Item
1 - Financial Statements
PLAYERS
NETWORK
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,326
|
|
|
$
|
145,119
|
|
Other current assets
|
|
|
77,839
|
|
|
|
85,150
|
|
Total current assets
|
|
|
89,165
|
|
|
|
230,269
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
33,678
|
|
|
|
29,128
|
|
Construction in progress
|
|
|
334,115
|
|
|
|
239,220
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
456,958
|
|
|
$
|
498,617
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
306,266
|
|
|
$
|
298,861
|
|
Accrued expenses
|
|
|
320,226
|
|
|
|
293,418
|
|
Deferred rent obligations
|
|
|
20,552
|
|
|
|
15,656
|
|
Settlements payable
|
|
|
40,000
|
|
|
|
70,000
|
|
Convertible debentures, net of discounts of $225,821 and $241,634 at March 31, 2017 and
December 31, 2016, respectively
|
|
|
74,179
|
|
|
|
58,366
|
|
Short term debt, net of discounts of $-0- and $60 at March 31, 2017 and December 31, 2016,
respectively
|
|
|
143,000
|
|
|
|
142,940
|
|
Derivative liabilities
|
|
|
622,599
|
|
|
|
482,674
|
|
Total current liabilities
|
|
|
1,526,822
|
|
|
|
1,361,915
|
|
|
|
|
|
|
|
|
|
|
Long term debt, net of discounts of $771,106 and $885,271 at March 31,
2017 and December 31, 2016, respectively
|
|
|
153,894
|
|
|
|
39,729
|
|
Total Liabilities
|
|
|
1,680,716
|
|
|
|
1,401,644
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ (Deficit):
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par value, 2,000,000 shares
authorized; 2,000,000 shares issued and outstanding
|
|
|
2,000
|
|
|
|
2,000
|
|
Series C convertible preferred stock, $0.001 par value, 12,000,000 shares
authorized; 12,000,000 shares issued and outstanding
|
|
|
12,000
|
|
|
|
12,000
|
|
Common stock, $0.001 par value, 1,200,000,000 shares authorized; 547,394,239
and 524,394,239 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
547,394
|
|
|
|
524,394
|
|
Additional paid-in capital
|
|
|
29,900,073
|
|
|
|
29,463,343
|
|
Subscriptions payable, consisting of -0- and 1,000,000 shares at March 31, 2017 and December
31, 2016, respectively
|
|
|
-
|
|
|
|
11,400
|
|
Accumulated (deficit)
|
|
|
(31,381,015
|
)
|
|
|
(30,639,417
|
)
|
|
|
|
(919,548
|
)
|
|
|
(626,280
|
)
|
Noncontrolling Interest
|
|
|
(304,210
|
)
|
|
|
(276,747
|
)
|
Total Stockholders’ (Deficit)
|
|
|
(1,223,758
|
)
|
|
|
(903,027
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ (Deficit)
|
|
$
|
456,958
|
|
|
$
|
498,617
|
|
See
accompanying notes to financial statements.
PLAYERS
NETWORK
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
$
|
91
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating costs
|
|
|
21,202
|
|
|
|
8,810
|
|
General and administrative
|
|
|
418,436
|
|
|
|
275,238
|
|
Officer salaries
|
|
|
78,350
|
|
|
|
43,750
|
|
Depreciation and amortization
|
|
|
2,774
|
|
|
|
7,536
|
|
Total operating expenses
|
|
|
520,762
|
|
|
|
335,334
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(520,671
|
)
|
|
|
(335,233
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Gain on debt extinguishment, net
|
|
|
-
|
|
|
|
35,231
|
|
Interest expense
|
|
|
(148,535
|
)
|
|
|
(178,924
|
)
|
Change in derivative liabilities
|
|
|
(99,855
|
)
|
|
|
(263,381
|
)
|
Total other income (expense)
|
|
|
(248,390
|
)
|
|
|
(407,074
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(769,061
|
)
|
|
$
|
(742,307
|
)
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
27,463
|
|
|
|
3,696
|
|
Net loss attributable to Players Network
|
|
$
|
(741,598
|
)
|
|
$
|
(738,611
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -
basic and fully diluted
|
|
|
541,027,572
|
|
|
|
367,665,999
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and fully diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
See
accompanying notes to financial statements.
PLAYERS
NETWORK
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(741,598
|
)
|
|
$
|
(738,611
|
)
|
Minority
interest in net loss
|
|
|
(27,463
|
)
|
|
|
(3,696
|
)
|
Adjustments
to reconcile net loss to
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
2,774
|
|
|
|
7,536
|
|
Gain
on debt extinguishment, net
|
|
|
-
|
|
|
|
(35,231
|
)
|
Change
in fair market value of derivative liabilities
|
|
|
99,855
|
|
|
|
263,381
|
|
Amortization
of debt discounts
|
|
|
130,038
|
|
|
|
167,710
|
|
Stock
issued for services
|
|
|
17,300
|
|
|
|
-
|
|
Stock
issued for compensation, related party
|
|
|
121,100
|
|
|
|
192,000
|
|
Decrease
(increase) in assets:
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
7,311
|
|
|
|
287
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Checks
drawn in excess of available funds
|
|
|
-
|
|
|
|
(2,154
|
)
|
Accounts
payable
|
|
|
7,405
|
|
|
|
(9,673
|
)
|
Accrued
expenses
|
|
|
26,808
|
|
|
|
133,885
|
|
Deferred
rent obligations
|
|
|
4,896
|
|
|
|
(793
|
)
|
Settlements
payable
|
|
|
(30,000
|
)
|
|
|
(48,998
|
)
|
Net
cash used in operating activities
|
|
|
(381,574
|
)
|
|
|
(74,357
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets and construction in progress
|
|
|
(102,219
|
)
|
|
|
(10,500
|
)
|
Net
cash used in investing activities
|
|
|
(102,219
|
)
|
|
|
(10,500
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Repayment
of convertible debentures
|
|
|
-
|
|
|
|
(80,890
|
)
|
Proceeds
from short term debt
|
|
|
-
|
|
|
|
45,000
|
|
Repayment
of short term debt
|
|
|
-
|
|
|
|
(2,500
|
)
|
Proceeds
from sale of common stock
|
|
|
350,000
|
|
|
|
124,600
|
|
Net
cash provided by financing activities
|
|
|
350,000
|
|
|
|
86,210
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(133,793
|
)
|
|
|
1,353
|
|
Cash
- beginning
|
|
|
145,119
|
|
|
|
-
|
|
Cash
- ending
|
|
$
|
11,326
|
|
|
$
|
1,353
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
|
$
|
230
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Convertible
debts settled with cash repayment agreements
|
|
$
|
-
|
|
|
$
|
150,000
|
|
Value
of debt discounts
|
|
$
|
-
|
|
|
$
|
7,400
|
|
Value
of shares issued for conversion of debt
|
|
$
|
-
|
|
|
$
|
13,500
|
|
Value
of warrants issued with short term debt
|
|
$
|
40,070
|
|
|
$
|
-
|
|
Value
of derivative adjustment due to debt conversions
|
|
$
|
-
|
|
|
$
|
319,749
|
|
See
accompanying notes to financial statements.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Basis of Presentation
The
interim condensed consolidated financial statements of Players Network (the “Company”) included herein, presented
in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to not make the information presented misleading.
