31, 2014.
|
|
● |
Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
|
|
● |
Off Balance-Sheet Arrangements.
|
|
● | Recent Accounting Pronouncements. |
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
Net Revenues
|
$ | 215,020 | $ | 223,631 | $ | 457,493 | $ | 461,520 | ||||||||
Cost of sales
|
62,058 | 212,002 | 160,356 | 455,774 | ||||||||||||
Operating Expenses
|
||||||||||||||||
Sales and marketing
|
23,236 | 41,813 | 51,310 | 77,598 | ||||||||||||
Depreciation and amortization
|
176,534 | 37,292 | 186,479 | 81,091 | ||||||||||||
Technical
|
51,563 | 75,493 | 114,552 | 191,938 | ||||||||||||
General and administrative
|
151,928 | 222,048 | 530,967 | 475,831 | ||||||||||||
Total Operating Expenses
|
403,261 | 376,646 | 883,308 | 826,458 | ||||||||||||
Loss from operations
|
(250,299 | ) | (365,017 | ) | (586,171 | ) | (820,712 | ) | ||||||||
Total other income (expense)
|
(628,723 | ) | (94,644 | ) | (763,079 | ) | 123,137 | |||||||||
Net loss
|
$ | (879,022 | ) | $ | (459,661 | ) | $ | (1,349,250 | ) | $ | (697,575 | ) |
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
Cost of sales as a percentage of revenue
|
28.9 | % | 94.8 | % | 35.1 | % | 98.8 | % | ||||||||
Gross profit margin
|
71.1 | % | 5.2 | % | 64.9 | % | 1.2 | % | ||||||||
Sales and marketing expense as a percentage of sales
|
10.8 | % | 18.7 | % | 11.2 | % | 16.8 | % | ||||||||
General and administrative expenses as a percentage of sales
|
70.7 | % | 99.3 | % | 116.1 | % | 103.1 | % | ||||||||
Total operating expenses as a percentage of sales
|
187.5 | % | 168.4 | % | 193.1 | % | 179.1 | % |
●
|
Sales and marketing expense. For the six months ended December 31, 2015, sales and marketing costs were $51,310 as compared to $77,598 for the six months ended December 31, 2014, a decrease of approximately $26,300 or approximately 34%. The decrease was due to less marketing and a decrease in sales and marketing headcount during the six months ended December 31, 2015 versus the six months ended December 31, 2014.
|
●
|
Depreciation and amortization expense. For the six months ended December 31, 2015, depreciation and amortization expense in operating expenses amounted to $186,479 as compared to $81,091 for the six months ended December 31, 2014. The increase was due to the amortization of the ChanBond intangible asstes..
|
●
|
Technical expense. For the six months ended December 31, 2015 technical costs were $114,552 as compared to $191,938 for the six months ended December 31, 2014, a decrease of approximately $77,400 or approximately 40%. The decrease was due to a decrease in headcount and related employee costs during the six months ended December 31, 2015 versus the six months ended December 31, 2014.
|
Six Months Ended December 31,
|
|||||||||
2015
|
2014
|
||||||||
Occupancy
|
$ | 78,322 | $ | 84,988 | |||||
Consulting
|
47,115 | 105,934 | |||||||
Employee compensation
|
122,408 | 133,958 | |||||||
Professional fees
|
10,578 | 41,853 | |||||||
Travel and entertainment
|
- | 21,147 | |||||||
Insurance
|
3,478 | 40,817 | |||||||
Other
|
269,066 | 47,134 | |||||||
$ | 530,967 | $ | 475,831 |
●
|
For the six months ended December 31, 2015, occupancy expense decreased approximately 8% from the six months ended December 31, 2014 due to lower utility costs offset by contractual rent increases.
|
●
|
For the six months ended December 31, 2015, consulting expense decreased approximately 55% from the six months ended December 31, 2014 due to a reduced use of consultants.
|
●
|
For the six months ended December 31, 2015 employee compensation which includes related taxes and benefits decreased approximately 8% due to reduced headcount as compared to the six months ended December 31, 2014.
|
●
|
For the six months ended December 31, 2015, professional fees decreased approximately 75% due to lower litigation and legal fees incurred in the normal course of business as compared to the six months ended December 31, 2014.
|
●
|
For the six months ended December 31, 2015, travel and entertainment decreased 100% as a result of decreased travel for general corporate purposes.
|
●
|
For the six months ended December 31, 2015, insurance expense decreased approximately 92% from the six months ended December 31, 2014 due to lack of directors and officer’s insurance coverage in the six months ended December 31, 2015.
|
●
|
For the six months ended December 31, 2015, other expense increased approximately 471% from the six months ended December 31, 2014 primarily due to an early termination fee of approximately $222,000 from our previous broadband service provider. We are currently contesting this fee.
|
●
|
Sales and marketing expense. For the three months ended December 31, 2015, sales and marketing costs were $23,236 as compared to $41,813 for the three months ended December 31, 2014, a decrease of approximately $18,600 or approximately 44%. The decrease was primarily due to lower marketing costs during the three months ended December 31, 2015 versus the three months ended December 31, 2014.
|
●
|
Depreciation and amortization expense. For the three months ended December 31, 2015, depreciation and amortization expense in operating expenses amounted to $176,534 as compared to $37,292 for the three months ended December 31, 2014. The increase was due to the amortization of the ChanBond intangible assets.
|
●
|
Technical expense. For the three months ended December 31, 2015 technical costs were $51,563 as compared to $75,493 for the three months ended December 31, 2015, a decrease of approximately $23,900 or approximately 32%. The decrease was due to a decrease in headcount during the three months ended December 31, 2015 versus the three months ended December 31, 2014.
|
Three Months Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Occupancy
|
$ | 38,021 | $ | 36,843 | ||||
Consulting
|
26,595 | 51,027 | ||||||
Employee compensation
|
60,229 | 65,495 | ||||||
Professional fees
|
10,449 | 26,475 | ||||||
Travel and entertainment
|
- | 2,754 | ||||||
Insurance
|
1,769 | 20,280 | ||||||
Other
|
14,865 | 19,174 | ||||||
$ | 151,928 | $ | 222,048 |
●
|
For the three months ended December 31, 2015, occupancy expense increased approximately 3% from the three months ended December 31, 2014 due to contractual increases offset by lower utility costs.
|
●
|
For the three months ended December 31, 2015, consulting expense decreased approximately 48% from the three months ended December 31, 2014 due to a reduced use of consultants.
|
●
|
For the three months ended December 31, 2015 employee compensation which includes related taxes and benefits decreased approximately 8% due to reduced headcount and lower stock-based compensation expense as compared to the three months ended December 31, 2014.
|
●
|
For the three months ended December 31, 2015, professional fees decreased approximately 60% due to lower litigation and legal fees incurred in the normal course of business as compared to the three months ended December 31, 2014.
|
●
|
For the three months ended December 31, 2015, travel and entertainment decreased 100% as a result of decreased travel for general corporate purposes.
|
●
|
For the three months ended December 31, 2015, insurance expense decreased approximately 91% from the three months ended December 31, 2014 due to lack of directors and officer’s insurance coverage in the three months ended December 31, 2015.
|
●
|
For the three months ended December 31, 2015, other expense decreased approximately 22% from the three months ended December 31, 2014 primarily due to lower credit card fees offset by increased repairs and maintenance expense.
|
Six Months Ended
|
||||||||
December 31,
|
||||||||
2015
|
2014
|
|||||||
Net cash used in operating activities
|
$ | (127,113 | ) | $ | (519,751 | ) | ||
Net cash used in investing activities
|
- | (10,947 | ) | |||||
Net cash provided by financing activities
|
130,760 | 485,034 | ||||||
Net increase (decrease) in cash
|
$ | 3,647 | $ | (45,664 | ) |
1.
|
The Company was named as the defendant in a legal proceeding brought by FedEx Customer Information Services, Inc. (the plaintiff) on May 28, 2010 in the Circuit Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff obtained a judgment for $16,322 plus interest and costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $19,000 as of December 31, 2015.
|
2.
|
The Company was named as the defendant in a legal proceeding brought by FedEx Customer Information Services, Inc. (the plaintiff) on September 15, 2010 in the General District Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff obtained a Consent Judgment for $12,900 in compensatory damages plus $58 in costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $18,500 as of December 31, 2015.
|
3.
|
The Company was named as the defendant in a legal proceeding brought by i-Cubed Information LLC (the plaintiff) on August 10, 2012 in the General District Court of Fairfax County, Virginia. The plaintiff asserts that the Company failed to pay for delivery of services provided by plaintiff. The plaintiff was granted a judgment by consent in the amount of $12,920. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $13,600 as of December 31, 2015.
