UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 12, 2015
Date of Report (Date of earliest event reported)
KSIX MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 000-52522 | 98-0550352 | ||
(State
or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS
Employer Identification No.) |
10624
S. Eastern Ave., Suite A-910 Henderson, NV |
89052 | |
(Address of principal executive offices) | (Zip Code) |
(702) 701-8030
Registrant’s telephone number, including area code
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
SECTION 1 – REGISTRANT’S BUSINESS AND OPERATIONS
Item 1.01 Entry into a Material Definitive Agreement
On or about October 12, 2015, KSIX Media Holdings, Inc., a Nevada corporation (the “Company”), executed and entered into an “Agreement for the Exchange of Common Stock” (the “Agreement”) with DigitizeIQ, LLC (“DIQ”) an Illinois Limited Liability Company, and Christopher Burd, the sole owner of 100% of DIQ’s issued and outstanding membership interests (the “Seller”) who is a resident of the State of Illinois. Upon the closing of this Agreement, DIQ became a wholly-owned subsidiary of the Company. DIQ’s primary business operation is a full service digital advertising agency specializing in lead generation and landing page optimization specifically designed for mass tort class action lawsuits.
Pursuant to the Agreement, the Company purchased 100% of the membership interests in DIQ for $1,250,000 USD (the “Purchase Price”) to be paid by the Company (e.g. cash, common stock, and promissory notes) to the Seller or his assigns (“Seller”) as follows:
(1) | upon execution of the Agreement, KSIX shall pay: (a) $250,000 USD; and (b) 1,250,000 shares of restricted Common Stock of the Company, valued at $0.20 per share, or $250,000 USD in the aggregate; | |
Note: (a) On or about October 6, 2015, pursuant to a fully executed letter of intent, the Company caused to be paid to the Seller through an attorney escrow a non-refundable deposit in the amount of $25,000 USD which was applied to the Purchase Price upon closing. (b) On or about October 19, 2015 the Company paid the Seller $225,000 USD to complete the initial payment price listed under item 1 above. (c) On or about October 29, 2015, the Seller returned $150,000 USD of the initial payment price under item #1 above to the Company pursuant to a negotiated reduction in the purchase price of DIQ. | ||
(2) | the issuance by the Company of a non-interest bearing Promissory Note made payable to the Seller or his assigns in the amount of $250,000 USD which shall due on or before November 12, 2015; | |
Note: The Company caused to be paid to the Seller $250,000 USD on February 26, 2016 to retire the Promissory Note in full that is described under Item #2 above. | ||
(3) | the issuance by the Company of a non-interest bearing Promissory Note made payable to the Seller or his assigns in the amount of $250,000 USD which shall due on or before January 12, 2016; and | |
(4) | the issuance by the Company of a non-interest bearing Promissory Note made payable to the Seller or his assigns in the amount of $250,000 USD which shall due March 12, 2016. | |
Note: As of the date of this filing, the Company owes the Seller a total of $500,000 USD towards the purchase price of DIQ which is represented by the Promissory Notes listed in Items #3 and Item #4 above. |
Pursuant to the terms and conditions of the above described Promissory Notes, the Company with proper notice to the Seller shall have a thirty (30) day period of grace to cure any default resulting from the failure to pay the Seller or his assigns by the due date of each Promissory Note listed above.
SECTION 3 – SECURITIES AND TRADING MATTERS
Item 3.02 – Unregistered Sale of Equity Securities
On or about October 12, 2015, pursuant to the Agreement described herein, the Company was to issue 1,250,000 shares of restricted Common Stock of the Company to Christopher Burd or his assigns as part of the Purchase Price, which was valued at $0.20 per share, or $250,000 USD in the aggregate (the “DIQ Stock”). On or about December 8 2015, the Company casued to be issued a stock certificate evidencing the DIQ Stock to Christopher Burd’s assign, Global Media Holdings, Inc., an Illinois corporation. This issuance was exempt from the registration provisions of Section 5 of the Securities Act under Section 4(2) of such same said act.