These
statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information
contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that
these interim condensed consolidated financial statements be read in conjunction with the financial statements of the Company
for the year ended December 31, 2016 and notes thereto included in the Company’s annual report on Form 10-K filed with the
SEC. The Company follows the same accounting policies in the preparation of interim reports.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which are under common control
and ownership:
|
|
State
of
|
|
|
|
Abbreviated
|
Name
of Entity
|
|
Incorporation
|
|
Relationship
|
|
Reference
|
|
|
|
|
|
|
|
Players
Network
(1)
|
|
Nevada
|
|
Parent
|
|
PNTV
|
GLFH,
LLC
(2)
|
|
Nevada
|
|
Subsidiary
|
|
GLFH
|
(1)
Players
Network entity is in the form of a Corporation.
(2)
Majority-owned
subsidiary formed on July 8, 2014, in which PNTV retained 83% ownership, with the remaining 17% held by key experts
and advisors. An additional 1.6% was sold to an investor on December 8, 2014 and 3% was transferred back from a founding
member on December 2, 2015, giving PNTV 84.4% ownership and minority interests ownership of 15.6%. The form of the entity was
changed from a Corporation to a Limited Liability Company on May 9, 2017 at which time the name was changed from Green Leaf Farms
Holdings, Inc. to GLFH, LLC.
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant
inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, PNTV and
subsidiary, GLFH will be collectively referred to herein as the “Company”, “Players Network” or “PNTV”.
The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United
States.
Fair
Value of Financial Instruments
Under
FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant
measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements
as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated
by management to approximate fair value primarily due to the short term nature of the instruments. In addition, the Company had
debt instruments that required fair value measurement on a recurring basis.
Construction
in Progress
The
Company is constructing a grow house in its leased facility, which is scheduled to be operational during the second quarter of
2017, at which time depreciation will commence. As of March 31, 2017, the Company incurred and capitalized in Construction in
Progress $334,115. The estimated cost to be incurred in 2017 and 2018 to complete construction of the grow house is approximately
$1.7 million. The construction will be completed in phases and the portion of the $1.7 million incurred after the facility is
initially operational will be capitalized separately as separate leasehold improvements, while the costs incurred to get the facility
operational will begin to be depreciated upon commencement of operations.
Revenue
Recognition
The
Company recognizes revenue from its internet television platform from internally generated products and from partnered merchants
when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is
fixed or determinable; and collectability is reasonably assured. These criteria are met when the customers purchase a product
or access a web-based video, the product or web-based video has been electronically delivered to the purchaser and payment has
been received. At that time, the Company’s obligations to the customer is substantially complete. The Company records the
net amount it retains from the sale of items from its internet television platform after paying any agreed upon percentage of
the purchase price to the featured advertising merchant excluding any applicable taxes. Revenue is recorded on a net basis because
the Company is acting as an agent of the partnered merchant in the transaction. Provisions for discounts and rebates to customers,
estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The
Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company
and the customer jointly determine that the product has been delivered or no refund will be required.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Network
revenue consists of monthly network broadcast subscription revenue, which is recognized over the period in which the subscription
service is available. Broadcast television advertising revenue is recognized when advertisements are aired. Video production revenue
is recognized as digital video film is completed and accepted by the customer and collection is reasonably assured.
Revenue
from the distribution of domestic television series is recognized as earned using the following criteria:
|
●
|
Persuasive
evidence of an arrangement exists;
|
|
|
|
|
●
|
The
show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate
and unconditional delivery;
|
|
|
|
|
●
|
The
license period has begun and the customer can begin its exploitation, exhibition or sale;
|
|
|
|
|
●
|
The
price to the customer is fixed and determinable; and
|
|
|
|
|
●
|
Collectability
is reasonably assured.
|
Due
to practical limitations applicable to operating relationships with On-Demand networks, the Company has not considered collectability
of advertising or television license revenues to be reasonably assured, and accordingly, the Company has not recognize such revenue
unless payment has been received.
Audio/Video
content licensing revenues were recognized when the underlying royalties from the sales of the related products were earned. The
Company recognized minimum revenue guarantees, if any, ratably over the term of the license or as earned royalties based on actual
sales of the related products, if greater.
Deferred
Rent Obligation
The
Company has entered into operating lease agreements for its corporate office and GLFH’s warehouse which contains provisions
for future rent increases. In accordance with generally accepted accounting principles, the Company records monthly rent expense
equal to the total of the payments due over the lease term, divided by the number of months of the lease terms. The difference
between rent expense recorded and the amount paid is credited or charged to “Deferred rent obligation,” which is reflected
as a separate line item in the accompanying Balance Sheets.
Derivative
Liability
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument,
the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments
that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities
at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible
Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked
financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would
enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument
that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock.
A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted
for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s
own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation
of the instrument’s settlement provisions. The Company utilized multinomial lattice models that value the derivative liability
within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set
forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or
incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation
sale.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Recent
Accounting Pronouncements
In
March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-7,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost
. This ASU requires that an employer report the service cost component in the same line
item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other
components of net benefit cost, which include interest cost and prior service cost or credit, among others, are required to be
presented in the income statement separately from the service cost component and outside a subtotal of income from operations,
if one is presented. This ASU is effective for the Company’s fiscal year 2018, including interim periods. The Company is
currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. The Company
has not yet concluded how the new standard will impact the consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-3,
Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method
and Joint Ventures (Topic 232): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November
17, 2016 EITF Meetings
. This ASU expands disclosures regarding potential material effects to the Company’s consolidated
financial statements that may occur when adopting ASU’s in the future. When a company cannot reasonably estimate the impact
of adopting an ASU, disclosures are to be expanded to include qualitative disclosures including a description to the effect to
the company’s accounting policies, a comparison the existing policies, the status of its process to implement the new standard
and any significant implementation matters yet to be addressed. This standard will generally require more disclosure in the Company’s
consolidated financial statements when adopted.
No
other new accounting pronouncements, issued or effective during the three months ended March 31, 2017, have had or are expected
to have a significant impact on the Company’s financial statements.
Note
2 – Going Concern
As
shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations
resulting in an accumulated deficit of ($31,381,015), and as of March 31, 2017, the Company’s current liabilities exceeded
its current assets by $1,437,657. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional
sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
The
financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s
ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability
and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Note
3 – Related Party
Officers
On
January 26, 2017, the Company sold 14,000,000 units, consisting of 14,000,000 shares of common stock and 14,000,000 warrants exercisable
at $0.05 per share over the following 2 years, to its CEO in exchange for proceeds of $350,000.
On
January 22, 2017, the Company issued 2,000,000 shares of common stock to its CEO for board services performed. The total fair
value of the common stock was $34,600 based on the closing price of the Company’s common stock on the date of grant.
Officer
compensation expense was $78,350 and $43,750, including $34,600 and $-0- of stock based bonuses, at March 31, 2017 and 2016, respectively.
The balance owed was $45,656 at March 31, 2017.
Board
of Directors
On
January 22, 2017, the Company issued 2,000,000 shares of common stock one of its three Directors for board services performed.
The total fair value of the common stock was $34,600 based on the closing price of the Company’s common stock on the date
of grant.
On
January 22, 2017, the Company issued 3,000,000 shares of common stock one of its three Directors for board services performed.