|
4.
|
The Company was named as the defendant in a legal proceeding brought by Pelligrino and Associates (the plaintiff) on August 14, 2014 in the Marion County Superior Court, Marion County, Indiana. The plaintiff asserts that the Company failed to pay the full amount owed for services. The plaintiff is seeking $20,159 plus attorney’s fees, interest and costs. The Company is seeking an out-of-court settlement. There have been no updates on the status of this case since June 30, 2015. The Company has accrued $20,500 as of December 31, 2015.
|
Exhibit Number
|
Description
|
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
||
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
|
||
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
|
UNIFIEDONLINE, INC.
|
|||
February 16, 2016
|
By:
|
/s/ Robert M. Howe III | |
Robert M. Howe III | |||
Chairman of the Board and CEO, principal executive officer
|
|||
February 16, 2016
|
By:
|
/s/ Ellen Sondee | |
Ellen Sondee
|
|||
Chief Financial Officer, principal financial and accounting officer
|
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Feb. 15, 2016 |
|
Document And Entity Information Abstract | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Dec. 31, 2015 | |
Entity Registrant Name | UnifiedOnline, Inc. | |
Entity Central Index Key | 0001097718 | |
Current Fiscal Year End Date | --06-30 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2016 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Units Outstanding | 1,011,928,504 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Property and equipment, accumulated depreciation | $ 1,172,395 | $ 1,140,249 |
Intangible assets, net of accumulated amortization | $ 174,117 | |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 6,000,000,000 | 6,000,000,000 |
Common stock, shares issued | 966,928,504 | 912,466,204 |
Common stock, shares outstanding | 966,928,504 | 912,466,204 |
Series B convertible preferred stock | ||
Convertible preferred stock, par value | $ 0.001 | $ 0.001 |
Convertible preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Convertible preferred stock, shares issued | 626,667 | 626,667 |
Convertible preferred stock, shares outstanding | 626,667 | 626,667 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Statement [Abstract] | ||||
Sales | $ 215,020 | $ 223,631 | $ 457,493 | $ 461,520 |
Cost of sales | 62,058 | 212,002 | 160,356 | 455,774 |
Gross profit (loss) | 152,962 | 11,629 | 297,137 | 5,746 |
Operating expenses: | ||||
Sales and marketing | 23,236 | 41,813 | 51,310 | 77,598 |
Depreciation and amortization | 176,534 | 37,292 | 186,479 | 81,091 |
Technical | 51,563 | 75,493 | 114,552 | 191,938 |
General and administrative | 151,928 | 222,048 | 530,967 | 475,831 |
Total Operating Expenses | 403,261 | 376,646 | 883,308 | 826,458 |
Loss from operations | (250,299) | (365,017) | (586,171) | (820,712) |
Other income (expenses): | ||||
Gain on sale of assets | 10,000 | 3 | 10,000 | 3,628 |
Gain/(loss) from change of fair value of derivative liability | (446,666) | $ (2,687) | (444,411) | $ 406,903 |
Gain on extinguishment of debt | 46,041 | 46,041 | ||
Interest expense | (238,098) | $ (91,960) | (374,709) | $ (287,394) |
Total other income (expenses) | (628,723) | (94,644) | (763,079) | 123,137 |
Net loss | $ (879,022) | $ (459,661) | $ (1,349,250) | $ (697,575) |
Loss per common share basic and diluted | $ 0 | $ (0.07) | $ 0 | $ (0.08) |
Weighted average common shares outstanding - basic and diluted | 945,888,068 | 6,257,889 | 945,463,839 | 8,639,616 |
Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net loss | $ (879,022) | $ (459,661) | $ (1,349,250) | $ (697,575) |
Other comprehensive income/(loss), net of tax: | ||||
Unrealized gain (loss) on securities | (2) | (8) | (2) | |
Other comprehensive income/(loss) | (2) | (8) | (2) | |
Comprehensive loss | $ (879,024) | $ (459,669) | $ (1,349,252) | $ (697,575) |
1. NATURE OF BUSINESS |
6 Months Ended |
---|---|
Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF BUSINESS | On January 5, 2015, IceWEB, Inc. changed its name to UnifiedOnline, Inc.
UnifiedOnline, Inc. (the Company) began trading publicly in April 2002. During the six months ended December 31, 2015 we had three wholly owned operating subsidiaries, Computers & Telecom, Inc. and KCNAP, LLC, (collectively CTC) and IceWEB Storage Corporation (formerly known as Inline Corporation). CTC provides wireless and fiber broadband service, co-location space and related services and operates a Network Access Point (NAP) where customers directly interconnect with a network ecosystem of partners and customers. This access to Internet routes provides CTC customers improved reliability and streamlined connectivity while significantly reducing costs by reaching a critical mass of networks within a centralized physical location. In addition, through our IceWEB Storage Corporation subsidiary we deliver on-line cloud computing application services, other managed services such as Disaster Recovery, Archive Storage, Redundant File Storage, Redundant Broadband Services and Business Continuity Services.
CTC operates a wireless internet service business, providing WIMAX broadband to small and medium size businesses in the metro Kansas-City, Missouri area. In addition CTC offers the following solutions: (i) premium data center co-location, (ii) interconnection and (iii) exchange and outsourced IT infrastructure services.
We leverage our NAP which allows our customers to increase information and application delivery performance while reducing costs. Our platform enables scalable, reliable and cost-effective co-location, interconnection and traffic exchange thus lowering overall cost and increasing flexibility.
On October 27, 2015, the Company acquired 100% of the membership interest ChanBond, LLC (ChanBond) (see Note 18), a portfolio of patents that disclose a technology that allows cable companies to provide high-speed data transmission over their existing hybrid-fiber coaxial networks. ChanBond contends that virtually every cable multi-system operator (MSO) in the U.S. utilizing DOCSIS 3.0+ is infringing upon its patents, accordingly on September 21, 2015 ChanBond filed lawsuits in U.S. District Court in Delaware against the 13 largest cable MSOs in the country (See Note 18). |
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | ||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation and Interim Financial Information The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Companys audited financial statements for the year ended June 30, 2015, contained in the Companys Annual Report on Form 10-K filed with the SEC on October 13, 2015. The results of operations for the three and six months ended December 31, 2015, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending June 30, 2016.
Reclassifications Certain reclassifications have been made to previously reported amounts to conform to 2016 amounts. The reclassifications had no impact on previously reported results of operations or stockholders deficit. The changes were as a result of the reverse stock split which occurred on January 5, 2015, which was retrospectively applied, the reclass of certain depreciation related to assets used for providing service to cost of sales from operating expense, the reclass of a capital lease payable from notes payable to capital lease payable and the reclass of derivative expense from interest expense.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had net losses and net cash used in operating activities of $1,349,251 and $127,113, respectively, for the six months ended December 31, 2015. The Company also had an accumulated deficit and stockholders deficit of $56,046,142 and $5,390,637 respectively at December 31, 2015. These matters raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recovery and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event we cannot continue in existence. Additionally, the Company is currently in default on the loans to IWEB Growth Fund, and there is no guarantee that IWEB Growth Fund will not enter a judgment against the Company.
Management has established plans intended to increase the sales of our products and services. Management intends to seek new capital from new equity securities offerings to provide funds needed to increase liquidity, fund growth, and implement its business plan. However, no assurances can be given that we will be able to raise any additional funds.
Marketable Securities UnifiedOnline accounts for the purchase of marketable equity securities in accordance with FASB Accounting Standards Codification (ASC) 320, Investment Debt and Equity Securities with any unrealized gains and losses included as a net amount as a separate component of stockholders equity. However, those securities may not have the trading volume to support the stock price if the Company were to sell all their shares in the open market at once, so the Company may have a loss on the sale of marketable securities even though they record marketable equity securities at the current market value.
Cash and Cash Equivalents We consider all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the valuation of stock-based compensation, the allowance for doubtful accounts, the useful life of property and equipment, the valuation, useful life and potential impairment of intangible assets, derivative liabilities, deferred tax and valuation allowance and litigation reserves.
Accounts Receivable Accounts receivable consists of normal trade receivables. We recorded a bad debt allowance of $4,305 as of December 31, 2015. Management performs ongoing evaluations of its accounts receivable, and believes that all remaining receivables are fully collectable. Bad debt expense amounted to $16,964 and $545 for the six months ended December 31, 2015 and 2014, respectively.