As stated, the shares of unregistered common stock described above were issued in reliance upon an exemption from registration afforded under Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering, or Rule 506(b) of Regulation D promulgated under such same said section. In particular, our Company confirmed that with respect to the exemption claimed under Regulation D, Rule 506(b) and Section 4(2) of the Securities Act of1933, that:
i. The purchaser referred to above gave written assurance of investment intent without a view for resale and certificates for shares sold to each purchaser shall bear a restrictive resale legend consistent with such investment intent and restricting transfer;
ii. Sales were made to a limited number of persons and no general solicitation to the public was made in connection with such sales;
iii. The purchaser represented in writing that he had sufficient sophistication to evaluate the investment and could afford to lose their entire investment without adversely affecting their lifestyle;
iv. Neither our company nor any person acting on our behalf offered or sold shares by means of any form of general solicitation or general advertising;
v. The purchaser represented in writing that they acquired the shares for his own account; and
vi. The Purchaser has been placed on notice that the securities purchased are restricted, and as such, will need to be sold in compliance with the safe harbor provisions of Rule 144 of the Act, and may not be transferred otherwise.
Upon close of the above listed sales of unregistered common stock of the Company, the Company will have 36,130,432 shares of Common Stock issued and outstanding held by approximately fifty-two (52) shareholders of record.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
Exhibit 99.1 – Audited financial statements of DigitizeIQ, LLC as of December 31, 2014 and for the period from inception (July 23, 2014) through December 31, 2014. **
Exhibit 99.2 – Unaudited financial statements of DigitizeIQ, LLC as of September 30, 2015 and for the three and nine months then ended. **
(b) Pro forma Financial Information.
Exhibit 99.3 – Pro forma balance sheet as of September 30, 2015 for KSIX Media Holdings, Inc. (“KSIX”) and DigitizeIQ, LLC (“DIQ”); pro forma consolidated statements of operations for the year ended December 31, 2014 includes the pro forma consolidated operations of KSIX included in the KSIX Media Holdings, Inc. Form 8-K/A filed on December 11, 2015 and DIQ for the period from inception (July 23, 2014) through December 31, 2014. The pro forma consolidated statement of operations for the nine months ended September 30, 2015 includes the operations of KSIX for the nine months ended September 30, 2015 as reported in its Form 10-Q for that period and the operations of DIQ for the nine months ended September 30, 2015. **
(c) Shell Company Transaction.
Not applicable.
(d) Exhibits.
2.01 - “Agreement for the Exchange of Common Stock” between KSIX Media Holdings, Inc. and Digitize, LLC dated October 9, 2015.*
23.1 - Consent of Paritz & Company, PA. **
*Previously filed
**Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NORTH AMERICAN ENERGY RESOURCES, INC. | ||
DATE: March 11, 2016 | By: | /s/ Carter Matzinger |
Name: | Carter Matzinger | |
Title: | President and Chief Executive Officer |
Consent of Independent Registered Public Accounting Firm
To the Board of Directors
Ksix Media Holdings, Inc.
We consent to the incorporation by reference in the Form 8-K/A of Ksix Media Holdings, Inc. as to our report dated March 10, 2016, with respect to the balance sheet of DigitizeIQ, LLC as of December 31, 2014 and the related statements of operations, member’s deficiency and cash flows for the period from inception (July 23, 2014) to December 31, 2014.
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|
Hackensack, New Jersey | |
March 11, 2016 |
EXHIBIT 99.1
Financial statements of DigitizeIQ, LLC
As of December 31, 2014 and for the period from inception (July 23, 2014) through December 31, 2014.