The total fair value of the common stock was $51,900 based on the closing price of the Company’s common stock on the date
of grant.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
4 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The
Company has convertible notes that must be measured under the new fair value standard. The Company’s financial assets and
liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
The
following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets
as of March 31, 2017 and December 31, 2016, respectively:
|
|
Fair Value Measurements at March 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,326
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
|
11,326
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures, net of discounts of $225,821
|
|
|
-
|
|
|
|
-
|
|
|
|
74,179
|
|
Long term debt, net of discounts of $771,106
|
|
|
-
|
|
|
|
-
|
|
|
|
153,894
|
|
Short term debt
|
|
|
-
|
|
|
|
143,000
|
|
|
|
-
|
|
Derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
622,599
|
|
Total liabilities
|
|
|
-
|
|
|
|
143,000
|
|
|
|
850,672
|
|
|
|
$
|
11,326
|
|
|
$
|
(143,000
|
)
|
|
$
|
(850,672
|
)
|
|
|
Fair Value Measurements at December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
145,119
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
|
145,119
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures, net of discounts of $241,634
|
|
|
-
|
|
|
|
-
|
|
|
|
58,366
|
|
Short term debt, net of discounts of $60
|
|
|
-
|
|
|
|
142,940
|
|
|
|
-
|
|
Long term debt, net of discounts of $885,271
|
|
|
-
|
|
|
|
-
|
|
|
|
39,729
|
|
Derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
482,674
|
|
Total liabilities
|
|
|
-
|
|
|
|
142,940
|
|
|
|
580,769
|
|
|
|
$
|
145,119
|
|
|
$
|
(142,940
|
)
|
|
$
|
(580,769
|
)
|
There
were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the three months ended March 31, 2017
and the year ended December 31, 2016.
Level
2 liabilities consisted of a total of $143,000 of short term, unsecured, promissory notes, net of discounts of $-0- and $60 as
of March 31, 2017 and December 31, 2016, respectively. No fair value adjustment was necessary during the three months ended March
31, 2017 and the year ended December 31, 2016.
Level
3 liabilities consist of a total of $300,000 of convertible debentures, net of discounts of $225,821 and $241,634 as of March
31, 2017 and December 31, 2016, respectively, along with $925,000 of long term debt, net of discounts of $771,106 and $885,271
as of March 31, 2017 and December 31, 2016, in addition to the related derivative liabilities of $622,599 and $482,674 at March
31, 2017 and December 31, 2016, respectively.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
5 – Subsidiary Formation
On July 8, 2014, we formed a subsidiary,
GLFH, LLC (“GLFH”), in which we retained 83% ownership, with the remaining 17% held by key experts and advisors,
of which 16% was distributed to individuals as compensation for their services, including 3% to Mr. Bradley, CEO and 1% to Mr.
Berk, President of Programming, and an additional 1% was sold to one of those individuals for $60,000. An additional 1.6% was
sold to an investor on December 8, 2014 and 3% was transferred back from a founding member on December 2, 2015, giving
PNTV 84.4% ownership and minority interests ownership of 15.6%. The subsidiary has been formed as a holding company to potentially
own additional subsidiaries that may operate medical marijuana related businesses. The form of the entity was changed from
a Corporation to a Limited Liability Company on May 9, 2017 at which time the name was changed from Green Leaf Farms Holdings,
Inc. to GLFH, LLC. These additional subsidiaries have yet to be formed, and, or, acquired. We had applied for a Medical Marijuana
Dispensary special use permit with the City of Las Vegas, and Cultivation and Processing special use permits in North Las Vegas
and a license for all permits in the State of Nevada, and have currently been granted the two special use permits in North Las
Vegas, however there can be no assurance we will be able to conduct these operations. As such, there is a risk that we may not
be able to expand our operations into this field as intended.
Note
6 – Other Current Assets
Other
current assets included the following as of March 31, 2017 and December 31, 2016, respectively:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Security deposits
|
|
$
|
52,100
|
|
|
$
|
50,000
|
|
Prepaid expenses
|
|
|
25,739
|
|
|
|
35,150
|
|
|
|
$
|
77,839
|
|
|
$
|
85,150
|
|
Note
7 – Fixed Assets and Construction in Progress
Fixed
assets consist of the following at March 31, 2017 and December 31, 2016, respectively:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Office equipment
|
|
$
|
62,868
|
|
|
$
|
60,968
|
|
Website development costs
|
|
|
99,880
|
|
|
|
99,880
|
|
Furniture and fixtures
|
|
|
8,154
|
|
|
|
2,730
|
|
Total
|
|
|
170,902
|
|
|
|
163,578
|
|
Less accumulated depreciation
|
|
|
(137,224
|
)
|
|
|
(134,450
|
)
|
Fixed assets, net
|
|
$
|
33,678
|
|
|
$
|
29,128
|
|
Construction
in progress is stated at cost, which includes the cost of construction and other indirect costs attributable to the construction.
No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put
into use. Construction in progress at March 31, 2017, represents leasehold improvements under construction. As of March 31, 2017,
the Company incurred and capitalized in Construction in Progress $334,115.
Depreciation
and amortization expense totaled $2,774 and $7,536 for the three months ended March 31, 2017 and 2016, respectively.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
8 – Accrued Expenses
As
of March 31, 2017 and December 31, 2016 accrued expenses included the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Accrued Payroll, Officers
|
|
$
|
45,656
|
|
|
$
|
31,343
|
|
Accrued Payroll and Payroll Taxes
|
|
|
135,234
|
|
|
|
135,234
|
|
Accrued Interest
|
|
|
39,336
|
|
|
|
21,841
|
|
Refundable Advances
|
|
|
100,000
|
|
|
|
105,000
|
|
|
|
$
|
320,226
|
|
|
$
|
293,418
|
|
Note
9 – Settlements Payable
Settlements
payable consisted of $40,000 and $70,000 owed to WHC Capital, LLC as of March 31, 2017 and December 31, 2016, respectively.
On
September 22, 2016, the Company entered into a payoff agreement to pay WHC Capital, LLC a total of $100,000 in five installments
ranging between $15,000 and $25,000 payable from October 21, 2016 through February 21, 2017 in satisfaction of a total of $114,002
of principal and unpaid interest on two convertible notes originally entered into with WHC on August 24, 2015 and August 19, 2014.
As of March 31, 2017, the Company had paid a total of $60,000 on the settlement, as specified in the agreement.
Note
10 – Convertible Debentures
Convertible
debentures consist of the following at March 31, 2017 and December 31, 2016, respectively:
|
|
March
31,
2017
|
|
December
31,
2016
|
On August 15, 2016, the Company entered
into a definitive funding agreement with RxMM Health Limited (“RxMM”) in which a convertible note was issued for a
total gross investment of $2,500,000. In consideration of such investment, RxMM will receive 50,000,000 callable warrants as a
fee per the milestone schedule below, and will be entitled to 20% of all adjusted gross revenue and 20% of the gross income generated
by the Company through any of its medical marijuana holdings or its media platform, of which shall reduce the principal until this
debenture is either paid back or converted into equity.