Derivative Liability The Company issued warrants to purchase the Companys common stock in connection with the issuance of convertible debt, which contain certain ratchet provisions that reduce the exercise price of the warrants or the conversion price in certain circumstances. In accordance with ASC 815 the Company determined that the warrants and/or the conversion features with provisions that reduce the exercise price of the warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Companys stock.
Derivatives are required to be recorded on the balance sheet at fair value (see Note 12). These derivatives, including embedded derivatives in the Companys structured borrowings, are separately valued and accounted for on the Companys balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
Fair Value of Financial Instruments The Companys financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued liabilities and notes payable are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments.
Our derivative financial instruments, consisting of embedded conversion features in our convertible debt and ratchet provisions in our warrants, are required to be measured at fair value on a recurring basis under FASB ASC 815. As of December 31, 2015 and 2014 our derivatives are measured at fair value, using a Black-Scholes valuation model which approximates a binomial lattice valuation methodology utilizing Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (see Note 12).
Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation. Depreciation expense is recorded by using the straight-line method over the estimated useful lives of the related assets.
Product Warranties The Companys products typically carry a warranty for periods of up to three years. We have not had any significant warranty claims on our products.
Long-lived Assets In accordance with ASC Topic 360, Property, Plant, and Equipment, we review the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
Revenue Recognition We follow the guidance of ASC Topic 605, Revenue Recognition for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.
It is our practice to obtain a signed master sales agreement for recurring revenue sales, and/or a sales order for events and one-time services. Taxes collected from customers and remitted to government authorities are reported on a net basis and are excluded from revenue.
We derive the majority of our revenues from recurring revenue streams, consisting of:
Our customers generally have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. The customer would be required to pay any charge for early cancellation that their contract specifies. In the event that a customer cancels their contract, they are not entitled to a refund for services already rendered. A customer can continue service on a month-to-month basis after their contract expires.
Barter Transactions Barter activity is accounted for in accordance with ASC 845, Nonmonetary Transactions. Barter revenue relates to the exchange of wireless bandwidth and internet connectivity provided by CTC to business customers in exchange primarily for roof rights for antennae, advertising and other products and services that CTC would otherwise be required to buy for cash. Barter expenses reflect the expense offset to barter revenue. The amount of barter revenue and expense is recorded at the estimated fair value of the services received or the services provided, whichever is more objectively determinable, in the month the services are exchanged. For the six months ended December 31, 2015, the Company recorded barter revenue of $9,000 and barter expense of $0 and for the six months ended December 31, 2014, the Company recorded barter revenue of $15,428 and barter expense of $12,950. For the three months ended December 31, 2015, the Company recorded barter revenue of $4,500 and barter expense of $0 and for the three months ended December 31, 2014, the Company recorded barter revenue of $7,714 and barter expense of 12,950.
Prepaid expenses Prepaid expenses are comprised primarily of prepaid costs related to the installation of new customers, prepaid advertising costs which are expensed when used, and deferred financing costs which are amortized over the life of the related financing.
Deferred Revenue Amounts billed in advance of services being provided are recorded as deferred revenue and are recognized in the consolidated statement of operations as services are provided.
Deferred Financing Costs Debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements on a straight-line basis, which approximates the effective interest method. Unamortized amounts are included in prepaid expenses in the accompanying unaudited consolidated balance sheets.
Earnings per Share We compute earnings per share in accordance with ASC Topic 260, Earnings Per Share Under the provisions of ASC Topic 260, basic earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants (using the treasury stock method) and upon the conversion of convertible notes and preferred stock (using the if-converted method). Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. At December 31, 2015, there were options and warrants to purchase 1,135,457,218 shares of common stock, there was $122,886 of convertible debt outstanding, which, if converted on December 31, 2015 would amount to 276,237,000 shares, and 1,567 shares issuable upon conversion of Series B preferred stock outstanding which could potentially dilute future earnings per share.
Stock-Based Compensation As more fully described in Note 15, we have three stock option plans that provide for non-qualified options to be issued to directors, officers, employees and consultants (the 2012 Equity Compensation Plan, 2013 Equity Plan and the 2015 Employee Option Plan (the Plans)).
Cost of Sales Cost of sales consists primarily of the costs of providing wireless and fiber bandwidth and colocation services as well as depreciation of assets used in providing these services.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Recently Adopted and Recently Issued Accounting Standards
Various accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
3. PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | Property and equipment, net, consists of the following:
Depreciation expense for the three months ended December 31, 2015 and 2014 was $8,172 and $115,012, respectively, of which $5,755 and $77,720 was included in cost of sales for the three months ended December 31, 2015 and 2014, respectively. Depreciation expense for the six months ended December 31, 2015 and 2014 was $32,147 and $272,150, respectively, of which $19,784 and $191,058 was included in cost of sales for the three months ended December 31, 2015 and 2014, respectively. |
4. NOTES PAYABLE |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE | IWEB Growth Fund, LLC
On November 2, 2012 the Company entered into a Loan Agreement with IWEB Growth Fund, LLC, a Virginia limited liability company (IWEB Growth Fund) established by Messrs. Compton, Bush, Carosi, Pirtle and Stavish and General Soyster, our former independent directors. Under the terms of the Loan Agreement, IWEB Growth Fund agreed to make one or more loans to us up to the total principal amount of $1.5 million. The lending of any amounts under the Loan Agreement is conditioned upon the negotiation of notes and related loan documents which contain terms and conditions that are acceptable to the lender to be determined at the time of the loans. We agreed to grant IWEB Growth Fund a security interest in our assets as collateral for these loans. In the event we should default under the terms of the Loan Agreement, IWEB Growth Fund is entitled to declare all amounts advanced under the various notes immediately due and payable. An event of default includes a breach by us of any covenant, representation or warranty in the Loan Agreement or a default under any note entered into with the lender.
Between November 9, 2012 and July 11, 2013, IWEB Growth Fund lent us an aggregate of $186,000 under the terms of 9 separate Confession of Judgment Promissory Notes. In Fiscal 2015, $1,000 was paid on one of the notes. These notes, which are identical in their terms other than the dates and principal amounts, are for a one year term and bear interest at 12% per annum payable at maturity. Embodied in each of the notes is a confession of judgment which means that should we default upon the payment of the note, we have agreed to permit IWEB Growth Fund to enter a judgment against us in the appropriate court in Virginia before filing suit against us for collection of the amounts. Pursuant to the terms of the Loan Agreement, we paid IWEB Growth Funds expenses of $1,500 for the preparation of the Loan Agreement and related documents. We used the net proceeds from these initial loans for general working capital. The Company is currently in default on these loans. There is no guarantee that IWEB Growth Fund will not enter a judgment against the Company.
Forbearance Fee
In October, 2015 a forbearance agreement was reached between the Company and UO! IP of NC, LLC which forbore its enforcement of rights under the capital lease (see Note 5) due to the existing defaults and amended the payment terms of the lease. A new section was added to the lease pursuant to which the company agrees to pay an initial Forbearance Fee of $60,000 payable in full on the final payment date and a monthly Forbearance Fee equal to 1% of the principal balance of the lease, calculated on the first day each month. The Monthly Forbearance Fee will accrue monthly and become due and payable in full on the final payment date or the earlier prepayment of the entire principal and accrued interest due under the lease. The forbearance fee balance was $101,990 and $0 at December 31, 2015 and June 30, 2015, respectively.
Power Up Lending Group, LTD.
On June 16, 2015, we entered into a loan agreement with Power Up Lending Group, LTD. (Power Up) for $50,000 to fund working capital. The note is for a nine month term, with an interest rate of 35%. This loan was paid off on December 9, 2015.
On October 5, 2015, we entered into a loan agreement with Power Up for $60,000 to fund working capital. The note is for a nine month term, payable at $365 per day, with an interest rate of 35%. A portion of the proceeds from the note was used to pay off a convertible promissory note and accrued interest to Vis Vires Group, Inc. in the amount of $34,000. The Company realized a gain on extinguishment of debt of approximately $28,400 as a result of writing off the associated derivative liability. This loan was paid off on December 9, 2015.
On December 9, 2015, we entered into a loan agreement with Power Up for $135,000 to fund working capital. The note is for a nine month term, with an interest rate of 35%. A portion of the proceeds from the note was used to pay off a portion of a convertible promissory note to Vis Vires Group, Inc. in the amount of $17,500. The Company realized a gain on extinguishment of debt of approximately $17,600 as a result of writing off the associated derivative liability. A portion of the note was also used to pay off the loans made on June 16, 2015 and October 5, 2015 to Power Up.
