Forward-Looking Statements
This annual report contains "forward-looking statements". All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services, products or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this annual report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except as required by applicable law, we undertake no obligation to publicly update any forward‑looking statements, whether as a result of new information, future events or otherwise, even if experience or future changes make it clear that any projected results or events expressed or implied therein will not be realized. You are advised, however, to consult any further disclosures we make in future public filings, statements and press releases.
Forward‑looking statements in this annual report include express or implied statements concerning our future revenues, expenditures, capital and funding requirements; the adequacy of our current cash and working capital to fund present and planned operations and financing needs; our proposed expansion of, and demand for, product offerings; the growth of our business and operations through acquisitions or otherwise; and future economic and other conditions both generally and in our specific geographic and product markets. These statements are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in the forward‑looking statements due to a number of factors including, but not limited to, those set forth below in the section entitled "Risk Factors" in this annual report, which you should carefully read. Given those risks, uncertainties and other factors, many of which are beyond our control, you should not place undue reliance on these forward‑looking statements. You should be prepared to accept any and all of the risks associated with purchasing any securities of our company, including the possible loss of all of your investment.
Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock.
As used in this annual report on Form 10-K, the terms "we", "us" "our" and "bBooth" refer to bBooth, Inc., a Nevada corporation, and our wholly-owned subsidiaries, bBooth (USA), Inc. and Global System Designs Inc., unless otherwise specified.
Corporate Overview – Formation, Corporate Changes and Material Mergers and Acquisitions
We were incorporated in the State of Nevada on November 27, 2012. Following incorporation, our business related to the development and marketing of "green building" information for homeowners and owners-builders. In January 2013, we formed a Canadian subsidiary, "Global System Designs Inc." in response to Canadian demand for consultative building services. In the second quarter of 2014, we decided to explore alternative business opportunities in order to maximize shareholder value.
On October 16, 2014, we completed the acquisition of bBooth (USA), Inc., a private Nevada corporation ("bBooth USA"), pursuant to the terms of a share exchange agreement dated August 11, 2014, as amended, among our company, bBooth USA and the shareholders of bBooth USA (the "Exchange Agreement"). As a result of our acquisition of bBooth USA, we ceased to be a "shell company" as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
bBooth USA was formed as a limited liability company under the laws of the State of Nevada under the name "Cutaia Media Group, LLC" on December 12, 2012. On May 19, 2014, Cutaia Media Group, LLC effected a merger under the laws of the State of Nevada with its affiliate, bBooth, Inc., a Nevada corporation, with bBooth, Inc. as the surviving corporation, in order to convert from a limited liability company into a corporation. On October 17, 2014, we changed the name of the private Nevada corporation to "bBooth (USA), Inc.".
bBooth USA is focused on the manufacture and operation of internet-connected, kiosk-sized, professional-quality portable audio-video recording studios, branded and marketed under the name of "bBooth", as further described below under "Our Business").
Prior to the closing of the Exchange Agreement, on October 6, 2014, our company effected a name change by merging with our wholly-owned Nevada subsidiary named "bBooth, Inc.", with the surviving corporation having the new name of "bBooth Inc.". In addition, on October 6, 2014, our company effected a two for one forward stock split of our authorized and issued and outstanding common shares. As a result, our authorized capital of common stock increased from 100,000,000 shares of common stock with a par value of $0.0001 per share to 200,000,000 shares of common stock with a par value of $0.0001 per share and our outstanding shares of common stock increased from 5,825,000 shares to 11,650,000 common shares outstanding. The 15,000,000 shares of preferred stock with a par value of $0.0001 per share authorized under our capital structure were unchanged in connection with the forward stock split of our common shares. The Nevada subsidiary referred to in this paragraph was created solely for the purpose of effecting the name change and stock split.
The name change and forward split became effective for trading purposes at the opening of trading on October 16, 2014 under the stock symbol "GLSID". Our stock symbol was changed to "BBTH" effective on November 12, 2014. Our new CUSIP number is 07331L 108.
Immediately prior to the closing of the Exchange Agreement, bBooth USA converted loans in the aggregate amount of $1,669,316 in principal and accrued interest into an aggregate of 4,769,473 shares of bBooth USA's common stock, at a conversion price of $0.35 per share. All of such bBooth USA shares were then converted into shares of our common stock on a one for one basis in connection with the closing of the Exchange Agreement.
Between September 30, 2014 and October 2, 2014, bBooth USA completed a private placement pursuant to which it issued an aggregate of 9,000,000 shares of common stock at a price of $0.50 per share for gross proceeds of $4,500,000. bBooth USA also issued an aggregate of 659,600 shares of common stock and paid an aggregate cash fee of $412,250 to certain finders in connection with the private placement. Such finders were also reimbursed an aggregate of $23,072 for expenses incurred in connection with the private placement. All of the shares of bBooth USA's common stock issued in connection with the private placement, including the shares issued to the finders, were converted into shares of our common stock on a one for one basis in connection with the closing of the Exchange Agreement.
On December 11, 2014, Songstagram, Inc. ("Songstagram") and Rocky Wright ("Wright") issued secured promissory notes (collectively, the "Promissory Notes") in connection with advances that our company made to Songstagram and Wright. The advances were made by our company in connection with ongoing negotiations for a possible acquisition of Songstagram or its assets by our company. Pursuant to the Promissory Notes, Songstagram has promised to pay us the principal sum of $475,000, together with interest at a rate equal to 8% per annum and Wright has promised to pay us the principal sum of $386,435, together with interest at a rate equal to 8% per annum. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable under the Promissory Notes, were due and payable on the earlier of (i) our demand for payment; or (ii) when, upon or after the occurrence of an event of default, we declared such amounts due and payable or such amounts were made automatically due and payable under the terms of the Promissory Notes. During any period in which an event of default had occurred and was continuing, Songstagram and Wright, as applicable, agreed to pay interest on the unpaid principal balance at a rate of 13% per annum. The Promissory Notes could have been prepaid without our prior written consent.
In connection with the Promissory Notes, we took security over all of the assets of Songstagram and Wright (related to Songstagram) pursuant to security agreements (collectively, the "Security Agreements") with Songstagram and Wright dated December 11, 2014. Pursuant to the Security Agreements, Songstagram and Wright, as applicable, agreed to, among other things, (i) pay all secured obligations when due; (ii) upon or following the occurrence of an event of default, pay all of our costs and expenses, including reasonable attorneys' fees, incurred by us in the perfection, preservation, realization, enforcement and exercise of our rights, powers and remedies under the Security Agreements; and (iii) execute and deliver such documents as we deemed necessary to create, perfect and continue the security interests.