Debenture Funding Milestone
-
Warrants and Exercise Price Details
$400,000 10 million shares exercisable
at $0.05 per share over 2 years
$400,001 - $800,000 15 million shares
exercisable at $0.06 per share over 2 years
$800,001 - $1,600,000 15 million shares
exercisable at $0.07 per share over 2 years
$1,600,001 - $2,500,000 10 million shares
exercisable at $0.08 per share over 2 years
The warrants are callable if the stock
averages 200% of the warrant strike price for any thirty (30) day trading period. The convertible debenture, bearing interest at
5% per annum, will mature 24 months after the full investment is realized, and is convertible into common stock at a 25% discount
to the preceding 30 day average closing stock price. The Company is required at all times to have authorized and reserved the number
of shares that is actually issuable upon full conversion of the note. The Company has received the following payments on the funding
agreement:
$ 25,000 – August 19, 2016
$ 175,000 – August 15, 2016
|
|
$
|
200,000
|
|
$
|
200,000
|
|
|
|
|
|
|
|
On July 28, 2016, the Company received proceeds of $35,000 in exchange for an unsecured convertible promissory note, bearing interest at eight percent (8%) (“First EJR Note”), which matures on July 28, 2017. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to seventy eight percent (78%) of the average of the closing traded prices during the ten (10) trading days prior to the conversion request date (the “Variable Conversion Price”). The Company is required at all times to have authorized and reserved the number of shares that is actually issuable upon full conversion of the note.
|
|
|
35,000
|
|
|
35,000
|
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
On June 24, 2016, the Company received proceeds of $30,000 in exchange for an unsecured convertible promissory note, bearing interest at eight percent (8%) (“First SH Note”), which matures on June 24, 2017. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to seventy eight percent (78%) of the average of the closing traded prices during the ten (10) trading days prior to the conversion request date (the “Variable Conversion Price”). In the event of default, the outstanding principal, unpaid interest and liquidated damages and fees immediately prior to the occurrence of the event of default shall become immediately due and payable in cash, at the Lender’s election, at a premium default rate determined by dividing the outstanding amount by the Variable Conversion Price on the date of default. The Company is required at all times to have authorized and reserved the number of shares that is actually issuable upon full conversion of the note.
|
|
|
30,000
|
|
|
30,000
|
|
|
|
|
|
|
|
On April 24, 2014, the Company received net proceeds of $33,250 in exchange for an unsecured convertible promissory note that carries an 8% interest rate with a face value of $35,000 (“Second LG Note”), which matured on April 11, 2015. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty five percent (55%) of the average of the lowest closing bid prices of the Company’s common stock for the twelve (12) trading days prior to, and including, the conversion date. The note carries an eighteen percent (18%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $1,750 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. The Company must at all times reserve at least 5 million shares of common stock for potential conversions. On October 31, 2014, the note holder sent demand for repayment. The note is currently in default.
|
|
$
|
35,000
|
|
$
|
35,000
|
|
|
|
|
|
Total convertible debentures
|
|
300,000
|
|
300,000
|
Less: unamortized debt discounts
|
|
(225,821)
|
|
(241,634)
|
Convertible debentures
|
|
$
|
74,179
|
|
$
|
58,366
|
In
accordance with ASC 470-20 Debt with Conversion and Other Options, the Company recorded total discounts of $257,379 for the variable
conversion features of the convertible debts incurred during the year ended December 31, 2016. The discounts are being amortized
to interest expense over the term of the debentures using the effective interest method. The Company recorded $15,813 and $166,915
of interest expense pursuant to the amortization of the note discounts during the three months ended March 31, 2017 and 2016,
respectively.
All
of the convertible debentures carry default provisions that place a “maximum share amount” on the note holders. The
maximum share amount that can be owned as a result of the conversions to common stock by the note holders is 4.99% of the Company’s
issued and outstanding shares.
In
accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued represented embedded
derivative features, and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value
of the compound embedded derivatives associated with the convertible debentures utilizing a lattice model.
The
Company recorded interest expense pursuant to the stated interest rates on the convertible debentures in the amount of $4,501
and $9,832 for the three months ended March 31, 2017 and 2016, respectively related to convertible debts.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
11 – Short Term Debt
Short-term
debt consists of the following at March 31, 2017 and December 31, 2016, respectively:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
On various dates between January 11,
2016 and April 20, 2016, the Company received aggregate refundable advances of $143,000
as the Company and an investor developed terms to a potential partnership agreement with
GLFH. On June 1, 2016, the Company issued a promissory note in exchange for those
deposits. The unsecured promissory note bears interest at 4% per annum (“First
ZG Note”), which matures on January 3, 2017, and awarded the lender options
to acquire up to 5,000,000 shares of common stock, exercisable at $0.01 per share over
a four (4) week period from the origination date, which expired on July 1, 2016, in addition
to options to acquire up to another 3,000,000 shares of common stock, exercisable at
$0.08 per share over a twenty four (24) month period from the origination date. The aggregate
fair value of the options is $6,996 and is being amortized over the earlier of the life
of the loan, or the life of the options, as a debt discount. The note carries a default
rate of 10%.
|
|
$
|
143,000
|
|
|
$
|
143,000
|
|
Less: unamortized debt discounts
|
|
|
-
|
|
|
|
(60
|
)
|
Short term debt
|
|
$
|
143,000
|
|
|
$
|
142,940
|
|
The
Company recorded $60 and $-0- of interest expense pursuant to the amortization of the note discounts during the three months ended
March 31, 2017 and 2016, respectively.
The
Company recorded interest expense pursuant to the stated interest rate on the above promissory notes in the amount of $1,430 and
$87 at March 31, 2017 and 2016, respectively.
The
following presents components of interest expense by instrument type at March 31, 2017 and 2016, respectively:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Interest on convertible debentures
|
|
$
|
29,012
|
|
|
$
|
121,916
|
|
Amortization of debt discounts
|
|
|
305,747
|
|
|
|
718,264
|
|
Loss on debt conversions
|
|
|
4,272
|
|
|
|
10,508
|
|
Interest on short term debt
|
|
|
2,597
|
|
|
|
53
|
|
Accounts payable related finance charges
|
|
|
3,646
|
|
|
|
655
|
|
|
|
$
|
345,274
|
|
|
$
|
851,396
|
|
Note
12 – Long Term Debt
Long
term debt consists of the following at March 31, 2017 and December 31, 2016, respectively:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
On November 21, 2016, the Company entered into a letter agreement with SK L-43, LLC providing for the making of loans by the SK L-43 to the Company, at SK L-43’s option (i) in the aggregate principal amount of $925,000 by December 15, 2016, and (ii) in the amounts of $1,500,000 each on or before each of April 1, 2017 and May 1, 2017. Advances under the letter agreement are unsecured; bear interest at a rate of 5% per annum, payable on December 31
st
of each year; mature two years from the making of the applicable Advance; and are subject to acceleration upon customary events of default set forth in the promissory notes. To date, SK L-43 has advanced to the Company the following loans:
$125,000 – November 02, 2016 (including $25,000 assigned from PNTV Investors Note)
$267,000 – November 21, 2016
$267,000 – December 02, 2016
$266,000 – December 19, 2016
Pursuant to the advances above, SK L-43 was issued warrants to purchase up to 92,500,002 shares of the Company’s common stock as additional consideration for making the loans at various exercise prices of $0.03 and $0.06 per share. For each additional loan of $1,500,000 each on or before each of April 1, 2017 and May 1, 2017, SK L-43 will also be entitled to additional warrants to purchase 42,857,142 shares of the Company’s common stock. These additional warrants will have an exercise price equal to 125% of the average closing price of the Company’s common stock over the thirty trading days immediately preceding the date of the applicable additional loan; provided, however, that if during the 90 trading day period following the date of such additional loan, the average closing price of the Company’s common stock (the “Post-Advance Closing Average”) is equal to or less than 80% of the Pre-Advance Closing Average, the exercise price for such additional warrant will be equal to 125% of the Post-Advance Closing Average.