The balance due to Power Up was $124,286 and $48,315 at December 31, 2015 and June 30, 2015, respectively.
Deirdre Leane
On October 27, 2015, the Company entered into $5,000,000 no interest Promissory Note with the Deirdre Leane to purchase ChanBond, LLC (ChanBond) (see Note18). The Promissory Note is due and payable on or prior to October 27, 2020. If the Promissory Note is not paid in full by the Maturity Date, the aggregate principal amount shall be increased by Twenty Five Thousand Dollars ($25,000) for each month such payment is delayed (or pro rata portion thereof) until paid in full. Until the Note is paid in full, the Company shall be obligated to make payments on this Promissory Note to the Seller from 100% of any Net Revenues, derived from the monetization of the ChanBond patent portfolio, within thirty (30) calendar days after each calendar month commencing with the calendar month ending October 31, 2015. The balance due to Deirdre Leane was $5,000,000 and $0 at December 31, 2015 and June 30, 2015 respectively.
Other Notes Payable
As part of the acquisition of CTC, the Company acquired two debt obligations one with Blue Ridge Bank and one for rent payable on an old building which was converted into a loan. The balance due to Blue Ridge Bank was $46,035 and $56,996 at December 31, 2015 and June 30, 2015, respectively. The balance due for the rent payable converted into a loan was $38,427 and $37,499 at December 31, 2015 and June 30, 2015, respectively.
A summary of our Notes Payable is as follows:
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5. CAPITAL LEASE PAYABLE |
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CAPITAL LEASE PAYABLE | Agility Ventures, LLC and UO! IP of NC, LLC
On October 1, 2013, in conjunction with the acquisition of CTC, we entered into an equipment lease agreement with Agility Ventures, LLC in the principal amount of $1,678,531 which is secured by all of the assets of the Company. The lease agreement has a term of 36 months and bears interest at 15% per annum. We also issued Agility Ventures 2,500 shares of the Companys restricted common stock, and a Series T common stock warrant covering a total of 9,187 shares with a term of two years and a conversion price of $22.00 per share which expired December 31, 2015. The Company has the option to purchase the equipment at the end of the term.
On February 27, 2014, Agility Ventures LLC sold and assigned the Master Lease and Equipment Schedule to a third party, UO! IP of NC, LLC. UO! IP of NC, LLC is a related party to the Companys majority shareholder, Unified Online! LLC. The agreement changed the interest rate to 3.75% on the outstanding principal balance of the lease at February 27, 2014. UO! IP of NC, LLC assigned the lease back to UOIP as part of the subscription agreement at the same terms.
The Company applied the 10% cash flow test pursuant to Topic ASC 470-50-40-10 "Debt Modification and Extinguishment" to calculate the difference between the present value of the new loan's cash flows and the present value of the old loan's remaining cash flow and concluded that the results exceeded the 10% factor, the debt modification is considered substantially different and applied extinguishment accounting. Accordingly, the gain or loss on extinguishment should be measured by the difference between the carrying amount of the old debt and the fair value of the new debt. Additionally, Topic ASC 470-50-40-17 states if the exchange or modification is to be accounted for in the same manner as a debt extinguishment and the new debt instrument is initially recorded at fair value, then the fees paid or received shall be associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. The fair value of the new debt was determined to be $1,983,164 and the carrying amount of the old debt of principal and accrued interest totaling $1,717,853 resulted in a total loss on the extinguishment of debt of $265,311 at June 30, 2014.
The underlying assets and related depreciation were included in the appropriate fixed asset category, and related depreciation account. Capitalized equipment under lease agreements totaled approximately $1.9 million prior to the CTC acquisition of which $666,782 was recorded at fair value at the time of acquisition. $0 remains net of accumulated depreciation as of December 31, 2015 and $16,176 remains net of accumulated depreciation as of June 30, 2015. The lease term of each capital equipment lease is 36 months.
In October, 2015 a forbearance agreement was reached between the Company and UO! IP of NC, LLC which forbore its enforcement of rights due to the existing defaults under the lease and amended the payment terms of the lease. The payment terms were amended to (i) require a payment equal to the greater of $1 million and 20% of gross proceeds received by the Company as the result of any funding transaction within five business days of receipt of funds by the Company; (ii) require payments of principal and interest equal to 20% of the gross proceeds received by the Company from the sale or license of any or all of the ChanBond intellectual property within five business days of receipt of funds by the Company; (iii) require a payment of principal and interest equal to 100% of the net proceeds received by the Company from the sale of all or substantially all of the equipment, the leases and the other business assets of the Company; (iv) extend the final payment date to October 31, 2017 at which time the then outstanding principal balance, together with all accrued but unpaid interest on the unpaid balance, shall be due and payable in full. The payments described above shall in no case exceed the amount of the remaining balance due. The accrued interest balance was $39,366 and $0 at December 31, 2015 and June 30, 2015, respectively. Additionally, a new section was added to the lease pursuant to which the Company agrees to pay an initial Forbearance Fee of $60,000 payable in full on the final payment date and a monthly Forbearance Fee (see Note 4).
Future minimum payments required under capital leases at June 30, 2015 are as follows:
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6. OTHER CURRENT ASSETS |
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Other Assets [Abstract] | |
OTHER CURRENT ASSETS | Other current assets totaled $6,125 and $10,208 at December 31, 2015 and June 30, 2015, respectively. The balance at December 31, 2015 and June 30, 2015 consists primarily of deferred loan fees related to the capitalized lease obligation to Agility Ventures, LLC. |
7. CONCENTRATIONS |
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Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONCENTRATIONS | Bank Balances
The Company maintains cash in bank deposit accounts which do not exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (FDIC). At December 31, 2015, the Companys cash balances were fully insured. In 2010 the FDIC insurance coverage limit was increased to $250,000 per depositor, per institution as a result of the Dodd-Frank Wall Street and Consumer Protection Act. The Company has not experienced any losses in such accounts.
Major Customers
Sales to three customers for the three and six months ended December 31, 2015 represented 32% and 25% of total sales and sales to three customers represented 14% and 19% of total sales for the three and six months ended December 31, 2014.
As of December 31, 2015 and June 30, 2015, respectively, approximately 53% and 74% of our accounts receivable was due from three customers.
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8. INVESTMENTS |
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Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENTS | (a) Summary of Investments
Marketable Equity Securities:
As of December 31, 2015 and June 30, 2015, the Companys investments in marketable equity securities are based on the December 31, 2015 and June 30, 2015 stock price as reflected on the OTCBB stock, respectively. These marketable equity securities are summarized as follows:
The unrealized gains are presented in comprehensive income in the unaudited consolidated statements of comprehensive loss.
(b) Unrealized Gains and Losses on Investments
The following table summarizes the unrealized net gains (losses) associated with the Companys investments:
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9. FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS | The Company follows ASC 820, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The Company did not adopt the ASC 820 fair value framework for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements at least annually. ASC 820 clarifies that fair value is an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Investments Measured at Fair Value on a Recurring Basis:
Under the guidance of ASC 320, Investments, we periodically evaluate other-than-temporary impairment (OTTI) of securities to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term other-than-temporary is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding impairment charge to earnings is recognized. In the assessment of OTTI for various securities at December 31, 2015 the guidance in ASC 320, the Investment-Debt and Equity Securities, is carefully followed.
There were no impairment charges on investments in publicly traded equity securities for the three or six months ended December 31, 2015 or the three or six months ended December 31, 2014.
The Company has evaluated its publicly traded equity securities as of December 31, 2015, and has determined that there were no unrealized losses that indicate an other-than-temporary impairment. This determination was based on several factors, which include the length of time and extent to which fair value has been less than the cost basis and the financial condition and near-term prospects of the issuer, and the Companys intent and ability to hold the publicly traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. |
10. COMPREHENSIVE LOSS |
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Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | |
COMPREHENSIVE LOSS | Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that under accounting principles generally accepted in the United States are included in comprehensive loss but excluded from net loss as these amounts are recorded directly as an adjustment to stockholders equity.
The Companys accumulated other comprehensive loss consists of unrealized loss on marketable securities available for sale of $81,000 at December 31, 2015 and $80,998 at June 30, 2015. |
11. CONVERTIBLE NOTES |
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Convertible Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONVERTIBLE NOTES | As of December 31, 2015 and June 30, 2015 the Company had the following convertible notes outstanding:
During December 2015, the holder of the Convertible Note exercised their conversion rights and converted $5,400 of the outstanding principal, at the contractual terms per the note agreement.
During July 2015, the holder of the Convertible Note exercised their conversion rights and converted $3,235 of the outstanding principal, at the contractual terms per the note agreement.