Effective January 20, 2015, we entered into an acquisition agreement (the "Acquisition Agreement") with Songstagram and Wright, pursuant to which we agreed to acquire from Wright all assets and intellectual property that Wright owned related to, or used in connection with: (i) the business of Songstagram, (ii) the assets owned and/or used by Songstagram, (iii) the Songstagram software application, (iv) the business and assets of Qubeey Inc. ("Qubeey"), and (v) all software applications of Qubeey, in consideration of the forgiveness of all principal and interest owing by Wright to our company under the Promissory Notes.
In connection with the Acquisition Agreement, we also agreed to employ Wright in a position, and upon terms and conditions, to be mutually agreed upon by our company and Wright. Wright also agreed that any prior agreements between Wright and Songstagram were of no further force or effect, and that any right, title, interest or claim Wright might have in connection with such agreements was fully satisfied and extinguished. Wright and Songstagram also released our company, and other third parties associated or affiliated with our company, from any claims arising under any such agreements, or otherwise, with respect to the business and assets of Songstagram and Qubeey.
In connection with the Acquisition Agreement and our prior demand for the repayment of all monies owing by Songstagram to our company under the Promissory Notes, as Songstagram was unable to repay such monies, Songstagram consented to the enforcement of the security granted under the Security Agreements, by way of a strict foreclosure. In accordance with the terms of the Acquisition Agreement, and as further provided for in a surrender of collateral, consent to strict foreclosure and release agreement dated January 20, 2015 (the "Surrender of Collateral, Consent to Strict Foreclosure and Release Agreement") between our company and Songstagram, Songstagram agreed to turn over all collateral pledged under the Security Agreements and consented to our retaining such collateral in satisfaction of the indebtedness due under the Promissory Notes.
In connection with the Acquisition Agreement, we and Songstagram entered into termination agreements and releases (each, a "Termination Agreement") with six employees of, or consultants to, Songstagram pursuant to which each such persons agreed to: (i) the termination of any existing agreements to which they and Songstagram were parties, and (ii) release any claims against our company and Songstagram with respect to the assets and business of Songstagram and Qubeey.
Effective March 4, 2015, we entered into a settlement and release agreement with Songstagram and Jeff Franklin ("Franklin"), pursuant to which we issued 500,000 shares of common stock of our company to Franklin in full settlement and release of a claim that he has on certain assets that we acquired from Songstagram.
Our Business
Our business has evolved from one based primarily on our bBooth kiosks, to an integrated platform comprised of the bBooth kiosks and a mobile app we have branded "kord". We are promoting our kord mobile app combined with our bBooth kiosks as a new platform for content creation and distribution, artist promotion, fan engagement and talent discovery.
The bBooths
The bBooths are kiosk-sized, family-friendly, professional quality, audio-video recording studios we are placing in high traffic common areas of shopping malls in select cities in the United States. bBooth is where anyone can audition for television shows or movies, or just create fun videos to share with friends and family through our kord mobile app and on our YouTube Channels, Facebook, Twitter, Instagram and other popular social media platforms.
The bBooth Experience
Our flagship model bBooths are 10'x12' oval shaped structures, covered with video monitors mounted on a perforated stainless steel skin, through which thousands of controlled LED lights shine, creating an alluring colorful glowing effect. bBooths will be placed prominently in the common areas of shopping malls, such as center aisles and food courts. Two giant 80" portrait-oriented display screens and speakers incorporated into the exterior of the booths are used for bBooth and sponsor messaging, to showcase performers who opt for "public mode" during their performances, and for promoting our kord app and the artists whose music and other content is featured in the app, encouraging consumers to download the app and become active users.
Public mode allows users to garner attention in the mall in real-time, as shoppers crowd around bBooths to watch the live performances and cheer on the performers. The outside of the bBooths are also embedded with four iPads where users sign-in, select their bBooth experience, receive instructions, choose songs, select their TV studio quality green-screen backgrounds, and swipe their credit cards for charges that range from $5 to $20+, or, in certain circumstances, free through certain kord app subscription plans and sponsor paid events. The interior of bBooth contains a large green screen, audio monitors, microphone, speakers, headphones and input jacks to plug-in instruments or portable music players and a large touchscreen monitor where users select the start and end of their recording, view song lyrics, adjust audio controls and can see themselves performing. bBooths can accommodate up to 5 people comfortably at a time. bBooths are staffed with attendants we call "Talent Scouts", each of whom are performers, who not only assist and enhance the customers' experience at bBooth, but who also perform in the booths in "public mode" as a means of attracting the attention of mall patrons.
We currently have bBooths deployed in Westfield's Culver City mall, in Culver City, Los Angeles, California; in Hollywood & Highland mall, in Hollywood, California; and in Simon Property Group's Opry Mills mall in Nashville, Tennessee. Additional locations are expected to be added this summer when we unveil our Version 3 bBooths that incorporate new technology acquired through our acquisition of Songstagram, Inc. and our new bBooth owned operating system that integrates seamlessly with our kord app. This will allow users who create a profile on the kord app to use any bBooth simply by entering their user name and password, at which time they can access their profile and all of the content they have on their kord app through the bBooth. They can then select content they previously purchased through the app and re-do it in the bBooth with the benefit of the booth's professional quality audio, video and green screen capabilities.
Our Mobile bBooth
In connection with our agreement with Studio One Media, Inc., as further described below, we acquired a fully operational mobile booth which we have deployed at special events, including iHeart Media and Kiis FM's Jingle Ball Festival at Los Angeles Staples Center. We intend to use the mobile booth to conduct additional promotional and marketing events to enhance awareness of bBooth and the kord app at other festivals, concerts, and special event sites around the country.