Each warrant will vest and become exercisable four months following its date of issuance and remain exercisable for a period of two years thereafter; provided, however, that if the Company’s common stock on each of the 30 trading days preceding the vesting date of a warrant equals or exceeds 300% of the exercise price for such warrant, then the Company will have the right to reduce the length of the exercise period for such warrant to 45 days following delivery of notice to SK L-43.
|
|
$
|
925,000
|
|
|
$
|
925,000
|
|
Less: unamortized debt discounts
|
|
|
(771,106
|
)
|
|
|
(885,271
|
)
|
Long term debt
|
|
$
|
153,894
|
|
|
$
|
39,729
|
|
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recorded $114,165 and $-0- of interest expense pursuant to the amortization of the note discounts during the three months
ended March 31, 2017 and 2016, respectively.
The
Company recorded interest expense pursuant to the stated interest rate on the above promissory notes in the amount of $11,564
and $-0- during the three months ended March 31, 2017 and 2016, respectively.
The
following presents components of interest expense by instrument type at March 31, 2017 and 2016, respectively:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Interest on convertible debentures
|
|
$
|
4,501
|
|
|
$
|
9,832
|
|
Amortization of debt discounts
|
|
|
130,038
|
|
|
|
167,710
|
|
Interest on short and long term debt
|
|
|
12,994
|
|
|
|
87
|
|
Accounts payable related finance charges
|
|
|
1,002
|
|
|
|
1,295
|
|
|
|
$
|
148,535
|
|
|
$
|
178,924
|
|
Note
13 – Derivative Liabilities
As
discussed in Note 10 under Convertible Debentures, the Company issued convertible notes payable that provide for the issuance
of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on
certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued
is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion
of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s
authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included
in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option
and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.
The
fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent
reporting date, using a lattice model. The Company recognized current derivative liabilities of $622,599 and $482,674 at March
31, 2017 and December 31, 2016, respectively. The change in fair value of the derivative liabilities resulted in a loss of $99,855
and $263,381 for the three months ended March 31, 2017 and 2016, respectively, which has been reported as other expense in the
statements of operations. The loss of $99,855 for the three months ended March 31, 2017 consisted of a gain of $121,076 attributable
to the fair value of warrants and a net loss in market value of $21,221 on the convertible notes. The loss of $263,381 for the
three months ended March 31, 2016 consisted of a loss of $1,475 attributable to the fair value of warrants and a net loss in market
value of $261,906 on the convertible notes.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
following presents the derivative liability value by instrument type at March 31, 2017 and December 31, 2016, respectively:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Convertible debentures
|
|
$
|
441,268
|
|
|
$
|
462,489
|
|
Common stock warrants
|
|
|
181,331
|
|
|
|
20,185
|
|
|
|
$
|
622,599
|
|
|
$
|
482,674
|
|
The
following is a summary of changes in the fair market value of the derivative liability during the three months ended March 31,
2017 and the year ended December 31, 2016, respectively:
|
|
Derivative
|
|
|
|
Liability
|
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
$
|
1,038,504
|
|
Increase in derivative value due to issuances of convertible promissory notes
|
|
|
261,796
|
|
Increase in derivative value attributable to issuance of warrants
|
|
|
7,400
|
|
Change in fair market value of derivative liabilities due to the mark to market adjustment
|
|
|
227,102
|
|
Debt conversions
|
|
|
(1,052,128
|
)
|
Balance, December 31, 2016
|
|
$
|
482,674
|
|
Increase in derivative value attributable to issuance of warrants
|
|
|
40,070
|
|
Change in fair market value of derivative liabilities due to the mark to market adjustment
|
|
|
99,855
|
|
Balance, March 31, 2017
|
|
$
|
622,599
|
|
Key
inputs and assumptions used to value the convertible debentures and warrants issued during the three months ended March 31, 2017
and the year ended December 31, 2016:
|
●
|
Stock
prices on all measurement dates were based on the fair market value and would fluctuate with projected volatility.
|
|
|
|
|
●
|
The
warrant exercise prices ranged from $0.03 to $0.18, exercisable over 2 to 10 year periods from the grant date.
|
|
|
|
|
●
|
The
holders of the securities would convert monthly to the ownership limit starting at 4.99% increasing by 10% per month.
|
|
|
|
|
●
|
The
monthly trading volume would average below $1,112,000 in the period and would increase at 1% per month.
|
|
|
|
|
●
|
The
holder would automatically convert the notes at maturity at the greater of 2 times the conversion price or stock price if
the registration was effective and the Company was not in default.
|
|
|
|
|
●
|
An
event of default for the convertible note would occur 0% of the time, increasing to 1% per month to a maximum of 5%.
|
|
|
|
|
●
|
Alternative
financing for the convertible note would be initially available to redeem the note 0% of the time and increase monthly by
5% to a maximum of 50%.
|
|
|
|
|
●
|
The
computed volatility was projected based on historical volatility.
|
Note
14 – Changes in Stockholders’ Equity (Deficit)
Convertible
Preferred Stock
The
Board, from the authorized capital of 50,000,000 preferred shares, as amended on July 22, 2015, has authorized and designated
2,000,000 shares of series A preferred stock (“Series A”) and 12,000,0000 shares of series C preferred stock (“Series
C”), of which 2,000,000 shares and 12,000,000 shares are issued and outstanding, respectively. On July 22, 2015, the series
B class of stock was terminated. A total of 36,000,000 shares remained undesignated.
The
Series A shares carry 25:1 preferential voting rights, and are convertible into shares of common stock on a 1:1 basis.
The
Series C shares carry 50:1 preferential voting rights, and are convertible into shares of common stock on a 1:1 basis
Common
Stock Authorized
The
Company has authorized 1,200,000,000 shares of common stock, as amended on July 22, 2015, of which 551,673,658 shares were issued
and outstanding and 54,831,889 shares were reserved as of the date of this filing.
Common
Stock Sales
On
January 26, 2017, the Company sold 14,000,000 units, consisting of 14,000,000 shares of common stock and 14,000,000 warrants exercisable
at $0.05 per share over the following 2 years, to its CEO in exchange for proceeds of $350,000.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Common
Stock Issued for Services
On
February 2, 2017, we issued 1,000,000 shares of common stock valued at $11,400 to the landlord of our leased facility as payment
on a subscription payable from an October 14, 2016 award.
On
January 22, 2017, the Company issued 2,000,000 shares of common stock to its CEO for board services performed. The total fair
value of the common stock was $34,600 based on the closing price of the Company’s common stock on the date of grant.
On
January 22, 2017, the Company issued 2,000,000 shares of common stock one of its three Directors for board services performed.
The total fair value of the common stock was $34,600 based on the closing price of the Company’s common stock on the date
of grant.
On
January 22, 2017, the Company issued 3,000,000 shares of common stock one of its three Directors for board services performed.