During October, 2015, the note and accrued interest in the amount of $34,000 was paid off. The Company realized a gain on extinguishment of debt of approximately $28,400 as a result of writing off the associated derivative liability.
During November 2015, the holder of the Convertible Note exercised their conversion rights and converted $3,000 of the outstanding principal, at the contractual terms per the note agreement.
See also Note 19.
During December, 2015, a portion of the note in the amount of $17,500 was paid off. The Company realized a gain on extinguishment of debt of approximately $17,600 as a result of writing off a portion of the associated derivative liability. |
12. DERIVATIVE LIABILITIES |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE LIABILITIES | Derivative liability - warrants
The Company has warrants issued in connection with our convertible notes payable outstanding with price protection provisions that allow for the reduction in the exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price lower than the exercise price of the warrants. Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of ` shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. The Company accounted for its warrants with price protection in accordance with FASB ASC Topic 815.
Accounting for Derivative Warrant Liability
The Companys derivative warrant instruments have been measured at fair value at December 31, 2015 using the Black-Scholes model. The Company recognizes all of its warrants with price protection in its consolidated balance sheet as liabilities. The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations. The initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Companys cash flows.
The derivative warrants outstanding at December 31, 2015 are all currently exercisable with a weighted-average remaining life of .75 years.
Derivative liability convertible notes
From December, 2013 through May, 2015 the Company issued convertible notes in the total principal amount of $210,000. Upon the issuance of these convertible notes and as a consequence of their conversion features, the convertible notes give rise to derivative liabilities. The Companys derivative liabilities related to its convertible notes payable have been measured at fair value at December 31, 2015 and June 30, 2015 using the Black-Scholes model.
The revaluation of the warrants and convertible debt at each reporting period, as well as the charges associated with issuing additional warrants due to the price protection features, resulted in the recognition of loss of $446,666 and $444,411 for the three and six months ended December 31, 2015 and the recognition of loss of $2,687 and the recognition of income of $406,903 for the three and six months ended December 31, 2014 within the Companys consolidated statements of operations, under the caption Gain from change of fair value of derivative liability. The fair value of the warrants at December 31, 2015 and June 30, 2015 is $621,906 and $83,766, respectively, which is reported on the consolidated balance sheet under the caption Derivative liability - warrants. The fair value of the derivative liability related to the convertible debt at December 31, 2015 and June 30, 2015 is $188,700 and $346,734, respectively, which is reported on the consolidated balance sheet under the caption Derivative liability embedded conversion option.
The following summarizes the changes in the value of the derivative warrant liability and the derivative embedded conversion option from June 30, 2015 until December 31, 2015:
Fair Value Assumptions Used in Accounting for Derivative Liability
The Company has determined its derivative liability to be a Level 3 fair value measurement and has used the Black-Scholes pricing model to calculate the fair value as of December 31, 2015. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. The key inputs used in the December 31, 2015 fair value calculations were as follows:
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13. COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | The Company leases office space in Kansas City, Missouri. We currently have real estate leases at two locations, totaling 6,875 square feet. These operating leases are standard commercial leases.
As of December 31, 2015, future minimum lease payments under these operating leases are as follows:
Rent expense was $24,364 and $22,324 for the three months ended December 31, 2015 and 2014 and $47,853 and $44,426 for the six months ended December 31, 2015 and 2014.
At December 31, 2015 the Company is the subject of, or party to, four known, pending or threatened, legal actions. Following is a discussion of each:
At December 31, 2015 the Company is the party to 13 pending lawsuits. On September 21, 2015, ChanBond filed lawsuits in U.S. District Court in Delaware against the 13 largest cable MSOs in the country. The civil cases were brought against (1) WaveDivision Holdings, LLC., (2) Comcast Corporation et al, (3) Charter Communications, Inc., (4) WideOpen West Finance, LLC., (5) Cequel Communications, LLC., (6) RCN Telecom Services ,LLC., (7) Cox Communications, Inc.et al, (8) Time Warner Cable Inc. et al, (9) Mediacom Communications Corporation, (10) Bright House Networks, LLC., (11) Cablevision Systems Corporation et al, (12) Cable One, Inc., (13) Atlantic Broadband Group, LLC. All cases are still pending. Additionally, on November 20, 2015 RPX Corporation filed a Petition for Inter Parties Review (IPR) with the United States Patent and Trademark Office before the Patent Trial and Appeal Board, seeking review of ChanBond Patent No. 7,941,822. The IPR petition is also still pending.
Inter Parties Review (IPR) with the United States Patent and Trademark Office before the Patent Trial and Appeal Board, seeking review of ChanBond Patent No. 7,941,822. The IPR petition is also still pending.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. |
14. STOCKHOLDERS' DEFICIT |
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Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' DEFICIT | Common Stock
On January 5, 2015, the board of directors and majority stockholder of our company approved a Certificate of Amendment to our Certificate of Incorporation to:
Accordingly, we have adjusted all issued and outstanding warrants and employee stock options to reflect the reverse stock split. Additionally, we have retroactively adjusted all share and per share data for all periods presented.
Six months ended December 31, 2015 Transactions
In July, 2015, the Company issued 431,333 shares of common stock, at the original conversion terms, at a per share price of $0.0075 valued at $3,235 as a partial conversion of principal due under a convertible note.
In November 2015, the Company issued 44,700,000 shares of common stock as part of the acquisition of ChanBond.
In December, 2015, the Company issued 1,000,000 shares of common stock, at the original conversion terms, at a per share price of $.0.0030 valued at $3,000 as a partial conversion of principal due under a convertible note.
In December, 2015, the Company issued 6,390,533 shares of common stock, at the original conversion terms, at a per share price of $0.000845 valued at $5,400 as a partial conversion of principal due under a convertible note.
In December, 2015, the Company issued 1,970,055 shares of common stock valued at $50,000 to an accredited investor as an investment in the Company. The shares were valued at the amount of cash received by the Company.
Preferred Stock
Our authorized capital includes 10,000,000 shares of blank check preferred stock, par value $0.001 per share. Our Board of Directors, without further stockholder approval, may issue our preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. In March 2005, our Board of Directors authorized a series of 1,666,667 shares of blank check preferred stock be designated as Series A Convertible Preferred Stock and on April 1, 2005 we filed a Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the Secretary of State of Delaware. In September 2005, our Board of Directors authorized a series of 833,334 shares of blank check preferred stock be designated as Series B Convertible Preferred Stock and on September 28, 2005, we filed a Certificate of Designations of Preferences, Rights and Limitations of Series B Preferred with the Secretary of State of Delaware. On December 29, 2005, we filed an Amended and Restated Certificate of Designations of Preferences, Rights and Limitations of Series B Convertible Preferred Stock increasing the number of shares authorized under this series to 1,833,334 shares.
A) Series B Convertible Preferred Stock
The designations, rights and preferences of the Series B Convertible Preferred Stock provide:
Common Stock Warrants
The Company has issued and outstanding Series N warrants for 1,131,412,847 common shares, as adjusted, with a current exercise price of $0.00085, as adjusted, which have price protection provisions that allow for the reduction in the current exercise price upon the occurrence of certain events, including the Companys issuance of common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the exercise price then in effect. Simultaneously with any reduction to the exercise price of the Series N warrants, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. The Series N warrants expire September 30, 2016.
The Companys issuance of the following securities will not trigger the price protection provisions of the warrants described above: (a) shares of common stock or standard options to the Companys directors, officers, employees or consultants pursuant to a board-approved equity compensation program or other contract or arrangement; (b) shares of common stock issued upon the conversion or exercise of any security, right or other instrument convertible or exchangeable into common stock (or securities exchangeable into common stock) issued prior to November 23, 2011; and (c) shares of common stock and warrants in connection with strategic alliances, acquisitions, mergers, and strategic partnerships, the primary purpose of which is not to raise capital, and which are approved in good faith by the Companys board of directors.
The Company has issued and outstanding Series O and Series Q warrants for 76,222 common shares, as adjusted, with a current exercise price of $11.20, as adjusted, expiring November 23, 2016.
The Company has issued and outstanding Series R warrants for 37,004 common shares, as adjusted, with a current exercise price of $60.00, as adjusted, expiring June 30, 2017.
In conjunction with our acquisition of Computers & Telecom, Inc. and subsidiary in October, 2013, we issued a warrant to Agility Ventures, LLC covering a total of 9,187 common shares, as adjusted, with a term of two years and a conversion price of $22.00 per share, as adjusted which expired September 30, 2015.
