VNUE, Inc. - Quarter Report: 2018 June (Form 10-Q)

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2018

For the transition period from _________ to _________

Commission File No. 000-53462

104 West 29th Street, 11th Floor, New York, NY 10001

(Address of Principal Executive Offices)

(857) 777-6190

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of registrant’s common stock outstanding as of June 30, 2018 was 90,210,816.

FORM 10-Q

VNUE, INC.

JUNE 30, 2018

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

VNUE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements.

VNUE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements.

VNUE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2018

See accompanying notes to the condensed consolidated financial statements.

VNUE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements.

VNUE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of VNUE, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

History and Organization

VNUE, Inc. (formerly Tierra Grande Resources, Inc.) (“VNUE”, “TGRI”, or the “Company”) was incorporated under the laws of the State of Nevada on April 4, 2006.

On May 29, 2015, VNUE, Inc. entered into a merger agreement with VNUE Washington, Inc. Pursuant to the terms of the Merger Agreement, all of the outstanding shares of any class or series of VNUE Washington were exchanged for an aggregate of 50,762,987 shares of TGRI common stock. As a result of the Merger, VNUE Washington became a wholly-owned subsidiary of the Company, and the transaction was accounted for as a reverse merger with VNUE Washington deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer.

Overview of Business

The Company is developing a technology driven solution for Artists, Venues and Festivals to automate the capturing, publishing and monetization of their content.

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the six months ended June 30, 2018, the Company incurred a net loss of $360,197, used cash in operations of $279,613, and had a stockholders’ deficit of $2,254,619 as of June 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2017 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

At June 30, 2018, the Company had cash on hand in the amount of $7,165. Subsequent to June 30, 2018, the Company received additional borrowings of $63,000 (see Note 10). Management estimates that the current funds on hand will be sufficient to continue operations through September 2018. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The Company consolidates all wholly owned and majority-owned subsidiaries in which the Company’s power to control exists. The Company consolidates the following subsidiaries and/or entities:

VNUE Technology, Inc. and VNUE Media, Inc. were inactive corporations at June 30, 2018 and 2017, respectively. Inter-company balances and transactions have been eliminated.

Revenue Recognition

Effective January 1, 2018, the Company adopted the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts. The implementation of ASC 606 did not have a material impact on the Company’s condensed consolidated financial statements. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.

The Company recognizes revenue on the sale of digital video disks (DVD) that contain the recording of live concerts and made available to concert viewers immediately after the show and on-line. Revenue is recognized on the sale of a product when the risk of loss transfers to our customers, and collection of the receivable is reasonably assured, which generally occurs when the product is purchased.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. Significant estimates include the assumptions used to value the derivative liabilities, the valuation allowance for the deferred tax asset and the accruals for potential liabilities. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

The carrying amounts of financial instruments such as cash, accounts receivable, inventories, and accounts payable and accrued liabilities, approximate the related fair values due to the short-term maturities of these instruments.

The fair value of the derivative liabilities of $670,887 and $866,873 at June 30, 2018 and December 31, 2017, respectively, were valued using Level 2 inputs.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Loss per Common Share

Basic earnings (loss) per share are computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.

For the six months ended June 30, 2018 and 2017, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. As of June 30, 2018 and 2017, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive.

Intangible Assets

The Company accounts for intangible assets in accordance with the authoritative guidance issued by the FASB. Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit. The Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated undiscounted future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

The Company had intangible assets with a carrying value of $546,384 and $320,833 as of June 30, 2018 and December 31, 2017, respectively. In accordance with ASC Topic 350 – Goodwill and Other Intangible Assets, the Company assesses the carrying value of its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable and records an impairment charge if the carrying value of such intangible assets is not recoverable and if it exceeds its fair value. While our fiscal year-to-date financial performance has not met our expectations, and the enterprise value of the Company based on the current price of our common stock may fluctuate at or near the recorded level of finite-lived intangible assets, management does not consider these to be events requiring the performance of an impairment test. The Company will continue to monitor its operating results for indicators of impairment and perform additional tests as necessary, which could result in an impairment charge to intangible assets.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement presentation or disclosures.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently assessing the effect that the ASU will have on our financial position, results of operations, and disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 – INTANGIBLE ASSETS AND PURCHASE LIABILITY

Intangible assets as of June 30, 2018 and December 31, 2017, consist of the following:

Asset Acquisition – Set.fm

On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc. (the “Seller”), whereby the Company acquired the digital live music distribution platform “Set.fm” from PledgeMusic. Additionally, the Company will offer PledgeMusic North America’s full suite of music business tools allowing artists to sell music, merchandise and live experiences directly to fans, enhancing the Company’s clients’ revenue opportunities on a shared revenue basis. Set.fm is a do-it-yourself (DIY) platform that makes it easy for artists to record and sell their live shows directly to fans’ mobile devices, uploading simultaneously with their performance. The platform, which also features an innovative and easy-to-use studio app, already boasts thousands of artists and tens of thousands of fans using it. VNUE plans to update and improve the existing platform for indie artists and their fans, and to implement pro features for artists that VNUE and its affiliate DiscLive produce. The Company determined that the acquisition of Set.fm constituted the acquisition of an asset for accounting purposes.