The total fair value of the common stock was $51,900 based on the closing price of the Company’s common stock on the date
of grant.
On
January 22, 2017, the Company issued 200,000 shares of common stock for professional services to a consultant for services provided.
The total fair value of the common stock was $3,460 based on the closing price of the Company’s common stock on the date
of grant.
On
January 22, 2017, the Company issued 500,000 shares of common stock for professional services to a consultant for services provided
on behalf of our subsidiary, GLFH. The total fair value of the common stock was $8,650 based on the closing price of the Company’s
common stock on the date of grant.
On
January 22, 2017, the Company issued 150,000 shares of common stock for administrative services to a consultant on behalf of our
subsidiary, GLFH. The total fair value of the common stock was $2,595 based on the closing price of the Company’s common
stock on the date of grant.
On
January 22, 2017, the Company issued 150,000 shares of common stock for administrative services to a consultant for services provided.
The total fair value of the common stock was $2,595 based on the closing price of the Company’s common stock on the date
of grant.
Note
15 – Options and Warrants
Warrants
Granted
On
January 26, 2017, the Company sold 14,000,000 units, consisting of 14,000,000 shares of common stock and 14,000,000 warrants exercisable
at $0.05 per share over the following 2 years, to its CEO in exchange for proceeds of $350,000.
Options
Expired
On
March 1, 2017, a total of 1,200,000 warrants with a strike price of $0.08 per share expired.
On
January 8, 2017, a total of 1,150,000 warrants with a strike price of $0.08 per share expired.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
16 – Income Taxes
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides
that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the three months ended March 31, 2017 and the year ended December 31, 2016, the Company incurred a net operating loss and, accordingly,
no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty
of the realization of any tax assets. At March 31, 2017, the Company had approximately $22,812,000 of federal net operating losses.
The net operating loss carry forwards, if not utilized, will begin to expire in 2025.
The
components of the Company’s deferred tax asset are as follows:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
7,984,200
|
|
|
$
|
7,763,000
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
7,984,200
|
|
|
|
7,763,000
|
|
Less: Valuation allowance
|
|
|
(7,984,200
|
)
|
|
|
(7,763,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely
than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation
allowance against its net deferred tax assets at March 31, 2017 and December 31, 2016, respectively.
A
reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income
tax rate to pre-tax loss is as follows:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Federal and state statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Change in valuation allowance on deferred tax assets
|
|
|
(35
|
%)
|
|
|
(35
|
%)
|
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
17 – Non-Controlling Interest
Non-controlling
interest originally represented 17% interest in the subsidiary held amongst eleven individuals, of whom the Company’s CEO,
Mark Bradley and the Company’s President of Programming, Michael Berk own 3% and 1%, respectively, through December 8, 2014.
On December 9, 2014, one of the non-officer, minority investors exercised an option to purchase an additional 1.6% interest in
the Company’s subsidiary from the parent in exchange for proceeds of $160,000 and 3% was transferred back to Players Network
from a founding member on December 2, 2015, thereby resulting in a minority interest in the subsidiary of 15.6% amongst ten individuals.
The net loss attributable to the non-controlling interest totaled $27,463 and $3,696 during the three months ended March 31, 2017
and 2016, respectively. The net loss attributable to the parent was and $148,585 and $20,000 during the three months ended March
31, 2017 and 2016, respectively.
Players
Network
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
18 – Subsequent Events
Common
Stock Issuances for Debt Conversions
On
April 18, 2017, the Company issued 2,009,419 shares of common stock pursuant to the conversion of $40,000 of outstanding principal
on the WHC Notes settlement in lieu of cash. The note was converted in accordance with the conversion terms; therefore no gain
or loss has been recognized, and the settlement terms have been fully realized paying off the debt in full.
Common
Stock Issuances for Services
On
May 1, 2017, the Company issued a total of 1,220,000 shares of common stock to four service providers for services provided on
behalf of our subsidiary, GLFH. The total fair value of the common stock was $76,250 based on the closing price of the Company’s
common stock on the date of grant.
On
May 1, 2017, the Company issued a total of 1,050,000 shares of common stock to five service providers for services provided. The
total fair value of the common stock was $65,625 based on the closing price of the Company’s common stock on the date of
grant.
Options
Issued for Services
On
May 1, 2017, the Company awarded fully vested options to the Company’s President of Programming, Michael Berk, to acquire
up to 1,000,000 shares of common stock, exercisable at $0.07 per share over a thirty six (36) month period from the origination
date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 234% and a call option value of
$0.0525, was $52,542.
On
May 1, 2017, the Company awarded fully vested options to our Director, Brett Pojunis, to acquire up to 2,000,000 shares of common
stock, exercisable at $0.07 per share over a thirty six (36) month period from the origination date. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of 234% and a call option value of $0.0525, was $105,083.
On
May 1, 2017, the Company awarded fully vested options to a consultant to acquire up to 1,000,000 shares of common stock, exercisable
at $0.07 per share over a thirty six (36) month period from the origination date. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 234% and a call option value of $0.0525, was $52,542.
On
May 1, 2017, the Company awarded fully vested options to a consultant to acquire up to 500,000 shares of common stock, exercisable
at $0.07 per share over a thirty six (36) month period from the origination date. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 234% and a call option value of $0.0525, was $26,271.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
and Outlook
Players Network is a vertically integrated
company that is engaged in the development of digital networks, and is also actively pursuing the cultivation and processing of
medical marijuana in North Las Vegas pursuant to two medical marijuana establishments (MME) licenses we were granted by the city
of North Las Vegas for cultivation and production. The Company holds an 84.4% interest in GLFH, LLC, which is a holding
company formed to house our medical marijuana and recreational marijuana businesses. We distribute broadband video and other social
media content over a wide variety of internet enabled devices and cable television channels. The Company has launched its proprietary
scalable NexGenTV technology platform. The platform is designed to deliver video content and develop digital social communities,
including “Vegas On Demand TV” and “Weed TV” on the media side of the business.
Our scalable Digital Technology
Platform, allows Players Network to distribute content for brands, businesses and celebrities, and provide them with an unlimited
amount of lifestyle category content and the tools to launch their own “Branded Channel, Social Community and Marketplace
Destination”. NexGenTV’s scalability can create hundreds of niche digital networks that can be viewed worldwide on
any smart TV, computer, tablet or mobile device by millions of people simultaneously.
Vegas On Demand TV and Weed TV are
the Company’s first two channel offerings that provide their audience the ability to connect to industry insiders
and businesses through a unique, high-quality marketing, content production and content management system. In the Las Vegas
market, Vegas On Demand captures the excitement, sex appeal, entertainment, and the non-stop adrenaline rush of the Las Vegas
gaming lifestyle.
We plan for Weed TV to have
other features by the middle of 2017 and adapt new technology that the other networks don’t have, including a directory of
businesses that cater to the marijuana business, such as dispensaries, smoke shops, doctors, financial institutions, manufacturers
and more. These businesses will have a free basic listing and the ability to upgrade for an extra fee of approximately $500 per
month, where they can build their own media channel using the ‘NexGenTV” Platform. We estimate this market is in excess
of approximately 70,000 businesses and will continue to grow as more states legalize MME businesses. Our goal in 2017 is to begin
to capture this market in an effort to increase our revenues.
Our enterprise platform is highly scalable
and can efficiently deploy, manage and distribute videos with integrated revenue-generating tools that go beyond traditional advertising.