The Kord App
Effective January 20, 2015, we entered into an acquisition agreement with Songstagram, Inc. ("Songstagram") and Rocky Wright, founder and CEO of Songstagram ("Wright"), pursuant to which we acquired all assets and intellectual property of Songstagram and all assets and intellectual property that Wright owned that was related to, or used in connection with: (i) the business of Songstagram, (ii) the assets owned and/or used by Songstagram, (iii) the Songstagram software application, (iv) the business and assets of Qubeey Inc. ("Qubeey"), and (v) all software applications of Qubeey. The primary asset of Songstagram was a mobile app called "Songstagram". The Songstagram app is a video creation and social sharing mobile app, designed for Apple IOS mobile devices and Google Android mobile devices, as well as Windows and Mac laptop and desktop computers. We are currently in the process of rebranding the app as "kord" and several new enhancements are being added.
While the physical booths are eye-catching, brand-building, brick and mortar retail flagships, kord is a mobile app that we expect will not only extend and enhance the bBooth user experience to mobile devices, but will also add users and associated revenue scale to the business. The kord app is expected to allow users to browse, watch, interact with, comment on, create and share their own videos as well as the videos of others, whether created on their mobile device or in a mall-based bBooth. It is also expected to allow users to purchase music and music videos and interact with that music in new ways, and to allow singer-songwriters and other original talent to sell their songs and other video content through their own online store, while providing them with direct fan engagement opportunities we do not believe are generally available elsewhere.
The kord app is expected to serve as a marketplace, bringing together talent and those looking to hire talent. It will allow users to create a public profile, accessible from the app, as well as at any bBooth, and provide a store-front and cloud based storage locker for their videos, photos and other material they can use to market themselves and be discovered. The kord app is intended to be where anyone and everyone can view, follow, and interact with up and coming talent and where content creators will go to find and discover talent. The bBooth retail platform, coupled with our fully integrated kord app, are expected to provide access to and for talent everywhere, disrupting the traditional television and music industry models by offering opportunities and access previously reserved to industry insiders.
The kord app is expected to provide numerous monetization opportunities through in-app purchases of music and videos, and the upsell of premium services such as audio and video enhancement features. We expect to offer kord as a subscription based service with various pricing plans, as well as revenue share pricing on music and other content sold by users through the app.
The kord app was designed to appeal to music fans as well as music artists. Unlike many popular streaming music and video apps where users can only listen to music or just watch video content, it is anticipated that kord users will be able to interact with their favorite music and video content as well as their favorite artists through the app.
For Fans – An Interactive Experience
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Users can interact with their favorite music by recording videos of themselves with the app singing their favorite songs that they can then share across social media; |
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Users can import their iTunes library into the app and use that music to add soundtracks to the videos they create - up to 4.5 minutes; |
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Users can challenge friends to 'best video' contests called 'Battles', engaging friends and followers to participate; and |
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Users will receive targeted messages from their favorite artists, including special 'insider access' to local concert information, promotions, merchandise, contests, appearances and/or new releases by their favorite artists. |
For Artists – Direct Fan Engagement and Potential New Monetization Opportunities
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Artists can use the app to engage directly with the fans that are listening to and interacting with their music and other content which could potentially increase monetization opportunities for the artists; |
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Artists will be able to have their own "store" in the app through which they could sell content and merchandise directly to their fan base; |
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Artists can utilize the tools in the app, such as our proprietary 3-D like technology, whereby artists will appear to walk across the screens of desktop computers and mobile devices, delivering targeted messaging directly to the fans listening to their music or watching their content; |
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Artists can create kordPRO artist profiles, which will include photos, promotional videos and other content for fans to access and engage; and |
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Artists can access and utilize the app's analytics to track sales and other activities of their fans interacting with their content. |
Discovering Talent
The bBooth/kord platform accommodates all types of talent – singers, actors, comedians, models, hosts, personalities, newscasters, bands, songwriters, and anyone who wants to express themselves and/or be discovered. More than a social media platform, it is also expected to serve as a marketplace, connecting talent with agencies ( such as, talent, advertising and modeling agencies), production companies, casting directors, TV and radio networks, film studios, bands, orchestras, and local theater companies.
Principal Products
We intend to generate revenue from the following sources:
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transaction fees at the bBooths, as users of the bBooths are required to pay fees to use and perform in the bBooths (unless otherwise part of a kord subscription package); |
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transaction fees through kord in-app subscriptions and other purchases, as users will pay to purchase music and videos on the app and pay to purchase various premium services and options (such as audio and video enhancement features); |
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paid brand sponsorships, by displaying brands on the bBooth TV screens, on our website and in the kord app; |
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fees for online and mobile advertising by displaying advertising on our website and in the kord app; and |
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user data/lead generation fees from the sale of demographic data to be developed from our bBooth and mobile app businesses. |
Operations
Our company is headquartered in Hollywood, California, where our executive, administration and operational management are based. Beginning in the fourth quarter of 2014, we started deploying bBooths in states other than California, however we are still headquartered and managed from our Hollywood location.
Our Market
Based on recent internal data, we believe our market is 38% male and 63% female, with nearly 50% in the 18 to 24 age range, 18% in the 25 to 34 age range and 16% in the 13 to 17 age range.
Distribution Methods
The first version of our kord app has been released in a beta version and is available in Apple's App Store for IOS devices and in Google's Google Play Store for Android devices under the beta name "Songstagram". We intend to release an updated version branded as kord in the second quarter of 2015.
Marketing
We have a well-developed marketing plan based around our bSeen – bHeard – bDiscovered – bBooth campaign, which is designed to attract active paying users to our bBooth/kord platform where we expect the majority of our revenue will be generated. As part of our marketing plan, we intend to leverage our physical bBooth retail platforms, located in highly trafficked areas around the country, which we believe will create awareness of our company and our products and services. In addition, we intend to offer monthly casting and contest opportunities promoted both at the bBooths and through our kord app, as well as through our extensive social media network. We also plan to conduct nation-wide tours with our new mobile bBooth, making stops at key festivals, events and concerts. We expect to continue our thought leadership positioning (such as management appearing on panels at digital convergence conferences) and through our blogs, social media initiatives, press-releases and article placements, as well as through our online and on-radio interviews with artists and musicians discovered through our platform that are 'up and coming'. Management believes these activities will serve to build a nation-wide awareness and demand for our products and services.
We have begun negotiating with major record labels and certain established pop and urban artists with extensive social media followings who have expressed interest in associating themselves with our company to promote their use of our kord app, and to utilize our platform to distribute their original content and access potential monetization opportunities from the direct fan engagement capabilities offered by our kord app.
