Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

v3.3.1.900
Discontinued Operations
12 Months Ended
Dec. 31, 2015
Accounting Policies [Abstract]  
Discontinued Operations

NOTE 10 – DISCONTINUED OPERATIONS

 

On February 23, 2015 the Company entered into an agreement whereby, the Company issued an aggregate of 2.5 million shares of its restricted common stock valued at $1,700,000, in exchange for all of the issued and outstanding shares of Franklin Networks, Inc., a Tennessee corporation (“Franklin”), an internet company that began operations in September 2014. The acquisition of Franklin had been accounted for as a purchase and the operations of Franklin have been consolidated since the date of the acquisition. The $1.7 million purchase price was allocated based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm.

 

The allocation of the purchase price was as follows:

 

Intangible Assets        
a.  Domain and website   $ 591,229  
b.  Covenants not to compete     79,902  
Deferred tax liability     (117,741 )
Goodwill     1,146,610  
Total Purchase Price   $ 1,700,000  

 

On December 31, 2015, the Company and the former owners of Franklin, McGarrity, Palm and Pilgrim agreed to unwind their written agreement dated February 23, 2015. Palm and McGarrity are current shareholders of the Company. McGarrity is currently an employee of the Company. Both Palm and McGarrity are shareholders in Pilgrim.

 

The Parties agreed to unwind the Contract as a result of industry changes following entry into the Contract. The Company determined that the required investment of resources and time to reach the desired profitability levels would be much greater than originally anticipated. Thus, based upon prudent business judgment, the Company determined to unwind the Contract and focus its resources on more productive business lines, such as mobile game development and publication.

 

The Parties agreed to return the original consideration exchanged in the contract. McGarrity, Palm and Pilgrim returned to the Company two million five hundred thousand restricted shares of the Company’s common stock, and the Company returned to McGarrity, Palm and Pilgrim one hundred percent of the issued shares in Franklin Networks, Inc., a Tennessee Corporation (hereafter, “Franklin”), and certain web site assets. On December 31, 2015, the Company unwound the Franklin agreement via a separate Unwind Agreement. Pursuant to the Unwind Agreement, Franklin returned all of the Company’s stock to Company in exchange for the return of the shares of Franklin stock, the Franklin web domains, websites, trade names and contractual relationships with Ad Service providers. The Company retained all mobile game-related IP and contractual agreements.

 

The Company accounted for the unwinding or rescission of the Franklin acquisition pursuant to ASC 845-10-30-10, Non-Monetary Transactions and current guidelines issued by the Securities and Exchange Commission. As a result, the Company wrote off the unamortized intangible assets, goodwill and deferred tax liability with a net balance of $1,638,536 as of December 31, 2015, reduced by the fair value of the 2.5 million shares of common stock returned to the Company amounting to $500,000 or a net amount of $1,138,536.

 

In addition, during the year ended December 31, 2015, Franklin generated a loss from operations of $1,205,988. Pursuant to ASC 2014-08, Reporting of Discontinued Operations, the Company reported the loss from operations as a loss from discontinued operations in the accompanying statements of operations since the Company considered its decision to rescind the Franklin acquisition as a strategic shift that has a major effect in the Company’s operations and financial results.

 

The following table summarizes the results of operations of Franklin for the period February 23, 2015 up to December 31, 2015 and is included in the consolidated statements of operations as discontinued operations:

 

Revenues   $ 388,143  
Operating expenses     1,594,131  
Loss from operations     (1,205,988 )
Loss on rescission     (1,138,536 )
    $ (2,344,524 )