On our platform, the viewer of a video is brought into a web environment encompassing the lifestyle represented within the video
content where they may be presented with membership, merchandising, couponing, subscription, loyalty programs, contest and other
marketing opportunities, including the integration of live events. The platform also integrates branded sponsorships, and a game-like
virtual economy supported by our Cost Per Action (“CPA”) advertising network.
GLFH
Overview
GLFH, LLC (“GLFH”, “Green Leaf”) was selected and granted two Medical Marijuana
Establishments (MME) licenses by the State of Nevada; one for cultivation, and one for production of extracts.
The
Cannabis Industry is one of the fastest growing markets in the America, and Nevada is uniquely positioned to become one of, if
not the largest market in the country. It is projected that by the end of 2017 there will be 43,000 Nevada State issued medical
marijuana cardholders. Of equal importance, is the fact that Nevada law offers reciprocity to Out-of-State medical cannabis cardholders.
With nearly one million medical marijuana cardholders residing in states adjacent to Nevada, and more than 52 million annual visitors
to Nevada, the market for medical marijuana is substantial, and with the recent passage of recreational marijuana laws that are
expected to be implemented in the summer of 2017, Nevada is expected to generate $1.8 billion in revenue from cannabis in 2018.
As large as the medical marijuana market is, it is dwarfed by the potential adult recreational marijuana market.
Products
& Services
Green
Leaf expects to provide the following products and services:
|
●
|
Premium
organic medical cannabis sold wholesale to licensed retailers
|
|
|
|
|
●
|
If
legalized, recreational marijuana cannabis products sold wholesale to distributors and retailers
|
|
|
|
|
●
|
Extraction
products such as oils and waxes (as distinguished from cultivation grow house atmospheres) derived from in-house cannabis
production
|
|
|
|
|
●
|
Value-added
products (e.g., salves, tinctures, oils) processed from in-house cannabis production
|
|
|
|
|
●
|
Edibles
produced in an on-site commercial kitchen from in-house cannabis production
|
|
|
|
|
●
|
Processing
and extraction services for licensed medical cannabis cultivators in Nevada
|
|
|
|
|
●
|
High
quality cannabis genetics in the form of vegetative cuttings for sale to licensed medical cannabis cultivators in Nevada
|
Future
Outlook
Green
Leaf plans to focus on developing high quality products and to employ a strong branding strategy to sell its custom cannabis strains.
The quality and consistency of our branded products would help build consumer loyalty. The growing facility, with modular construction
would allow us to scale efficiency from both a cost and operational standpoint.
Results
of Operations for the Three Months Ended March 31, 2017 and 2016:
|
|
For the Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Increase /
|
|
|
|
2017
|
|
|
2016
|
|
|
(Decrease)
|
|
Revenues
|
|
$
|
91
|
|
|
$
|
101
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating costs
|
|
|
21,202
|
|
|
|
8,810
|
|
|
|
12,392
|
|
General and administrative
|
|
|
418,436
|
|
|
|
275,238
|
|
|
|
143,198
|
|
Officer salaries
|
|
|
78,350
|
|
|
|
43,750
|
|
|
|
34,600
|
|
Depreciation and amortization
|
|
|
2,774
|
|
|
|
7,536
|
|
|
|
(4,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
520,762
|
|
|
|
335,334
|
|
|
|
185,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(520,671
|
)
|
|
|
(335,233
|
)
|
|
|
185,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(248,390
|
)
|
|
|
(407,074
|
)
|
|
|
(158,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(769,061
|
)
|
|
$
|
(742,307
|
)
|
|
$
|
26,754
|
|
Revenues:
During
the three months ended March 31, 2017 and 2016, we received revenues from the sale of in-home media products. Aggregate revenues
for the three months ended March 31, 2017 were $91, compared to revenues of $101 during the three months ended March 31, 2016,
a decrease in revenues of $10, or 10%.
Direct
Operating Costs:
Direct
operating costs were $21,202 for the three months ended March 31, 2017 compared to $8,810 for the three months ended March 31,
2016, an increase of $12,392, or 141%. Our direct operating costs increased primarily due to the addition of a new contractor
that has been working to roll out our new media platform during the three months ended March 31, 2017.
General
and Administrative:
General
and administrative expenses were $418,436 for the three months ended March 31, 2017, compared to $275,238 for the three months
ended March 31, 2016, an increase of $143,198, or 52%. General and administrative expense increased primarily due to increased
rent of approximately $86,000 on our new cannabis production facility and additional expenses as we readied the facility for operation
during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
Officer
Salaries:
Officer
salaries expense totaled $78,350 for the three months ended March 31, 2017, compared to $43,750, for the three months ended March
31, 2016, an increase of $34,600, or 79%. The increase was due to a bonus of 2,000,000 shares issued to our CEO in the current
year valued at $34,600.
Depreciation
and Amortization:
Depreciation
and amortization expense was $2,774 for the three months ended March 31, 2017, compared to $7,536 for the three months ended March
31, 2016, a decrease of $4,762, or 63%. Depreciation decreased primarily due to decreased depreciation on assets reaching the
end of their depreciable life cycle during the three months ended March 31, 2017 compared to the three months ended March 31,
2016.
Operating
Loss:
Operating
loss for the three months ended March 31, 2017 was $520,762 or ($0.00) per share, compared to an operating loss of $335,233 for
the three months ended March 31, 2016, or ($0.00) per share, a decrease of $185,438, or 55%. Operating loss increased primarily
due to increased rent of approximately $86,000 on our new cannabis production facility and additional expenses as we readied the
facility for operation during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
Other
Income (Expense):
Other
income (expense), on a net basis, was $(248,390) for the three months ended March 31, 2017, compared to other expense of $(407,074)
for the three months ended March 31, 2016, a decreased net expense of $158,684, or 39%. Other expense decreased primarily due
to the change in derivative liability of $(99,855) during the three months ended March 31, 2017, compared to the $(163,526) change
in derivative liability for the three months ended March 31, 2016, resulting in a decrease of $163,526, or 62%, a decreased interest
expense on debt financing of approximately $30,389, or 17%, as offset by a decreased gain on debt extinguishment of $35,231, during
the three months ended March 31, 2017, compared to the three months ended March 31, 2016.
Net
Loss:
The
net loss for the three months ended March 31, 2017 was $769,061, or ($0.00) per share, compared to a net loss of $742,307, or
($0.00) per share, for the three months ended March 31, 2016, an increased net loss of $26,754, or 4%. Net loss increased primarily
due to the increased costs of readying our cannabis production facility, as offset by decreased interest expense on debt financing
costs of approximately $194,000 during the three months ended March 31, 2017, compared to the three months ended March 31, 2016.
LIQUIDITY
AND CAPITAL RESOURCES
The
following table summarizes total assets, accumulated deficit, stockholders’ equity and working capital at March 31, 2017
compared to December 31, 2016.
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
Increase /
(Decrease)
|
|
Total Assets
|
|
$
|
456,958
|
|
|
$
|
498,617
|
|
|
$
|
(41,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,680,716
|
|
|
$
|
1,401,644
|
|
|
$
|
279,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated (Deficit)
|
|
$
|
(31,381,015
|
)
|
|
$
|
(30,639,417
|
)
|
|
$
|
741,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
$
|
(1,223,758
|
)
|
|
$
|
(903,027
|
)
|
|
$
|
320,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital (Deficit)
|
|
$
|
(1,437,657
|
)
|
|
$
|
(1,131,646
|
)
|
|
$
|
306,011
|
|
Our
principal source of operating capital has been provided from convertible debt financings and investments in our recently established
subsidiaries. At March 31, 2017, we had a negative working capital position of $1,437,657.