Competition
The music download, music performance, karaoke, and related industries are highly competitive and dominated by large and established companies. However, management is currently unaware of any existing direct competitor involved in the development and deployment of recording booths in the United States that share a similar business model and target customer demographic. Other companies are in varying stages of development and commercialization of mobile applications and web-based solutions that would provide similar functions to the bBooth concept, but without the significant advantages of a professional recording environment, combined with the scalability and social media capabilities of our kord app. As a result, management believes that these companies will not become material competitors, but may become an additional source of revenue as they could help cultivate the market for our services as their customers may become aware of, and elect to use, bBooth to provide a unique and enhanced experience that cannot be achieved with a mobile device or home recording gear alone.
Intellectual Property
bBooth's operating system and our kord app are comprised of certain proprietary software, code and know-how that are of key importance to our plan of operations.
Studio One Media License and Option to Purchase
Effective September 30, 2014, we entered into a letter agreement with Studio One Media, Inc. ("Studio One"), pursuant to which we agreed to acquire exclusive rights to certain technologies, intellectual property, and patents from Studio One. The key terms of the letter agreement consist of the following:
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we agreed to pay Studio One $1,250,000 over 18 months, as further described below, for a conditional perpetual license of Studio One's intellectual property (including related patents and other assets), of which, to date, $200,000 has been paid; |
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we agreed to grant 600,000 shares of our common stock to Studio One, which shares have been issued; |
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Larry Ryckman, founder and chief executive officer of Studio One, agreed to render consulting services to our company, which have commenced, in accordance with the terms of an agreement pursuant to which we agreed to pay Mr. Ryckman consulting fees of $16,666.00 per month and to grant him 600,000 warrants, which were granted effective November 12, 2014, each of which is exercisable into one share of our common stock at a price of $0.50 per share, until November 12, 2019; and |
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upon full payment of the $1,250,000 cash consideration, we will have the option to purchase Studio One's intellectual property, six complete MyStudio booths, one fully operational mobile studio and truck, and an interest in its MyStudio TV show, for nominal additional consideration. |
The letter agreement with Studio One is intended to be superseded by a definitive license agreements, which we expect to execute within 60 days of the date of this annual report. The balance of the $1,250,000 cash consideration will be payable as follows: $200,000 will be payable on execution of the definitive license agreements; $100,000 will be payable on the date that is 90 days following the execution of such agreements; $250,000 will be payable on the date that is 180 days following the execution of such agreements; $250,000 will be payable on the date that is nine months following the execution of such agreements; and $250,000 will be payable on or before the date that is 18 months following the execution of such agreements.
We believe the rights to be acquired from Studio One will, among other things, provide our company with a portfolio of patents that we expect will be useful in the operation of our core business and could impede or deter potential competitors.
Research and Development
We spent $156,762 on research and development during the year ended December 31, 2014, and $485,429 on research and development during the year ended December 31, 2013. These funds were primarily used for development of our bBooths.
Sources and Availability of Products and Names of Principal Suppliers
bBooth currently relies on certain key suppliers and vendors in the construction of its booths and for the maintenance, hosting, and enhancement of the bBooth operating software. Management believes it has mitigated the associated risks of these single-source vendor relationships by carefully selecting vendors that are large, financially stable, and have long and successful operating histories with demonstrated ability to deliver similar solutions. bBooths contracts with these vendors does not represent a material portion of their revenue. In addition, bBooth is actively engaged in the process of evaluating additional vendors and suppliers to provide like or complementary services.
Dependence on Key Customers
Based on our business plan and anticipated future activities as described in this annual report, we do not expect to have any significant customer concentration and accordingly, we do not expect to be dependent on any key customers.
Government Regulation
Government regulation is not of significant concern for the bBooth business nor is government regulation expected to become an impediment to the business in the near or mid-term as management is currently unaware of any planned or anticipated government regulation that would have a material impact on the business. bBooth management believes it currently possesses all requisite authority to conduct its business as described in this annual report.
Employees
We currently operate with 18 full time employees. We also employ consultants on an as-needed-basis to provide specific expertise in areas of content creation, audio and video editing, video production services, and other business functions including marketing and accounting. None of our employees or consultants, all of whom work in North America, are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and we believe our relations with our employees and consultants are excellent.
Seasonality of Business
There is no seasonality with respect to our business or major fluctuations in monthly demand.
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and its business before purchasing our securities. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Related to Our Business
We have incurred losses to date and we expect our operating expenses to increase in the foreseeable future, which may make it more difficult for us to achieve and maintain profitability.
To date, we have not derived any revenues from our operations and have incurred losses since inception. Our net loss was $5,179,241 for the year ended December 31, 2014 and $4,581,547 for the year ended December 31, 2013. As of December 31, 2014, we had an accumulated deficit of $10,044,067. We will need to raise additional working capital to continue our normal and planned operations. We will need to generate and sustain significant revenue levels in future periods in order to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake increased technology and production efforts to support our various business units and increase our marketing and sales efforts to drive an increase in the number of consumers utilizing our services. In addition, as a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. These expenditures will make it necessary for us to continue to raise additional working capital and make it harder for us to achieve and maintain profitability. Our efforts to grow our business may be more costly than we expect, and we may not be able to generate sufficient revenue to offset our higher operating expenses. If we are forced to reduce our expenses, our growth strategy could be compromised. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, we can provide no assurance as to whether or when we will achieve profitability. If we are not able to raise sufficient working capital or to achieve and maintain profitability, the value of our company and our common stock could decline significantly.
Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.
The ability of our business to continue its normal and planned operations and to grow and compete will depend on the availability of adequate capital. We cannot assure you that we will be able to obtain equity or debt financing on acceptable terms, or at all, to continue our normal and planned operations and to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to continue our normal and planned operations and to finance our current growth plans, take advantage of business opportunities, or respond to competitive pressures, any of which could harm our business.
We will need substantial additional funding to continue our operations, which could result in dilution to our stockholders. We may not be able to raise capital when needed, if at all, which could cause us to have insufficient funds to pursue our operations, or to delay, reduce or eliminate our development of new programs or commercialization efforts.
We expect to incur additional costs associated with operating as a public company and to require substantial additional funding to continue to pursue our business and continue with our expansion plans. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we expect that we will need to obtain substantial additional funding in order to continue our operations. To date, we have financed our operations entirely through equity investments by founders and other investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the incurrence of additional indebtedness, we would likely become subject to further covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate development of new programs or future marketing efforts. Any of these events could significantly harm our business, financial condition and prospects.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, a disruption of our operations, damage to our reputation, or a loss of confidence in our business, any of which could adversely affect our business, revenues and competitive position.