DIGITIZEIQ, LLC
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS’ REPORT
DECEMBER 31, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Member
DigitizeIQ, LLC
We have audited the accompanying balance sheet of DigitizeIQ, LLC (the “Company”) as of December 31, 2014 and the related statements of operations, member’s deficiency, and cash flows for the period from inception (July 23, 2014) to December 31, 2014. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014, and the results of its operations and its cash flows for the period from inception (July 23, 2014) to December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Paritz & Company, P.A. | |
Paritz & Company, P.A. | |
Hackensack, New Jersey | |
March 10, 2016 |
DIGITIZEIQ, LLC
Balance Sheet
December 31, 2014
ASSETS | ||||
Current assets: | ||||
Cash | $ | 73,205 | ||
Accounts receivable | 57,800 | |||
Prepaid Expenses | 1,896 | |||
Total current assets and total assets | $ | 132,901 | ||
LIABILITIES AND MEMBER’S DEFICIENCY | ||||
Current liabilities: | ||||
Accounts payable | $ | 33,433 | ||
Credit card payable | 37,403 | |||
Deferred revenue | 105,100 | |||
Total current liabilities and total liabilities | 175,936 | |||
Commitments and contingencies | ||||
Member’s Deficiency | (43,035 | ) | ||
Total liabilities and member’s deficiency | $ | 132,901 |
See accompanying notes to financial statements
DIGITIZEIQ, LLC
Statement of Operations
From Inception (July 23, 2014) through December 31, 2014
Revenue | $ | 876,699 | ||
Cost of revenue | 706,153 | |||
Gross profit | 170,546 | |||
Costs and expenses | ||||
Selling, general and administrative | 288,581 | |||
Total costs and expenses | 288,581 | |||
Net loss | $ | (118,035 | ) |
See accompanying notes to financial statements.
DIGITIZEIQ, LLC
Statement of Member’s Deficiency
From Inception (July 23, 2014) through December 31, 2014
Balance - July 23, 2014, inception | $ | - | ||
Member’s contribution | 75,000 | |||
Net loss | (118,035 | ) | ||
Balance - December 31, 2014 | $ | (43,035 | ) |
See accompanying notes to financial statements.
DIGITIZEIQ, LLC
Statement of Cash Flows
From Inception (July 23, 2014) through December 31, 2014
Operating activities | ||||
Net loss | $ | (118,035 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Changes in operating assets and liabilities: | ||||
Accounts receivable | (57,800 | ) | ||
Prepaid Expenses | (1,896 | ) | ||
Accounts payable and accrued expenses | 33,433 | |||
Credit card payable | 37,403 | |||
Deferred revenue | 105,100 | |||
Net cash used in operating activities | (1,795 | ) | ||
Financing activities | ||||
Member contribution | 75,000 | |||
Net cash provided by financing activities | 75,000 | |||
Net increase in cash and cash equivalents | 73,205 | |||
Cash, beginning of period | - | |||
Cash, end of period | $ | 73,205 |
See accompanying notes to financial statements
DIGITIZEIQ, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014
1 | ORGANIZATION |
Business description
DIGITIZEIQ, LLC, is an Illinois limited liability company that was formed on July 23, 2014, and whose primary business operation is a full service digital advertising agency specializing in lead generation and landing page optimization specifically designed for mass tort class action lawsuits.
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAP”).
Uses of estimates in the presentation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Cash
The Company maintains cash balances at various financial institutions, certain of which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s accounts at the insured institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in either the insured or uninsured accounts.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are generally due upon receipt. The Company has a policy of reserving for uncollectible accounts based on their best estimate of the amount of profitable credit losses in its existing accounts receivable. The Company extends credit to its customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential bad debts if required.
The Company determines whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, the Company uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.
Direct write-offs are taken in the period when the Company has exhausted their efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that the Company should abandon such efforts. The Company has determined that an allowance for doubtful accounts is not required at December 31, 2014.
Deferred revenue
The Company generally requires prepayment of the initial contract amount in advance of services being performed. As such, the advance payment is deferred as a current liability until the Company delivers the leads contracted. At that time revenue is recognized and the deferred revenue liability is reduced.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with high credit quality financial institutions which at times may be in excess of the FDIC limit. The Company performs ongoing credit evaluations of its customers’ financial condition and, as a consequence, believes that its trade accounts receivable credit risk is limited.
Income taxes
The Company is a limited liability company and any income or loss is passed through to the tax returns of the member. As such, no provision for income taxes is required.
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standard Codification (ASC) 605-10 (previously Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition).
DIQ generally requires prepayment of the initial contract amount, which will result in deferred revenue until DIQ delivers the leads contracted for. Receivables will arise when DIQ, through agreement with its customer will deliver more leads than originally contracted for.
The Company generally requires prepayment of the initial contract amount in advance of services being performed. As such, the advance payment is deferred as a current liability until the Company delivers the leads contracted. At that time revenue is recognized and the deferred revenue liability is reduced.
Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company’s revenues are derived from lead generation on a cost per lead (CPL) and flat-fee basis.