The purchase price for the acquisition was comprised of $50,000 paid in cash, and a purchase liability of $300,000, for an aggregate purchase price of $350,000. The purchase liability is payable on the net revenues derived from VNUE’s live recording and content business and must be paid in full to the Seller no later than the three (3) year anniversary of the date of the agreement, or October 16, 2020. If the Company fails to pay the Seller the purchase liability on time, the Seller may request at any time within one hundred eighty days (180) days following the (3) year anniversary of the asset purchase agreement, that the Company immediately forfeit, convey, assign and transfer to the Seller all or any of the Purchased Assets so requested by the Seller for no additional consideration. As of June 30, 2018, there was no net revenue derived from the acquired assets and accordingly, no payments were made on the earnout.

The Company assigned $350,000 of the purchase price to intellectual property which will be amortized over a three (3) year period. Total amortization expense during the three and six months ended June 30, 2018, was $29,167 and $58,334, respectively, which is included in general and administrative expense in the Condensed Consolidated Statements of Operations.

Asset Acquisition - Soundstr

On April 23, 2018, the Company entered into an agreement with MusicPlay Analytics, LLC (d/b/a Soundstr) (“Soundstr”) whereby the Company acquired the assets of Soundstr, a technology that aims to help businesses pay fairer music license fees based on actual music usage. The Company purchased the assets of Soundstr by agreeing to issue 2,275,000 shares of the Company’s common stock, valued at $68,250, based on the closing market price of the Company’s stock on the date of the agreement, and the Company agreed to assume and pay $234,487 of identified Soundstr obligations within 60 days of April 23, 2018. The assumed Soundstr obligations of $234,487 were outstanding as of June 30, 2018.

The Company assigned $302,737 of the purchase price to intellectual property which will be amortized over a three (3) year period. Total amortization expense during both the three and six months ended June 30, 2018, was $18,852, which is included in general and administrative expense in the Condensed Consolidated Statements of Operations.

NOTE 4 – RELATED PARTY TRANSACTIONS

DiscLive Network

On July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive” or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live” recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license. In exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of the products and services. DiscLive is controlled by our Chief Executive Officer. Revenues of $20,824 and $37,825 and cost of revenues of $37,402 and $35,151 during the six months ended June 30, 2018 and 2017, respectively, were recorded using the assets licensed under this agreement.

Advances from Stockholders / Employees

From time to time, employees of the Company advance funds to the Company for working capital purposes. The advances are unsecured, non-interest bearing and due on demand. As of June 30, 2018 and December 31, 2017, the advances from the employees were $14,720 and $14,720, respectively.

Note payable to President and Significant Stockholder

On December 31, 2014 the Company entered into a note payable agreement with its President, and significant stockholder of the Company. The note is unsecured, non-interest bearing and due on December 31, 2024. As of December 31, 2017, the note payable balance to the officer was $74,131. On April 9, 2018, the Company and its President entered into a conversion and cancellation of debt agreement in which the Company issued common shares for payment in full and the note was retired (see Note 8).

Transactions with Louis Mann

On August 26, 2015, the Company entered into an Advisory Agreement with Louis Mann (“MANN”), a former officer and director with the Company who resigned as an officer and director on August 26, 2015. The Advisory Agreement provided for MANN’s continued and ongoing advisory services to the Company until December 31, 2015 and MANN was to be paid $25,000 for providing such advisory services, which was due and payable on or before December 31, 2015.

On September 15, 2017, the Company entered into a new Advisory Agreement with MANN. The Advisory Agreement provides for MANN’s continued and ongoing advisory services to the Company for a period of six (6) months and with automatic six (6) months renewals, unless terminated in accordance with the agreement. MANN is to receive $5,000 per month and 20,000 shares of common stock per month.

As of December 31, 2017, $32,500 of cash compensation was owed to MANN and included in accounts payable and accrued expenses. On April 5, 2018, the Company and MANN entered into a conversion and cancellation of debt agreement relating to the $32,500 cash compensation balance outstanding at December 31, 2017. The Company issued 650,000 shares of common stock, at $0.02 per share, as payment in full for the $32,500 balance outstanding at December 31, 2017 (see Note 8).

During the three and six months ended June 30, 2018 and 2017, the Company incurred costs of $15,000 and $30,000 and $0 and $0, respectively, relating to these agreements. As of June 30, 2018, $17,500 of compensation is owed to MANN and included in accounts payable and accrued expenses.

Additionally, 120,000 and 60,000 shares of common stock, valued at $2,258 and $578, are included in shares to be issued at June 30, 2018 and December 31, 2017, respectively.