Regulatory oversight could impact our profitability.
We have shows under development featuring talent and content derived from our booths. Congress and several federal agencies, including the Federal Communications Commission (the "FCC"), extensively regulate the domestic broadcasting industry. For example, the FCC could impact our profitability by imposing large fines on us if, in response to pending complaints, it finds that we broadcast indecent programming. In addition, Congress and the FCC have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, have an adverse effect on our business operations and financial performance. In particular, Congress may consider and adopt legislation that would impose an obligation upon all broadcasters in the United States to pay performing artists a royalty for the on-air broadcast of their sound recordings (this would be in addition to payments already made by broadcasters to owners of musical work rights, such as songwriters, composers and publishers). We cannot predict whether this or other legislation affecting our business will be adopted. Such legislation could have a material impact on our operations and financial results.
Our business is highly competitive and any failure to adapt to changing consumer preferences may adversely affect our business and financial results.
We operate in a highly competitive, consumer-driven and rapidly changing environment. Our success will, to a large extent, be dependent on our ability to acquire, develop, adopt, upgrade and exploit new and existing technologies to address consumers' changing demands and distinguish our services from those of our competitors. We may not be able to accurately predict technological trends or the success of new products and services. If we choose technologies or equipment that are less effective, cost-efficient or attractive to our customers than those chosen by our competitors, or if we offer services that fail to appeal to consumers, are not available at competitive prices or that do not function as expected, our competitive position could deteriorate, and our business and financial results could suffer. The ability of our competitors to introduce new technologies, products and services more quickly than we do may adversely affect our competitive position. Furthermore, advances in technology, decreases in the cost of existing technologies or changes in competitors' product and service offerings may require us in the future to make additional research and development expenditures or to offer products and services at no additional charge or at a lower price. In addition, the uncertainty of our ability, and the costs, to obtain intellectual property rights from third parties could impact our ability to respond to technological advances in a timely and effective manner.
We expect that the success of our business will be highly correlated to general economic conditions.
We expect that demand for our products and services will be highly correlated with general economic conditions, as we expect a substantial portion of our revenue will be derived from discretionary spending by individuals, which typically falls during times of economic instability. Declines in economic conditions in the United States or in other countries in which we may operate may adversely impact our financial results. Because such declines in demand are difficult to predict, we or the industry may have increased excess capacity as a result. An increase in excess capacity may result in declines in prices for our products and services. Our ability to grow or maintain our business may be adversely affected by sustained economic weakness and uncertainty, including the effect of wavering consumer confidence, high unemployment and other factors.
Legal challenges to our intellectual property rights could adversely affect our financial results and operations.
We rely on licenses and other agreements with our vendors and other parties and other intellectual property rights to conduct our operations. Legal challenges to our intellectual property rights and claims of intellectual property infringement by third parties could require that we enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question or from the continuation of our businesses as currently conducted. We may need to change our business practices if any of these events occur, which may limit our ability to compete effectively and could have an adverse effect on our results of operations. Even if we believe any such challenges or claims are without merit, they can be time-consuming and costly to defend and divert management's attention and resources away from our business.
The capacity, reliability and security of our information technology hardware and software infrastructure are important to the operation of our current business, which would suffer in the event of system failures. Likewise, our ability to expand and update our information technology infrastructure in response to our growth and changing needs is important to the continued implementation of our new service offering initiatives. Our inability to expand or upgrade our technology infrastructure could have adverse consequences, which could include the delayed provision of services or implementation of new service offerings, and the diversion of development resources. We rely on third parties for various aspects of our hardware and software infrastructure. Third parties may experience errors or disruptions that could adversely impact us and over which we may have limited control. Interruption and/or failure of any of these systems could disrupt our operations and damage our reputation, thus adversely impacting our ability to provide our services, retain our current users and attract new users. In addition, our information technology hardware and software infrastructure may be vulnerable to unauthorized access, misuse, computer viruses or other events that could have a security impact. If one or more of such events occur, our customer and other information processed and stored in, and transmitted through, our information technology hardware and software infrastructure, or otherwise, could be compromised, which could result in significant losses or reputational damage. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses.
We expect that significant portions of any potential revenue we may earn in the future will be derived from advertising. If we are unable to secure sufficient advertising, we may not be able to continue to operate, or grow, our business.
We expect that a significant amount of our future revenue will be derived from advertising. With the continued development of alternative forms of media, particularly electronic media including those based on the internet, our business may face increased competition. Alternative media sources may also affect our ability to generate advertising revenues. This competition may make it difficult for us to grow or maintain our revenues from operations. Difficulties generating advertising revenue may become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Global economic conditions remain uncertain, and if they do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions may adversely impact our future revenues, profit margins, cash flow and liquidity. In addition, even in the absence of a downturn in general economic conditions, an individual business sector or market may experience a downturn, causing it to reduce its advertising expenditures, which may also adversely impact our results. Any failure to generate sufficient advertising revenues from our operations could have an adverse effect on our revenue, profit margins, cash flow and liquidity.
We are dependent on third parties to, among other things, supply our booths, provide the bandwidth necessary to transmit content, and utilize the content derived therefrom for the potential generation of revenues.
We depend on third party service providers, suppliers and licensors to supply some of the services, hardware, software and operational support necessary to provide some of our products and services. Some of these third parties do not have a long operating history or may not be able to continue to supply the equipment and services we desire in the future. Some of our vendors and service providers represent our sole source of supply or have, either through contract or as a result of intellectual property rights, a position of some exclusivity. If demand exceeds these vendors' capacity, or if these vendors experience operating or financial difficulties or are otherwise unable to provide the equipment or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some products and services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials or services might delay our ability to serve our users. These events could materially and adversely affect our ability to retain and attract users, and have a material negative impact on our operations, business, financial results and financial condition.
Our business may be affected by changing consumer preferences or by failure of the public to accept any new product offerings we may pursue.
The production and distribution of entertainment content is an inherently risky business because the revenue that may be derived depends primarily on the content's acceptance by the public, which is difficult to predict. Consumer and audience tastes change frequently and it is a challenge to anticipate what offerings will be successful at a certain point in time. In addition, competing entertainment content, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, piracy and increasing digital and on-demand distribution offerings may also affect the audience for our content. Our expenses may increase as we invest in new programming ideas, and there is no guarantee that the new programming will be successful or generate sufficient revenue to recoup the expenditures.