● | Before commencement of services, DIQ executes a service agreement with the client and generally commences lead generation when payment is received. Revenue from customers on a CPL basis is recognized in the period the leads are delivered and accepted by the client. | |
● | Revenue from flat-fee services is based on a service provided for a specific length of time rather than a delivery of leads and is recognized over the period of time the service is provided. |
Fair value measurements
The Company adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, prepaid expenses, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of observable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets and liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that re unobservable (for example cash flow modeling inputs based on assumptions)
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.
3 | DEFERRED REVENUE |
Deferred revenue at December 31, 2014 amounted to $105,100. Contracts with customers generally are for a thirty day period and the related deferred revenue will be recognized as the leads are generated.
4 | CREDIT CARD LIABILITY |
The Company maintains an arrangement with its bank whereby it utilizes credit cards to pay the majority of its obligations. The bank charges no interest on the outstanding credit card balance, which is required to be repaid at the end of each billing cycle. In the event the payment is not made timely, the bank charges a fee equal to 2% of the outstanding balance. The Company’s credit limit is approximately $500,000.
5 | CONCENTRATIONS |
The Company had a limited number of customers at December 31, 2014. The following summarizes our activity with our three principal customers.
A | B | C | Other | Total | ||||||||||||||||
Revenue | $ | 382,220 | $ | 228,410 | $ | 200,800 | $ | 65,269 | $ | 876,699 | ||||||||||
43.6 | % | 26.1 | % | 22.9 | % | 7.4 | % | 100.0 | % | |||||||||||
Accounts receivable | $ | - | $ | - | $ | 57,800 | $ | - | $ | 57,800 | ||||||||||
Deferred revenue | $ | - | $ | 105,100 | $ | - | $ | - | $ | 105,100 |
6 | SUBSEQUENT EVENTS |
The Company has evaluated events occurring subsequent to December 31, 2014 through March 8, 2016, the date that these financial statements were available to be issued.
Effective October 12, 2015, KSIX Media Holdings, Inc., a Nevada corporation (“KSIX”), executed and entered into an Agreement for the Exchange of Common Stock (the “Agreement”) with DIQ and its sole owner. Upon the execution of this Agreement, DIQ became a wholly-owned subsidiary of KSIX.
EXHIBIT 99.2
Financial statements of DigitizeIQ, LLC
Unaudited
As of September 30, 2015 and for the three and nine months ended September 30, 2015.
DIGITIZEIQ, LLC
Balance Sheet
September 30, 2015
(Unaudited)
ASSETS | ||||
Current assets: | ||||
Cash | $ | 140,927 | ||
Total current assets and total assets | $ | 140,927 | ||
LIABILITIES AND MEMBER’S DEFICIENCY | ||||
Current liabilities: | ||||
Accounts payable | $ | 2,506 | ||
Credit card payable | 86,360 | |||
Deferred revenue | 317,670 | |||
Total current liabilities and total liabilities | 406,536 | |||
Commitments and contingencies | ||||
Member’s Deficiency | (265,609 | ) | ||
Total liabilities and member’s deficiency | $ | 140,927 |
See accompanying notes to financial statements
DIGITIZEIQ, LLC
Statement of Operations
For the three and nine months ended September 30, 2015 and from inception (July 23, 2014) through September 30, 2014
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Revenue | $ | 768,465 | $ | 7,630 | $ | 3,675,005 | $ | 7,630 | ||||||||
Cost of revenue | 712,048 | 15,681 | 2,878,907 | 15,681 | ||||||||||||
Gross profit (loss) | 56,417 | (8,051 | ) | 796,098 | (8,051 | ) | ||||||||||
Costs and expenses | ||||||||||||||||
Selling, general and administrative | 279,499 | 38,903 | 997,172 | 38,903 | ||||||||||||
Total costs and expenses | 279,499 | 38,903 | 997,172 | 38,903 | ||||||||||||
Net loss | $ | (223,082 | ) | $ | (46,954 | ) | $ | (201,074 | ) | $ | (46,954 | ) |
See accompanying notes to financial statements
DIGITIZEIQ, LLC
Statement of Member’s Deficiency
From inception (July 23, 2014) through September 30, 2015
(Unaudited)
Balance - July 23, 2014, inception | $ | - | ||
Member’s contribution | 75,000 | |||
Net loss | (118,035 | ) | ||
Balance - December 31, 2014 | (43,035 | ) | ||
Distribution | (21,500 | ) | ||
Net loss | (201,074 | ) | ||
Balance - September 30, 2015 | $ | (265,609 | ) |
See accompanying notes to financial statements.