In conjunction with an investment from Golden Bear Fund, LLC. in December, 2015, we issued a warrant covering a total of 3,940,110 common shares, with a term of five years and a conversion price of $0.02538, expiring December 30, 2020.
A summary of the status of the Companys outstanding common stock warrants as of December 31, 2015 and changes during the six month period ending on that date is as follows:
The ratchet provision was triggered by the issuance of shares at a lesser price, as a result of conversion of convertible debt.
The following table summarizes information about common stock warrants outstanding at December 31, 2015:
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15. STOCK OPTION PLAN |
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STOCK OPTION PLAN | On April 8, 2015 the Board of Directors of UnifiedOnline, Inc. adopted the UnifiedOnline, Inc. 2015 Employee Option Plan (the "Plan"). The purpose of the Plan is to enable our company to attract and retain employees and consultants and provide them with the long-term financial incentives to enhance our performance. The Plan authorizes the grant of (i) options which qualify as incentive stock options under Section 422(b) of the Internal Revenue Code of 1986, as amended, (ii) non-qualified options which do not qualify as incentive stock options, (iii) awards of our common stock (iv) and rights to make direct purchases of our common stock which may be subject to certain restrictions. The maximum number of shares which can be issued over the term of the Plan is 1,800,000 shares.
In August 2012, the Board of Directors adopted the 2012 Equity Compensation Plan (the Plan) for directors, officers and employees that provides for non-qualified and incentive stock options to be issued enabling holders thereof to purchase common shares of the Company at exercise prices determined by the Companys Board of Directors.
The purpose of the Plan is to advance the Companys interests and those of its stockholders by providing a means of attracting and retaining key employees, directors and consultants. In order to serve this purpose, the Company believes the Plan encourages and enables key employees, directors and consultants to participate in its future prosperity and growth by providing them with incentives and compensation based on its performance, development and financial success. Participants in the Plan may include the Companys officers, directors, other key employees and consultants who have responsibilities affecting our management, development or financial success.
Awards may be made under the Plan in the form of Plan options, shares of the Companys common stock subject to a vesting schedule based upon certain performance objectives (Performance Shares) and shares subject to a vesting schedule based on the recipients continued employment (restricted shares). Plan options may either be options qualifying as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended or options that do not so qualify. Any incentive stock option granted under the Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of such grant, but the exercise price of any incentive option granted to an eligible employee owning more than 10% of our common stock must be at least 110% of such fair market value as determined on the date of the grant. Only persons who are officers or other key employees are eligible to receive incentive stock options and performance share grants. Any non-qualified stock option granted under the Plan must provide for an exercise price of not less than 50% of the fair market value of the underlying shares on the date of such grant.
The Plan, as amended permits the grant of options and shares for up to 105,000,000 shares of our common stock. The Plan terminates 10 years from the date of the Plans adoption by our stockholders.
The term of each Plan option and the manner in which it may be exercised is determined by the Board of Directors, provided that no Plan option may be exercisable more than three years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Companys common stock, no more than five years after the date of the grant. The exercise price of the stock options may be paid in either cash, or delivery of unrestricted shares of common stock having a fair market value on the date of delivery equal to the exercise price, or surrender of shares of common stock subject to the stock option which has a fair market value equal to the total exercise price at the time of exercise, or a combination of the foregoing methods.
The fair value of stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:
The expected volatility was determined with reference to the historical volatility of the Companys stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.
For the three and six months ended December 31, 2015 and 2014, total stock-based compensation charged to operations for option-based arrangements amounted to $8,328 and $8,328 and $12,415 and $24,830, respectively. At December 31, 2015, there was no unrecognized compensation expense related to non-vested option-based compensation arrangements under the Plan.
A summary of the status of the Companys outstanding stock options as of December 31, 2015 and changes during the period ending on that date is as follows:
The following table summarizes information about employee stock options outstanding at December 31, 2015:
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16. RELATED PARTY TRANSACTIONS |
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Dec. 31, 2015 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | On April 23, 2014, we entered into a Subscription Agreement with UnifiedOnline! LLC (the Subscriber), a Delaware limited liability company, pursuant to which the Subscriber purchased 400,000 shares of Series AA Preferred Stock which were converted on January 5, 2015 to 903,825,954 shares of common stock becoming a majority shareholder in the Company. UO! IP of NC, LLC is a related party to Unified Online! LLC. In consideration for the Shares, Subscriber paid $116,087 to various vendors and obtained the agreement of a certain related party lessor to temporarily forbear exercising non-payment default remedies. Since entering into the Subscription Agreement, the Subscriber has advanced approximately $1.1 million bearing interest at 10% per annum to fund general working capital. The balance due was $1,095,255 and $1,029,005 at December 31, 2015 and June 30, 2015, respectively, and is reflected as note payable, related party in the balance sheet.
Agility Ventures, LLC and UO!IP of NC, LLC
On February 27, 2014, Agility Ventures LLC sold and assigned the Master Lease and Equipment Schedule to a third party, UO! IP of NC, LLC (see Note 5). UO! IP of NC, LLC has advanced the payments made on this lease to the Company at a rate of 10% per annum. The balance due to UO! IP of NC, LLC was $635,000 at December 31, 2015 and June 30, 2015, respectively, and is reflected as loan payable, related party in the balance sheet. |
17. SEGMENT REPORTING |
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Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract] | |
SEGMENT REPORTING | Although the Company has a number of operating divisions, separate segment data has not been presented as they meet the criteria for aggregation as permitted by ASC Topic 280, Segment Reporting (formerly Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About Segments of an Enterprise and Related Information).
Our chief operating decision-maker is considered to be our Chief Executive Officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the CEO is identical to the information presented in the accompanying consolidated statements of operations. Therefore, the Company has determined that it operates in a single operating segment, specifically, web communications services. For the three months ended December 31, 2015 and 2014 all material assets and revenues of the Company were in the United States. |
18. ACQUISITION |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||
ACQUISITION | On October 27, 2015, the Company entered into a purchase agreement with Deirdre Leane and ChanBond, LLC, pursuant to which the Company purchased Chanbond, in exchange for $5,000,000 payable on or before October 27, 2020 (see Note 4) and a shares payment of forty-four million, seven hundred thousand (44,700,000) shares of the Companys common stock. William R. Carter, Jr. (a related party to the Company) was appointed as sole manager who shall have sole and exclusive authority over the business of ChanBond. ChanBond consists of a portfolio of patents that disclose a technology that allows cable companies to provide high-speed data transmission over their existing hybrid-fiber coaxial networks.
The purchase of ChanBond included the acquisition of intangibles currently valued at $5,223,500. The initial accounting for the business combination of ChanBond with the Company is not complete as the Company is working on obtaining valuation reports to support amounts. Additionally, as noted in Note 15, the Company may record possible contingent assets due to lawsuits to which ChanBond is a plaintiff.
The aggregate purchase price consisted of the following:
The following table summarizes the estimated fair values of ChanBonds assets acquired at the date of the acquisition:
There are no material revenue or expenses of ChanBond, hence the required disclosures of the pro forma combined entity are not necessary. |
19. SUBSEQUENT EVENTS |
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Dec. 31, 2015 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | In January, 2016 the Company issued 5,000,000 shares of common stock upon the conversion of $3,000 outstanding principal, at the contractual terms per the note agreement.
In February, 2016 the Company issued 15,000,000 shares of common stock upon the conversion of $2,700 outstanding principal, at the contractual terms per the note agreement.
In February, 2016 the Company issued 25,000,000 shares of common stock upon the conversion of $4,500 outstanding principal, at the contractual terms per the note agreement. |
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policy) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||
Principles of Consolidation | The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Companys audited financial statements for the year ended June 30, 2015, contained in the Companys Annual Report on Form 10-K filed with the SEC on October 13, 2015. The results of operations for the three and six months ended December 31, 2015, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending June 30, 2016. |
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Reclassifications | Certain reclassifications have been made to previously reported amounts to conform to 2016 amounts. The reclassifications had no impact on previously reported results of operations or stockholders deficit. The changes were as a result of the reverse stock split which occurred on January 5, 2015, which was retrospectively applied, the reclass of certain depreciation related to assets used for providing service to cost of sales from operating expense, the reclass of a capital lease payable from notes payable to capital lease payable and the reclass of derivative expense from interest expense. |
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Going Concern | The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had net losses and net cash used in operating activities of $1,349,251 and $127,113, respectively, for the six months ended December 31, 2015. The Company also had an accumulated deficit and stockholders deficit of $56,046,142 and $5,390,637 respectively at December 31, 2015. These matters raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recovery and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event we cannot continue in existence. Additionally, the Company is currently in default on the loans to IWEB Growth Fund, and there is no guarantee that IWEB Growth Fund will not enter a judgment against the Company.