In addition, we expect that consumer acceptance of our offerings will be key to the success of our business and its ability to generate advertising and ancillary revenues. If MTV decides to proceed with "The Audition", we may derive a portion of our revenues from this proposed television program. However, during recent television seasons, ratings for many reality television based, audition or entertainment focused programs, such as "American Idol" and "America's Got Talent" have shown significant declines. In the event that we are not able to secure a significant television audience for "The Audition", or enough people submitting tapes for "The Audition" via our bBooths, it is unlikely that we will be able to generate material, if any, revenues from that business unit. Consequently, we believe that low public acceptance of our booths, programming or services offered would have an adverse effect on our results of operations.
Risks Related to Ownership of our Common Stock
Our board of directors is authorized to issue additional shares of our common stock that would dilute existing stockholders.
We are currently authorized to issue up to 200,000,000 shares of common stock and 15,000,000 shares of preferred stock, of which 61,099,999 shares of common stock and no shares of preferred stock are currently issued and outstanding as of March 30, 2015. We expect to seek additional financing in order to provide working capital to our business. Our board of directors has the power to issue any or all of such authorized but unissued shares at any price they consider sufficient, without stockholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current stockholders.
Trading on the OTC Bulletin Board and the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the Over the Counter Bulletin Board and on the OTCQB operated by the OTC Markets Group, Inc. Trading in stock quoted on these markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the neither of these markets are a stock exchange, and trading of securities on these markets is often more sporadic than the trading of securities listed on a national securities exchange like the NASDAQ or the NYSE. Accordingly, stockholders may have difficulty reselling any of our shares.
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. lf we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes‑Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and economic and regulatory environments, and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
The market price of our common stock may be volatile.
The market price of our common stock may be highly volatile. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate, or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because our directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from those of investors.
Certain of our executive officers and directors own a significant percentage of our outstanding capital stock. As of the date of this annual report, our executive officers and directors and their respective affiliates beneficially own over 50% of our outstanding voting stock. The holdings of our directors and executive officers may increase further in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted, or if they otherwise acquire additional shares of our common stock. The interests of such persons may differ from the interests of our other stockholders. As a result, in addition to their board seats and offices, such persons will have significant influence and control over all corporate actions requiring stockholder approval, irrespective of how our company's other stockholders may vote, including the following actions:
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· |
to elect or defeat the election of our directors; |
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· |
to amend or prevent amendment of our certificate of incorporation or by‑laws; |
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· |
to effect or prevent a merger, sale of assets or other corporate transaction; and |
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· |
to control the outcome of any other matter submitted to our stockholders for a vote. |
This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for our common stock, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
Penny stock rules will limit the ability of our stockholders to sell their stock.
The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements that may also limit a stockholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
We maintain offices, having an area of approximately 7,000 square feet, in Hollywood, California under an operating lease that expires in August 2015 for monthly rent of approximately $16,550. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
ITEM 3. LEGAL PROCEEDINGS
We know of no material pending legal proceedings to which our company or any of our subsidiaries is a party or of which any of our assets or properties, or the assets or properties of any of our subsidiaries, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is not traded on any exchange but is currently available for trading in the over‑the‑counter market and is quoted on the Over the Counter Bulletin Board and on the OTCBQ operated by the OTC Markets Group, Inc. under the symbol "BBTH." Trading in stocks quoted on these markets is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company's operations or business prospects.
Effective October 6, 2014, we completed a merger with our wholly-owned subsidiary, bBooth, Inc., in order to change our name from "Global System Designs, Inc." to "bBooth, Inc.", and we effected a two for one forward stock split of our authorized and issued and outstanding common shares. As a result, our authorized capital of common stock increased from 100,000,000 shares of common stock with a par value of $0.0001 per share to 200,000,000 shares of common stock with a par value of $0.0001 per share and our outstanding shares of common stock increased from 5,825,000 shares to 11,650,000 common shares outstanding. The 15,000,000 shares of preferred stock with a par value of $0.0001 per share authorized under our capital structure were unchanged in connection with the forward stock split of our common shares.
The name change and forward split became effective for trading purposes at the opening of trading on October 16, 2014 under the stock symbol "GLSID". Our stock symbol changed to "BBTH" effective on November 12, 2014.
Over the counter securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, these securities transactions are conducted through a telephone and computer network connecting dealers in stocks. Over the counter issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Trades in our common stock may be subject to Rule 15g‑9 of the Securities Exchange Act of 1934, as amended, which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser's written agreement to the transaction before the sale.
The SEC also has rules that regulate broker/dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities listed on certain national exchanges, provided that the current price and volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny stock rules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before or with the customer's confirmation. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for shares of our common stock. As a result of these rules, investors may find it difficult to sell their shares
Set forth below are the range of high and low bid quotations for the periods indicated as reported by the OTC Bulletin Board. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
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Quarter Ended
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High Bid
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Low Bid
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December 31, 2014
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$1.95
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$0.53
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September 30, 2014
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-
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-
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June 30, 2014
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-
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-
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March 31, 2014
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-
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-
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December 31, 2013
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-
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-
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September 30, 2013
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-
|
-
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June 30, 2013
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-
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-
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March 31, 2013
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-
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-
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On March 27, 2015, the closing price of our common stock as reported by the OTC Bulletin Board was $1.30 per share.
Transfer Agent
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Action Stock Transfer Corporation, located at 2469 East Fort Union Boulevard, Suite 214, Salt Lake City, Utah, 84121. Their telephone number is (801) 274-1088 and their fax number is (801) 274-1099.
Holders of Common Stock
As of March 30, 2015, there were approximately 127 holders of record of our common stock. As of such date, 61,099,999 shares of our common stock were issued and outstanding.
Dividends
We have never declared or paid dividends. We do not intend to pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends if any, on our common stock will rest solely within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes certain information regarding our equity compensation plans as of December 31, 2014:
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Plan category
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Number of securities
to be issued upon
exercise of outstanding options,
warrants and rights
(a)
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Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
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Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
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Equity compensation plans approved by security holders
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Nil
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N/A
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Nil
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Equity compensation plans not approved by security holders
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6,470,000
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$0.50
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5,530,000
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Total
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6,470,000
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$0.50
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5,530,000
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Effective October 16, 2014, our board of directors adopted and approved the 2014 Stock Option Plan. The purpose of the plan is to (a) enable our company and any of our affiliates to attract and retain the types of employees, consultants and directors who will contribute to our company's long range success; (b) provide incentives that align the interests of employees, consultants and directors with those of the stockholders of our company; and (c) promote the success of our company's business.