DIGITIZEIQ, LLC
Statement of Cash Flows
For the nine months ended September 30, 2015 and from inception (July 23, 2014) through September 30, 2014
(Unaudited)
2015 | 2014 | |||||||
Operating activities | ||||||||
Net loss | $ | (201,074 | ) | $ | (46,954 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 57,800 | - | ||||||
Loan to employee | 1,896 | - | ||||||
Accounts payable and accrued expenses | (30,927 | ) | - | |||||
Credit card payable | 48,957 | 2,191 | ||||||
Deferred revenue | 212,570 | - | ||||||
Net cash provided by (used in) operating activities | 89,222 | (44,763 | ) | |||||
Financing activities | ||||||||
Member contribution | - | 75,000 | ||||||
Distributions to member | (21,500 | ) | ||||||
Net cash provided by financing activities | (21,500 | ) | 75,000 | |||||
Net increase in cash and cash equivalents | 67,722 | 30,237 | ||||||
Cash, beginning of period | 73,205 | - | ||||||
Cash, end of period | $ | 140,927 | $ | 30,237 |
See accompanying notes to financial statements
DIGITIZEIQ, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(Unaudited)
1 | ORGANIZATION |
Basis of presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Business description
DIGITIZEIQ, LLC, is an Illinois limited liability company that was formed on July 23, 2014, and whose primary business operation is a full service digital advertising agency specializing in lead generation and landing page optimization specifically designed for mass tort class action lawsuits.
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Uses of estimates in the presentation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Cash
The Company maintains cash balances at various financial institutions, certain of which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s accounts at the insured institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in either the insured or uninsured accounts.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are generally due upon receipt. The Company has a policy of reserving for uncollectible accounts based on their best estimate of the amount of profitable credit losses in its existing accounts receivable. The Company extends credit to its customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential bad debts if required.
The Company determines whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, the Company uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.
Direct write-offs are taken in the period when the Company has exhausted their efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that the Company should abandon such efforts. The Company has determined that an allowance for doubtful accounts is not required at September 30, 2015.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with high credit quality financial institutions which at times may be in excess of the FDIC limit. The Company performs ongoing credit evaluations of its customers’ financial condition and, as a consequence, believes that its trade accounts receivable credit risk is limited.
Deferred revenue
The Company generally requires prepayment of the initial contract amount in advance of services being performed. As such, the advance payment is deferred as a current liability until the Company delivers the leads contracted. At that time revenue is recognized and the deferred revenue liability is reduced.
Income taxes
The Company is a limited liability company and any income or loss is passed through to the tax returns of the member. As such, no provision for income taxes is required.
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standard Codification (ASC) 605-10 (previously Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition).
DIQ generally requires prepayment of the initial contract amount, which will result in deferred revenue until DIQ delivers the leads contracted for. Receivables will arise when DIQ, through agreement with its customer will deliver more leads than originally contracted for.
Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company’s revenues are derived from lead generation on a cost per lead (CPL) and flat-fee basis.
● | Before commencement of services, DIQ executes a service agreement with the client and generally commences lead generation when payment is received. Revenue from customers on a CPL basis is recognized in the period the leads are delivered and accepted by the client. | |
● | Revenue from flat-fee services is based on a service provided for a specific length of time rather than a delivery of leads and is recognized over the period of time the service is provided. |
Fair value measurements
The Company adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, prepaid expenses, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of observable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets and liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that re unobservable (for example cash flow modeling inputs based on assumptions)
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.
3 | DEFERRED REVENUE |
Contracts with customers generally are for a thirty day period and the related deferred revenue will be recognized as the leads are generated. Deferred revenue amounted to $317,670 at September 30, 2015 and at December 31, 2014 amounted to $105,100.