Management has established plans intended to increase the sales of our products and services. Management intends to seek new capital from new equity securities offerings to provide funds needed to increase liquidity, fund growth, and implement its business plan. However, no assurances can be given that we will be able to raise any additional funds. |
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Marketable Securities | UnifiedOnline accounts for the purchase of marketable equity securities in accordance with FASB Accounting Standards Codification (ASC) 320, Investment Debt and Equity Securities with any unrealized gains and losses included as a net amount as a separate component of stockholders equity. However, those securities may not have the trading volume to support the stock price if the Company were to sell all their shares in the open market at once, so the Company may have a loss on the sale of marketable securities even though they record marketable equity securities at the current market value. |
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Cash and Cash Equivalents | We consider all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. |
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Use of Estimates | The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the valuation of stock-based compensation, the allowance for doubtful accounts, the useful life of property and equipment, the valuation, useful life and potential impairment of intangible assets, derivative liabilities, deferred tax and valuation allowance and litigation reserves. |
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Accounts Receivable | Accounts receivable consists of normal trade receivables. We recorded a bad debt allowance of $4,305 as of December 31, 2015. Management performs ongoing evaluations of its accounts receivable, and believes that all remaining receivables are fully collectable. Bad debt expense amounted to $16,964 and $545 for the six months ended December 31, 2015 and 2014, respectively. |
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Derivative Liability | The Company issued warrants to purchase the Companys common stock in connection with the issuance of convertible debt, which contain certain ratchet provisions that reduce the exercise price of the warrants or the conversion price in certain circumstances. In accordance with ASC 815 the Company determined that the warrants and/or the conversion features with provisions that reduce the exercise price of the warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Companys stock.
Derivatives are required to be recorded on the balance sheet at fair value (see Note 12). These derivatives, including embedded derivatives in the Companys structured borrowings, are separately valued and accounted for on the Companys balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates. |
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Fair Value Measurements | Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort. |
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Fair Value of Financial Instruments | The Companys financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued liabilities and notes payable are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments.
Our derivative financial instruments, consisting of embedded conversion features in our convertible debt and ratchet provisions in our warrants, are required to be measured at fair value on a recurring basis under FASB ASC 815. As of December 31, 2015 and 2014 our derivatives are measured at fair value, using a Black-Scholes valuation model which approximates a binomial lattice valuation methodology utilizing Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (see Note 12). |
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Property and Equipment | Property and equipment is stated at cost, net of accumulated depreciation. Depreciation expense is recorded by using the straight-line method over the estimated useful lives of the related assets. |
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Product Warranties | The Companys products typically carry a warranty for periods of up to three years. We have not had any significant warranty claims on our products. |
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Long-lived Assets | In accordance with ASC Topic 360, Property, Plant, and Equipment, we review the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value. |
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Revenue Recognition | We follow the guidance of ASC Topic 605, Revenue Recognition for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.
It is our practice to obtain a signed master sales agreement for recurring revenue sales, and/or a sales order for events and one-time services. Taxes collected from customers and remitted to government authorities are reported on a net basis and are excluded from revenue.
We derive the majority of our revenues from recurring revenue streams, consisting of:
Our customers generally have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. The customer would be required to pay any charge for early cancellation that their contract specifies. In the event that a customer cancels their contract, they are not entitled to a refund for services already rendered. A customer can continue service on a month-to-month basis after their contract expires. |
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Barter Transactions | Barter activity is accounted for in accordance with ASC 845, Nonmonetary Transactions. Barter revenue relates to the exchange of wireless bandwidth and internet connectivity provided by CTC to business customers in exchange primarily for roof rights for antennae, advertising and other products and services that CTC would otherwise be required to buy for cash. Barter expenses reflect the expense offset to barter revenue. The amount of barter revenue and expense is recorded at the estimated fair value of the services received or the services provided, whichever is more objectively determinable, in the month the services are exchanged. For the six months ended December 31, 2015, the Company recorded barter revenue of $9,000 and barter expense of $0 and for the six months ended December 31, 2014, the Company recorded barter revenue of $15,428 and barter expense of $12,950. For the three months ended December 31, 2015, the Company recorded barter revenue of $4,500 and barter expense of $0 and for the three months ended December 31, 2014, the Company recorded barter revenue of $7,714 and barter expense of 12,950. |
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Prepaid expenses | Prepaid expenses are comprised primarily of prepaid costs related to the installation of new customers, prepaid advertising costs which are expensed when used, and deferred financing costs which are amortized over the life of the related financing. |
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Deferred Revenue | Amounts billed in advance of services being provided are recorded as deferred revenue and are recognized in the consolidated statement of operations as services are provided. |
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Deferred Financing Costs | Debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements on a straight-line basis, which approximates the effective interest method. Unamortized amounts are included in prepaid expenses in the accompanying unaudited consolidated balance sheets. |
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Earnings per Share | We compute earnings per share in accordance with ASC Topic 260, Earnings Per Share Under the provisions of ASC Topic 260, basic earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants (using the treasury stock method) and upon the conversion of convertible notes and preferred stock (using the if-converted method). Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. At December 31, 2015, there were options and warrants to purchase 1,135,457,218 shares of common stock, there was $122,886 of convertible debt outstanding, which, if converted on December 31, 2015 would amount to 276,237,000 shares, and 1,567 shares issuable upon conversion of Series B preferred stock outstanding which could potentially dilute future earnings per share. |
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Stock-Based Compensation | As more fully described in Note 15, we have three stock option plans that provide for non-qualified options to be issued to directors, officers, employees and consultants (the 2012 Equity Compensation Plan, 2013 Equity Plan and the 2015 Employee Option Plan (the Plans)). |
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Cost of Sales | Cost of sales consists primarily of the costs of providing wireless and fiber bandwidth and colocation services as well as depreciation of assets used in providing these services. |
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Recently Adopted Accounting Pronouncements | Recently Adopted and Recently Issued Accounting Standards
Various accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
3. PROPERTY AND EQUIPMENT (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment Assets Held-for-sale Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment | Property and equipment, net, consists of the following:
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4. NOTES PAYABLE (Tables) |
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Notes Payable Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of notes payable | A summary of our Notes Payable is as follows:
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5. CAPITAL LEASE PAYABLE (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Future minimum payments required under capital leases | Future minimum payments required under capital leases at June 30, 2015 are as follows:
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7. CONCENTRATIONS (Tables) |
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Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Major Customers | Sales to three customers for the three and six months ended December 31, 2015 represented 32% and 25% of total sales and sales to three customers represented 14% and 19% of total sales for the three and six months ended December 31, 2014.
As of December 31, 2015 and June 30, 2015, respectively, approximately 53% and 74% of our accounts receivable was due from three customers.