The Plan provides for the grant of incentive stock options to purchase shares of our common stock to our directors, officers, employees and consultants. The Plan is administered by our board of directors, except that it may, in its discretion, delegate such responsibility to a committee comprised of at least two directors. A maximum of 12,000,000 shares are reserved and set aside for issuance under the Plan. Each option, upon its exercise, entitles the optionee to acquire one share of our common stock, upon payment of the applicable exercise price, which is determined by the board at the time of grant. Stock options may be granted under the Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the Plan.
Vesting terms are determined by the board of directors at the time of grant, provided that, if no vesting schedule is specified at the time of grant, 25% of the options granted will vest on first anniversary of the date of grant, and 25% of such options will vest each year thereafter, until fully vested. Options that have vested will terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) the expiration of the options; (ii) the date of an optionee's termination of employment or contractual relationship with our company for cause (as determined in the sole discretion of the plan administrator; (iii) the expiration of three months from the date of an optionee's termination of employment or contractual relationship with our company for any reason whatsoever other than cause, death or disability (as defined in the plan); or (iv) the expiration of one year from termination of an optionee's employment or contractual relationship by reason of death or disability.
Recent Sales of Unregistered Securities
Since the beginning of our fiscal year ended December 31, 2014, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.
Overview
We were incorporated in the State of Nevada on November 27, 2012. Following incorporation, our business related to the development and marketing of "green building" information for homeowners and owners-builders. In January 2013, we formed a Canadian subsidiary, "Global System Designs Inc." in response to Canadian demand for consultative building services. In the second quarter of 2014, we decided to explore alternative business opportunities in order to maximize shareholder value. As a result, we entered into the Exchange Agreement with bBooth USA, which closed on October 16, 2014.
Cutaia Media Group was formed as a limited liability company under the laws of the State of Nevada on December 12, 2012. On May 19, 2014, bBooth Inc. was incorporated under the laws of the State of Nevada and both entities entered into a Plan of Merger, pursuant to which all of the membership interests of Cutaia Media Group were exchanged at a ratio of one unit of membership interest into one share of common stock of bBooth USA, which became the surviving entity.
Following the closing of the Exchange Agreement, our company commenced focusing on the business currently carried on by bBooth USA, which is the manufacture and operation of internet-connected, kiosk-sized, professional-quality audio-video recording studios, branded and marketed under the name of "bBooth", which are integrated into a social media, messaging, gaming, music streaming and video sharing app.
Because the operations and assets of bBooth USA represent substantially our entire business and operations as of the closing date of the Exchange Agreement, our management's discussion and analysis contained in this annual report is based on bBooth USA's operations.
Product Development
In addition to the 10'x12' sized flagship style bBooths our company is deploying in shopping malls, our company is currently developing a smaller bBooth that will accommodate only 1-3 people. The smaller booth (currently referred to internally as "bBooth Express") is designed to appeal to a broader demographic looking to record an electronic greeting card or other video recorded message for quick distribution to friends, family and social media followers. Our marketing research indicates that these consumers don't require professional quality recordings in a completely sound-proof chamber, but are more interested in a fun, social experience. bBooth Express will be fully automated, requiring no attendant, and its weather-proof compact footprint will allow it to be deployed in many more locations at a far lower cost than the flagship bBooth models. Cost of production is also expected to be significantly lower than the flagship bBooth models.
Growth
We are preparing for rapid growth following the near-term deployment of our booths, the release of our kord app, the airing of one or more of online shows and the media attention we anticipate will result. Accordingly, management has been focused on the dynamic scalability of its mobile and online infrastructure, vendor/contractor capacity and supply, national-scale staffing and human resources capabilities, and the expansion of the management team. As management believes our products and services have global appeal, management expects that our company will undergo a long sustained growth trend as it implements its international roll-out initiatives.
Industry Trends
Management believes that our company is uniquely well-positioned to enjoy the current industry growth trends of social media, mobile video and video sharing and online streaming music.
Social Media Growth
Social Media and online content have grown by an average of 900% compound annual growth rate (ranging from 71% for LinkedIn to 4900% for Pinterest, and includes Facebook, Twitter, WordPress, Tumblr and Google+) since the acquisition of YouTube by Google in 2006 to end of 2012. (Source: dstevenwhite.com).
Mobile Video Growth
Cisco estimates that over two-thirds of the world's mobile data traffic will be video by 2018. Mobile video is expected to increase 14-fold between 2013-2018, accounting for 69% of total mobile data traffic by the end of 2018. (Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update (2013 – 2018))
Streaming Music Growth
Nielsen SoundScan says on-demand streaming services jumped 42% in the first half of 2014 compared to a year ago, soaring to 70.3 million streams. Sales of digital downloads, meanwhile, dropped 13% to $593.6 million during the first six months, from $682.2 million the year before. (Source: Nielsen Entertainment & Billboard's 2014 Mid-Year Music Industry Report)
Conclusion
Management believes bBooth's retail kiosk platform combined with its kord app, allowing consumers to easily create and share high quality video content and to interact with music in new ways through a mobile app will position our company at the forefront of the video and music streaming and sharing revolution. Management believes that the market is continuing to ascribe higher and higher valuations for businesses in the sectors occupied by bBooth.
Key Opportunities
We believe there are numerous mobile video sharing and distribution platforms with existing active user bases that range from several million to tens of millions of users that could be acquired by our company through one or more accretive transactions. Management believes it could integrate such platforms and convert their corresponding users to our higher value proposition kord app and our retail bBooth platform effectively accelerating and increasing our revenue generation and earnings capabilities.