4 | CREDIT CARD LIABILITY |
The Company maintains an arrangement with its bank whereby it utilizes credit cards to pay the majority of its obligations. The bank charges no interest on the outstanding credit card balance, which is required to be repaid at the end of each billing cycle. In the event the payment is not made timely, the bank charges a fee equal to 2% of the outstanding balance. The Company’s credit limit is approximately $500,000.
5 | SUBSEQUENT EVENTS |
The Company has evaluated events occurring subsequent to September 30, 2015 through March 8, 2016, the date that these financial statements were available to be issued.
Effective October 12, 2015, KSIX Media Holdings, Inc., a Nevada corporation (“KSIX”), executed and entered into an Agreement for the Exchange of Common Stock (the “Agreement”) with DIQ and its sole owner. Upon the execution of this Agreement, DIQ became a wholly-owned subsidiary of KSIX.
EXHIBIT 99.3
Pro forma financial statements of DigitizeIQ, LLC
Pro forma balance sheet as of September 30, 2015 for KSIX Media Holdings, Inc. (“KSIX”) and DigitizeIQ, LLC (“DIQ”); pro forma consolidated statements of operations for the year ended December 31, 2014 includes the pro forma consolidated operations of KSIX included in the KSIX Media Holdings, Inc. Form 8-K/A filed on December 11, 2015 and DIQ for the period from inception (July 23, 2014) through December 31, 2014. The pro forma consolidated statement of operations for the nine months ended September 30, 2015 includes the operations of KSIX for the nine months ended September 30, 2015 as reported in its Form 10-Q for that period and the operations of DIQ for the nine months ended September 30, 2015.
KSIX MEDIA HOLDINGS, INC.
PRO FORMA STATEMENTS
The pro forma financial statements include the consolidated financial statements of KSIX Media Holdings, Inc. (“Holdings”) and the financial statements of DIGITIZEIQ, LLC. (“DIQ”).
The pro forma consolidated balance sheet includes Holdings and DIQ at September 30, 2015. The proforma consolidated statement of operations for the year ended December 31, 2014 includes the proforma operations of Holdings included in the KSIX Media Holdings, Inc. Form 8-K/A filed on December 11, 2015 and DIQ for the period of inception (July 23, 2014) through December 31, 2014. The pro forma consolidated statement of operations for the nine months ended September 30, 2015 includes the operations of Holdings for the nine months ended September 30, 2015 as reported in its Form 10-Q and the operations of DIQ for the nine months ended September 30, 2015.
As described previously, pursuant to an Agreement for Exchange of Common Stock, Holdings paid cash at closing of $250,000, issued notes payable in the amount of $750,000 and issued 1,250,000 shares of its common stock to the shareholder of DIQ, and acquired 100% of DIQ on October 12, 2015.
KSIX MEDIA HOLDINGS, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2015
KSIX
Media Holdings, Inc. and Subsidiaries | DIGITALIQ,
LLC | Adjustments | Proforma | |||||||||||||
ASSETS: | ||||||||||||||||
Cash and cash equivalents | 136,072 | 140,927 | (a) | (100,000 | ) | 176,999 | ||||||||||
Accounts receivable | 257,803 | 257,803 | ||||||||||||||
Other current assets | 23,342 | - | 23,342 | |||||||||||||
Total current assets | 417,217 | 140,927 | (100,000 | ) | 458,144 | |||||||||||
Property and equipment, net of accumulated depreciation | 7,229 | 7,229 | ||||||||||||||
Investment in DIQ | (a) | 1,325,000 | - | |||||||||||||
(b) | (1,325,000 | ) | ||||||||||||||
Intangible assets | 849,021 | (a) | 1,590,609 | 2,041,978 | ||||||||||||
- | - | (c) | (397,652 | ) | - | |||||||||||
Total assets | 1,273,467 | 140,927 | 1,092,957 | 2,507,351 | ||||||||||||