Convertible
Debenture Repayment and Settlements
During
the three months ended March 31, 2017, the Company repaid $30,000 of debt pursuant to a payoff agreement with WHC Capital, LLC.
The remaining $40,000 of the settlement liability was subsequently satisfied in full with the issuance of 2,009,419 shares of
stock on April 18, 2017.
Common
Stock Sales
On
January 26, 2017, the Company sold 14,000,000 units, consisting of 14,000,000 shares of common stock and 14,000,000 warrants exercisable
at $0.05 per share over the following 2 years, to its CEO in exchange for proceeds of $350,000.
We
have utilized these funds to repay approximately $30,000 of previously issued convertible debentures and settlements, comply with
our regulatory reporting requirements, and to fund our subsidiary’s medical marijuana business during the quarter. Although
our revenues are expected to grow as we expand our operations, our revenues are not expected to exceed our investment and operating
costs in the next twelve months, and we do not have funds sufficient to fund our operations at their current level for the next
twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies
in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment
and acquisitions in our industry, effectively monitor and manage our claims for payments that are owed to us, implement and successfully
execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot
assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our
business prospects, financial condition and results of operations.
To
conserve on the Company’s capital requirements, the Company has issued shares in lieu of cash payments to outside consultants,
and the Company expects to continue this practice. In the three months ended March 31, 2017, the Company granted a total of $138,400
stock-based compensation, consisting of 2,000,000 shares of common stock valued at $34,600 as a bonus to our CEO, as well as an
aggregate 5,000,000 shares of common stock valued at $86,500 to our Directors and an aggregate 1,000,000 shares valued at $17,300
to other service providers, compared to a total of 6,250,000 shares of preferred stock valued at $192,000 in lieu of cash payments
to our CEO, compared to the issuance of 13,949,339 shares of common stock valued at an aggregate of $205,283 in lieu of cash payments
to employees and outside consultants during the three months ended March 31, 2016. The Company is not now in a position to determine
an approximate number of shares that the Company may issue for the preceding purpose in the remainder of 2017.
As
of May 12, 2017, we had five convertible notes outstanding with a cumulative outstanding principal balance of $300,000. Repayment
of the notes must be done at a premium to the then-outstanding balance, resulting in the need for approximately $400,000 in liquid
capital. If, rather than repay these notes, we allow them to convert into our common stock, which conversions would be done at
a discount to the market price of our common stock, all of which could be sold into the open market at the time of conversion.
The potential dilutive effects of these conversions at various conversion prices below our most recent market price of $0.054
per share is as follows:
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100%
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75%
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50%
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25%
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Potential conversion prices
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$
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0.054
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$
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0.0405
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$
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0.027
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$
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0.0135
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Potential dilutive shares
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5,555,556
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7,407,407
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11,111,111
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22,222,222
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Off-Balance
Sheet Arrangements
As
of March 31, 2017, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a material current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity,
capital expenditures or capital resources.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The
Company has had recurring net losses, an accumulated deficit, and a working capital deficiency. These conditions raise substantial
doubt about its ability to continue as a going concern. Management plans to try to increase sales and improve operating results
through the expansion of the distribution channels of our programming with a view to increasing advertising and sponsorship revenues.
Management believes that funds generated from operations will not be sufficient to cover cash needs in the foreseeable future,
and we will continue to rely on expected increased revenues and private equity to cover our cash needs, although there can be
no assurance in this regard. In the event sales do not materialize at the expected rates, management would seek additional financing
or would conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives,
becoming profitable or continuing our business without either a temporary interruption or a permanent cessation.
The
unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
Critical
Accounting Policies
We
have identified the following policies below as critical to our business and results of operations. Our reported results are impacted
by the application of the following accounting policies, certain of which require management to make subjective or complex judgments.
These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact
quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly
as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies
are described in the following paragraphs.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which are under common control
and ownership:
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State
of
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Abbreviated
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Name
of Entity
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Incorporation
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Relationship
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Reference
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Players
Network
(1)
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Nevada
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Parent
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PNTV
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GLFH,
LLC
(2)
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Nevada
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Subsidiary
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GLFH
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(1)
Players
Network entity is in the form of a Corporation.
(2)
Majority-owned
subsidiary formed on July 8, 2014, in which PNTV retained 83% ownership, with the remaining 17% held by key experts
and advisors. An additional 1.6% was sold to an investor on December 8, 2014 and 3% was transferred back from a founding
member on December 2, 2015, giving PNTV 84.4% ownership and minority interests ownership of 15.6%. The form of the entity was
changed from a Corporation to a Limited Liability Company on May 9, 2017 at which time the name was changed from Green Leaf Farms
Holdings, Inc. to GLFH, LLC.
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant
inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, PNTV and
subsidiary, GLFH will be collectively referred to herein as the “Company”, “Players Network” or “PNTV”.
The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its customers are within the United
States.
Revenue
Recognition
The
Company recognizes revenue from its internet television platform from internally generated products and from partnered merchants
when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is
fixed or determinable; and collectability is reasonably assured. These criteria are met when the customers purchase a product
or access a web-based video, the product or web-based video has been electronically delivered to the purchaser and payment has
been received. At that time, the Company’s obligations to the customer is substantially complete. The Company records the
net amount it retains from the sale of items from its internet television platform after paying any agreed upon percentage of
the purchase price to the featured advertising merchant excluding any applicable taxes. Revenue is recorded on a net basis because
the Company is acting as an agent of the partnered merchant in the transaction. Provisions for discounts and rebates to customers,
estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The
Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company
and the customer jointly determine that the product has been delivered or no refund will be required.
Network
revenue consists of monthly network broadcast subscription revenue, which is recognized over the period in which the subscription
service is available. Broadcast television advertising revenue is recognized when advertisements are aired. Video production revenue
is recognized as digital video film is completed and accepted by the customer and collection is reasonably assured.
Revenue
from the distribution of domestic television series is recognized as earned using the following criteria:
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Persuasive
evidence of an arrangement exists;
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The
show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate
and unconditional delivery;
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The
license period has begun and the customer can begin its exploitation, exhibition or sale;
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The
price to the customer is fixed and determinable; and
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Collectability
is reasonably assured.
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Due
to practical limitations applicable to operating relationships with On-Demand networks, the Company has not considered collectability
of advertising or television license revenues to be reasonably assured, and accordingly, the Company has not recognize such revenue
unless payment has been received.
Audio/Video
content licensing revenues were recognized when the underlying royalties from the sales of the related products were earned. The
Company recognized minimum revenue guarantees, if any, ratably over the term of the license or as earned royalties based on actual
sales of the related products, if greater.
Derivative
Liability
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument,
the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments
that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities
at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible
Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked
financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would
enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument
that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock.
A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted
for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s
own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation
of the instrument’s settlement provisions. The Company utilized multinomial lattice models that value the derivative liability
within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set
forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or
incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation
sale.