Results of Operations
Year Ended December 31, 2014 and 2013
The following is a comparison of the results of our operations for the year ended December 31, 2014 and 2013.
| |
|
For the Year Ended
|
|
|
|
|
| |
|
December 31, 2014
|
|
|
December 31, 2013
|
|
|
Change
|
|
|
Research and development expense
|
|
$
|
156,762
|
|
|
$
|
485,429
|
|
|
$
|
(328,667
|
)
|
|
General and administrative expense
|
|
|
4,708,163
|
|
|
|
4,096,118
|
|
|
|
612,045
|
|
|
Loss from operations
|
|
|
4,864,925
|
|
|
|
4,581,547
|
|
|
|
283,378
|
|
|
Interest expense
|
|
|
314,316
|
|
|
|
-
|
|
|
|
314,316
|
|
|
Net Loss
|
|
$
|
5,179,241
|
|
|
$
|
4,581,547
|
|
|
$
|
597,694
|
|
Revenues
We did not generate any revenue during the years ended December 31, 2014 or 2013.
Operating Expenses
Research and development expense. Research and development expenses are primarily expenses to vendors contracted to perform research projects and develop technology for our booths and our mobile app. The expense is decreasing as the majority of the technological development and design of our booths was incurred during 2013.
General and administrative expense. For the year ended December 31, 2014, our general and administrative expenses consisted primarily of approximately $1,139,629 for consulting expenses, $270,666 for officer compensation, $303,992 for professional fees, and $561,860 for salary related expenses. The general and administrative expense for 2014 increased as compared to the year ended December 31, 2013 primarily due to the payment of $500,000 as partial consideration for the acquisition of the technology license from Studio One. Additionally, there was $834,606 of share-based compensation in 2014 from the issuance of stock options and warrants in November 2014, as well as increased operating expenses in 2014 relating to consulting, payroll and professional fees. This increase was partially offset by $2,946,740 of fees to management consultants in 2013.
Interest expense. For the year ended December 31, 2014, our interest expense amounted to $314,316, which represented interest associated with notes payable issued in June 2014 of $62,316, as well as $252,000 for the amortization of debt issuance costs resulting from the issuance of convertible notes payable. There was no interest expense during the same period in 2013, as we had no interest bearing debt outstanding during that timeframe.
Liquidity and Capital Resources
The following is a summary of our cash flows from operating, investing and financing activities for the years ended December 31, 2014 and 2013.
| |
|
For the Year Ended
|
|
| |
|
December 31, 2014
|
|
|
December 31, 2013
|
|
|
Cash (used in) operating activities
|
|
$
|
(3,728,888
|
)
|
|
$
|
(1,224,029
|
)
|
|
Cash (used in) investing activities
|
|
|
(310,206
|
)
|
|
|
(29,345
|
)
|
|
Cash provided by financing activities
|
|
|
5,086,987
|
|
|
|
1,377,598
|
|
|
Increase in cash
|
|
$
|
1,047,893
|
|
|
$
|
124,224
|
|
For the year ended December 31, 2014, our cash flows used in operating activities amounted to $3,728,888, compared to cash used in 2013 of $1,224,029. The primary reason for the change relates to higher spending in 2014 relating to consulting, professional fees and salary related costs in order to execute our business plan. Our cash used in investing activities amounted to $310,206 for the year ended December 31, 2014, as compared to $29,345 for 2013. Our cash used in investing activities was higher in 2014 due primarily to $199,428 in deposits paid for bBooth equipment and $110,778 for the purchase of property and equipment. During 2013, our cash used in investing activities was only $29,345 relating to the purchase of property and equipment. Our cash provided by financing activities for the year ended December 31, 2014 amounted to $5,086,987, as compared to $1,377,598 for 2013. The cash provided by financing activities was higher during 2014 due primarily to the proceeds from the private placement in October 2014 of $4,500,000, along with the proceeds from convertible notes payable of $1,500,000, offset by the payment of $861,435 from the issuance of a note receivable to Songstagram, Inc.
As at December 31, 2014, we had cash of $1,172,117 and working capital of $1,691,333 as compared to cash of $124,224 and a working capital deficit of $123,670 as at December 31, 2013. The increase in cash and working capital at December 31, 2014 was primarily the result of cash flows provided from financing activities during the fourth quarter of 2014 resulting from the private placement of common stock. We estimate our operating expenses for the next 12 months will continue to exceed any revenues we generate, and we will need to raise capital through either debt or equity offerings to continue operations.
We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk that our company will not be able to raise such financings at all, or on terms that are not overly dilutive to our existing shareholders. We can offer no assurance that we will be able to raise such funds.
Going Concern
As more fully described in Note 2 to our audited financial statements included with this annual report, our independent registered public accounting firm has included an explanatory paragraph in their report on our financial statements for the year ended December 31, 2014 related to the uncertainty of our ability to continue as a going concern. We have a significant accumulated deficit and working capital deficit and have incurred losses from continuing operations since inception. These conditions raise substantial doubt about our ability to continue as a going concern.
Management's plan is to use the financing obtained in connection with the closing of the Exchange Agreement to continue to expand its operations. If we are not successful in continuing to raise additional financing, or generating revenue and becoming profitable, we may have to further delay or reduce expenses, or curtail operations. The accompanying financial statements of bBooth do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should our company not continue as a going concern.
Critical Accounting Policies
Our company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. On an ongoing basis, management evaluates its estimates, including those related to valuation of the fair value of financial instruments, share based compensation arrangements and long‑lived assets. These estimates are based on historical experience and on various other factors that it believes to be reasonable under the circumstances. Actual results could differ from those estimates. For additional information relating to these and other accounting policies, see Note 2 to our financial statements appearing elsewhere in this annual report.
Recently Issued Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-10, Development Stage Entities (Topic 915). ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. ASU 2014-10 is effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. Our company has elected to early adopt the provisions of ASU 2014-10 and has removed the related disclosures in the accompanying financial statements and notes.
Our company is evaluating how to apply ASU 605, Revenues from Contracts with Customers, before its effective date, however, as we do not yet have revenue to recognize, it will not have an impact on current results of operations, financial position or cash flows.
Notes Payable
On September 30, 2014, we issued a demand promissory note to a third party lender in consideration for a loan in the principal amount of $100,000. The outstanding principal is due on demand, together with an additional interest fee of $5,000. On February 26, 2015, we entered into a second loan agreement with this lender for an additional loan in the principal amount of $100,000. The loan bears interest at the rate of 12% per annum and is due on demand.
On February 26, 2015, we entered into a loan agreement with Rory Cutaia pursuant to which Mr. Cutaia made a loan to our company in the principal amount of $100,000. The loan bears interest at the rate of 12% per annum and is due on demand.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