LIABILITIES AND STOCKHOLDER’S EQUITY: | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | 155,730 | 88,866 | 244,596 | |||||||||||||
Advance from related party | 170,942 | 170,942 | ||||||||||||||
Deferred revenue | 317,670 | 317,670 | ||||||||||||||
Notes payable and current portion of long-term debt | 372,121 | (a) | 750,000 | 1,122,121 | ||||||||||||
Total current liabilities | 698,793 | 406,536 | 750,000 | 1,855,329 | ||||||||||||
Long-term debt, less current installments | 721,327 | 721,327 | ||||||||||||||
Total liabilities | 1,420,120 | 406,536 | 750,000 | 2,576,656 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock | - | - | - | |||||||||||||
Common stock | 34,880 | - | (a) | 1,250 | 36,130 | |||||||||||
Member units | (265,609 | )(a) | 1,590,609 | - | ||||||||||||
(b) | (1,325,000 | ) | ||||||||||||||
Additional paid in capital | 311,179 | - | (a) | 473,750 | 784,929 | |||||||||||
- | ||||||||||||||||
Retained earnings (deficit) | (492,712 | ) | - | (c) | (397,652 | ) | (890,364 | ) | ||||||||
- | ||||||||||||||||
(146,653 | ) | (265,609 | ) | 342,957 | (69,305 | ) | ||||||||||
1,273,467 | 140,927 | 1,092,957 | 2,507,351 |
(a) | Common stock and notes payable issued to acquire DIQ on October 12, 2015, with stock price of $0.38 on October 12, 2015; $150,000 credit in reduction in purchase price. |
(b) | Eliminate investment in DIQ. |
(c) | Amortization of intangible assets. |
KSIX MEDIA HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014 AND NINE MONTHS ENDED SEPTEMBER 30, 2015
KSIX Media Holdings, Inc. and Subsidiaries | DIGITIZEIQ, LLC | Adjustments | Proforma | |||||||||||||||||
Year ended December 31, 2014 | ||||||||||||||||||||
Revenues | $ | 2,676,194 | $ | 876,699 | $ | - | $ | 3,552,893 | ||||||||||||
Cost of revenue | 1,679,214 | 706,153 | - | 2,385,367 | ||||||||||||||||
Gross profit | 996,980 | 170,546 | - | - | 1,167,526 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Depreciation and amortization | 382,532 | - | (c) | 530,203 | 912,735 | |||||||||||||||
Selling, general and administrative expense | 1,070,262 | 288,581 | 1,358,843 | |||||||||||||||||
Total costs and expenses | 1,452,794 | 288,581 | - | 530,203 | 2,271,578 | |||||||||||||||
Operating income (loss) | (455,814 | ) | (118,035 | ) | - | (530,203 | ) | (1,104,052 | ) | |||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (12,056 | ) | (12,056 | ) | ||||||||||||||||
Interest expense - related party | - | - | ||||||||||||||||||
Gain on merger | 63,248 | 63,248 | ||||||||||||||||||
Interest expense forgiven | 14,138 | 14,138 | ||||||||||||||||||
Total income (expense) | 65,330 | - | - | - | 65,330 | |||||||||||||||
Net income (loss) | $ | (390,484 | ) | $ | (118,035 | ) | $ | - | $ | (530,203 | ) | $ | (1,038,722 | ) | ||||||
Nine months ended September 30, 2015 | ||||||||||||||||||||
Revenues | $ | 1,874,872 | $ | 3,675,005 | $ | - | $ | 5,549,877 | ||||||||||||
Cost of revenue | 1,181,236 | 2,878,907 | - | 4,060,143 | ||||||||||||||||
Gross profit | 693,636 | 796,098 | - | - | 1,489,734 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Depreciation and amortization | 286,917 | - | - | (c) | 397,652 | 684,569 | ||||||||||||||
Selling, general and administrative expense | 801,563 | 997,172 | - | 1,798,735 | ||||||||||||||||
Total costs and expenses | 1,088,480 | 997,172 | - | 397,652 | 2,483,304 | |||||||||||||||
Operating income (loss) | (394,844 | ) | (201,074 | ) | - | (397,652 | ) | (993,570 | ) | |||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (6,143 | ) | - | - | - | (6,143 | ) | |||||||||||||
Other | (22 | ) | - | - | (22 | ) | ||||||||||||||
Total income (expense) | (6,165 | ) | - | - | - | (6,165 | ) | |||||||||||||
Net income (loss) | $ | (401,009 | ) | $ | (201,074 | ) | $ | - | $ | (397,652 | ) | $ | (999,735 | ) |
(c) | Amortization of intangible assets. |