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8. INVESTMENTS (Tables) |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Marketable Equity Securities | These marketable equity securities are summarized as follows:
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Schedule of Unrealized Net Gains (Losses) | The following table summarizes the unrealized net gains (losses) associated with the Companys investments:
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9. FAIR VALUE MEASUREMENTS (Tables) |
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Investments Measured at Fair Value on a Recurring Basis | Investments Measured at Fair Value on a Recurring Basis:
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11. CONVERTIBLE NOTES (Tables) |
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Convertible Notes | As of December 31, 2015 and June 30, 2015 the Company had the following convertible notes outstanding:
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12. DERIVATIVE LIABILITIES (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Value of Derivative Warrant Liability | The following summarizes the changes in the value of the derivative warrant liability and the derivative embedded conversion option from June 30, 2015 until December 31, 2015:
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Schedule of Fair Value of Warrant Liability Using Black-Scholes Model | The key inputs used in the December 31, 2015 fair value calculations were as follows:
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13. COMMITMENTS AND CONTINGENCIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
Schedule of Future Minimum Payments | As of December 31, 2015, future minimum lease payments under these operating leases are as follows:
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14. STOCKHOLDERS' DEFICIT (Tables) |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Outstanding Common Stock Warrants | A summary of the status of the Companys outstanding common stock warrants as of December 31, 2015 and changes during the six month period ending on that date is as follows:
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Summary of information about common stock warrants | The following table summarizes information about common stock warrants outstanding at December 31, 2015:
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15. STOCK OPTION PLAN (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value of Stock Options Using Black-Scholes Model | The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:
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Schedule of Changes in Outstanding Stock Options | A summary of the status of the Companys outstanding stock options as of December 31, 2015 and changes during the period ending on that date is as follows:
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Summary of information about employee stock options outstanding | The following table summarizes information about employee stock options outstanding at December 31, 2015:
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18. ACQUISITION (Tables) |
6 Months Ended | |||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||
Schedule of Purchase Price | The aggregate purchase price consisted of the following:
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Schedule of Assets Acquired and Liabilities Assumed | The following table summarizes the estimated fair values of ChanBonds assets acquired at the date of the acquisition:
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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Jun. 30, 2015 |
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
Net loss for the year | $ 879,022 | $ 459,661 | $ 1,349,250 | $ 697,575 | |
Net cash used in operating activities | 127,113 | 519,751 | |||
Accumulated deficit | 56,046,142 | 56,046,142 | $ 54,696,891 | ||
Stockholders deficit | 5,930,637 | 5,930,637 | $ 4,893,111 | ||
Bad debt allowance | 4,305 | 4,305 | |||
Bad debt expense | 16,964 | 545 | |||
Barter revenue | 4,500 | 7,714 | 9,000 | 15,428 | |
Barter expense | $ 0 | $ 12,950 | $ 0 | $ 12,950 |
4. NOTES PAYABLE (Details) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Notes Payable Current | $ 5,495,738 | $ 327,810 |
IWEB Growth Fund [Member] | ||
Notes Payable Current | 185,000 | $ 185,000 |
Forbearance Fee [Member] | ||
Notes Payable Current | 101,990 | |
Power Up Lending Group, LTD. [Member] | ||
Notes Payable Current | 124,286 | $ 48,315 |
Deirdre Leane [Member] | ||
Notes Payable Current | 5,000,000 | |
Other Notes Payable [Member] | ||
Notes Payable Current | $ 84,462 | $ 94,495 |
5. CAPITAL LEASE PAYABLE (Details) |
Dec. 31, 2015
USD ($)
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Capital Lease Payable Details | |
2016 | $ 1,170,000 |
2017 | 273,356 |
Total future payments | 1,443,356 |
Less: amount representing interest | 43,688 |
Present value of future minimum payments | 1,399,668 |
Less: current portion | $ 1,399,668 |
Long-term portion |
6. OTHER CURRENT ASSETS (Details) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Other Assets [Abstract] | ||
Other current assets | $ 6,125 | $ 10,208 |
8. INVESTMENTS (Schedule of Marketable Equity Securities) (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Dec. 31, 2015 |
Jun. 30, 2015 |
|
Schedule of Available-for-sale Securities [Line Items] | ||
Cost | $ 81,000 | $ 81,000 |
Gross Unrealized Gains | ||
Gross Unrealized Losses | $ (81,000) | $ (80,998) |
Fair Value | 2 | |
Publicly traded equity securities [Member] | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Cost | $ 81,000 | $ 81,000 |
Gross Unrealized Gains | ||
Gross Unrealized Losses | $ (81,000) | $ (80,998) |
Fair Value | $ 2 |
8. INVESTMENTS (Schedule of Unrealized Net Gains (Losses)) (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Unrealized Gains and Losses on Investments | ||||
Net gains/(loss) on investments | $ (2) | $ (8) | $ (2) | |
Publicly traded equity securities [Member] | ||||
Unrealized Gains and Losses on Investments | ||||
Net gains/(loss) on investments | $ (2) | $ (8) | $ (2) |
10. COMPREHENSIVE LOSS (Details) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | ||
Accumulated other comprehensive loss | $ 81,000 | $ 80,998 |
11. CONVERTIBLE NOTES (Schedule of Convertible Notes) (Details) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Debt Instrument [Line Items] | ||
Convertible notes payable | $ 147,865 | $ 210,000 |
Less: Debt Discount | (24,979) | (94,368) |
Convertible notes payable, net of discount | 122,886 | 115,632 |
Note One [Member] | Convertible Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Convertible notes payable | 54,600 | 60,000 |
Note Two [Member] | Convertible Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Convertible notes payable | $ 50,265 | 53,500 |
Note Three [Member] | Convertible Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Convertible notes payable | 33,000 | |
Note Four [Member] | Convertible Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Convertible notes payable | $ 27,500 | 30,500 |
Note Five [Member] | Convertible Notes Payable [Member] | ||
Debt Instrument [Line Items] | ||
Convertible notes payable | $ 15,500 | $ 33,000 |
12. DERIVATIVE LIABILITIES (Schedule of Fair Value of Warrant Liability Using Black-Scholes Model) (Details) - Warrant [Member] |
6 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Current exercise price | $ 0.00085 |
Time to expiration | 9 months |
Risk-free interest rate | 1.06% |
Estimated volatility | 775.59% |
Dividend | $ | $ 0 |
Stock price on December 31, 2015 | $ 0.00110 |
Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected forfeiture rate | 0.00% |
Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected forfeiture rate | 99.00% |
12. DERIVATIVE LIABILITIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Jun. 30, 2015 |
|
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||
Recognition of income (loss) | $ 446,666 | $ (2,687) | $ 444,411 | $ 406,903 | |
Fair value of the warrants | $ 621,906 | $ 621,906 | $ 83,766 |
13. COMMITMENTS AND CONTINGENCIES (Schedule of Future Minimum Payments) (Details) |
Dec. 31, 2015
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2016 | $ 24,588 |
2017 | $ 15,385 |
2018 | |
Total | $ 39,973 |
13. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Commitments and Contingencies Disclosure [Abstract] | ||||
Rent expense | $ 24,364 | $ 22,324 | $ 47,853 | $ 44,426 |
14. STOCKHOLDERS' DEFICIT (Schedule of Changes in Outstanding Common Stock Warrants) (Details) - Warrant [Member] |
6 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Number of Warrants | |
Balance at June 30, 2015 | shares | 64,436,748 |
Granted (due to ratchet provisions) | shares | 1,145,431,870 |
Granted | shares | 3,940,110 |
Exercised | shares | |
Forfeited | shares | (78,358,742) |
Balance at December 31, 2015 | shares | 1,135,449,986 |
Weighted Average Exercise Price | |
Balance at June 30, 2015 | $ / shares | $ 0.07480 |
Granted (due to ratchet provisions) | $ / shares | 0.00085 |
Granted | $ / shares | $ 0.02538 |
Exercised | $ / shares | |
Forfeited | $ / shares | |
Balance at December 31, 2015 | $ / shares | $ 0.00279 |
15. STOCK OPTION PLAN (Schedule of Fair Value of Stock Options Using Black-Scholes Model (Details) |
9 Months Ended |
---|---|
Jun. 30, 2014 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected volatility, minimum | 13.00% |
Expected volatility, maximum | 278.00% |
Forfeiture rate | 0.00% |
Expected dividend yield | 0.00% |
Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected term | 1 year |
Risk-free interest rate | 0.01% |
Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected term | 3 years |
Risk-free interest rate | 0.34% |
15. STOCK OPTION PLAN (Schedule of Changes in Outstanding Stock Options) (Details) - Stock Option [Member] |
6 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Number of Options | |
Balance at June 30, 2015 | shares | 7,232 |
Granted | shares | |
Exercised | shares | |
Forfeited | shares | |
Balance at December 31, 2015 | shares | 7,232 |
Weighted Average Exercise Price | |
Balance at June 30, 2015 | $ / shares | $ 33.47 |
Granted | $ / shares | |
Exercised | $ / shares | |
Forfeited | $ / shares | |
Balance at December 31, 2015 | $ / shares | $ 33.47 |
15. STOCK OPTION PLAN (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Stock Option Plan Details Narrative | ||||
Stock-based compensation charged to operations for option-based arrangements | $ 8,328 | $ 12,415 | $ 8,328 | $ 24,830 |
Unrecognized compensation expense | $ 0 | $ 0 |
16. RELATED PARTY TRANSACTIONS (Details) - USD ($) |
Dec. 31, 2015 |
Jun. 30, 2015 |
---|---|---|
Related Party Transactions [Abstract] | ||
Note payable, related party | $ 1,095,255 | $ 1,029,005 |
18. ACQUISITION (Details) - ChanBond, LLC Acquisition |
6 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Note payable due October 27, 2020 | $ 5,000,000 |
Fair value of common stock issued to seller valued at quoted market price | 223,500 |
Total purchase price | $ 5,223,500 |
18. ACQUISITION (Details 1) |
Oct. 27, 2015
USD ($)
|
---|---|
Acquisition Details 1 | |
Intangible Assets | $ 5,223,500 |
Net assets acquired | $ 5,223,500 |
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