NOTE 5 – NOTE PAYABLE (IN DEFAULT)

On December 17, 2015, the Company issued a Promissory Note in the principal amount of $9,000. The note is due within 10 business days of the Company receiving a notice of effectiveness of its Form S-1 filed on February 22, 2016. Failure to make payment during that 10 business day period shall constitute an Event of Default, as a result of which the note will become immediately due and payable and the balance will bear interest at 7%. The Company’s Form S-1 was declared effective on March 8, 2016 and payment was due before March 22, 2016. The Company did not repay the note before March 22, 2016; therefore, the note is in default with an interest rate of 7%. The balance of the note payable outstanding was $9,000 as of June 30, 2018 and December 31, 2017, respectively.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of the following:

For both YLimit, LLC (b) and Crossover Capital Fund II, LLC (c) above, the Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments.

The balance of the unamortized discount at December 31, 2017, was $198,205. During the six months ended June 30, 2018, the Company issued $215,000 of convertible notes whose conversion features created a derivative liability upon issuance with a fair value of $245,793, of which $164,695 was recorded as a valuation discount, and the remaining $81,098 was recorded as a financing cost. In addition, the Company recorded debt discount of $40,367 related to warrants issued with the issuance of convertible notes totaling $75,000 during the period and $13,500 relating to issuance costs. During the six months ended June 30, 2018, amortization of debt discount was $223,396. The unamortized balance of the debt discount was $193,191 as of June 30, 2018.

For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows:

NOTE 7 – DERIVATIVE LIABILITY

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion prices of the Notes described in Note 6 were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or they were variable. Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

As of June 30, 2018 and December 31, 2017, the derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

During the six months ended June 30, 2018, the Company recognized $407,249 as other income, which represented the change in the value of the derivative from the respective prior period. In addition, the Company recognized derivative liabilities of $245,793 upon issuance of convertible notes and recognized a gain on extinguishment of derivative liabilities of $34,529 during the period.

NOTE 8 – STOCKHOLDERS’ DEFICIT

Shares issued to settle outstanding obligations

Executive Officers

During the six months ended June 30, 2018, the Company entered into conversion and cancellation of debt agreements with two executive officers. The Company agreed to convert $493,936 of outstanding executive loans and compensation into 3,746,660 shares of the Company’ stock, valued at $74,933 using the closing market price of the Company’s stock on the date of the conversion and cancellation of debt agreements. The difference between the total executive obligations converted of $493,936, and the market value of the shares issued of $74,933, was recorded as contributed capital of $419,003 in the condensed consolidated statements of stockholders’ deficit for the six months ended June 30, 2018.

Vendors

During the six months ended June 30, 2018, the Company entered into conversion and cancellation of debt agreements with several of its vendors. The Company agreed to convert $202,094 of outstanding vendor obligations into 5,616,086 shares of the Company’ stock, valued at $160,983 using the closing market price of the Company’s stock on the date of the conversion and cancellation of debt agreements. The difference between the total vendor obligations converted of $202,094, and the market value of the shares issued of $160,983, was recorded as a gain of $41,111 to other income as a gain on settlement of obligations in other income in the condensed consolidated statements of operations for the three and six months ended June 30, 2018.

Conversion of Debt

On April 8, 2018 and April 12, 2018, the Company entered into conversion and cancellation of debt agreements relating to two outstanding convertible notes. The Company agreed to convert the outstanding aggregate principal and interest balances of $25,752 into 2,400,000 shares of common stock, and recorded a loss on cancellation of debt of $44,248.

Shares issued for services

On May 11, 2018, the Company issued 300,000 shares valued at $9,000, or $0.03 per share, for services received relating to a consulting agreement.

Shares to be issued

As of December 31, 2017, the Company had not yet issued 6,537,352 shares of common stock with a value of $932,734 due for past services provided. During the six months ended June 30, 2018, the Company issued 3,813,000 shares of common stock with a value of $707,895 related to the prior year unissued shares. In addition, the Company agreed to issue a total of 620,000 shares valued at $12,680, or $0.02 per share, for services rendered, and agreed to issue 2,275,000 shares valued at $68,250, or $0.03 per share, related to an acquisition (see Note 3). As of June 30, 2018, the Company had not yet issued 5,619,352 shares of common stock with a value of $305,769 for past services provided and an acquisition.

Warrants

A summary of warrant activity for the six months ended June 30, 2018, is as follows:

Information relating to outstanding warrants at June 30, 2018, summarized by exercise price, is as follows:

During the six months ended June 30, 2018, the Company issued 3,000,000 warrants with a three (3) year expiration date and an exercise price of $0.015 per share to purchase the Company’s common stock as an inducement to enter into certain convertible note agreements. The aggregate fair value of the warrants granted was determined to be $46,774 of which $40,367 was allocated and recorded as a debt discount and is being amortized to financing costs over the term of the related convertible notes.

The weighted-average remaining contractual life of warrants outstanding and exercisable at June 30, 2018 was 2.39 years. The intrinsic value of both outstanding and exercisable warrants at June 30, 2018 was $74,990.

NOTE 9 – COMMITMENT AND CONTINGENCIES

Litigation – Hughes Media Law Group, Inc.

On December 11, 2015, Hughes Media Law Group, Inc. (“HLMG”) filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,553 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with VNUE Washington, for legal work performed by HMLG for VNUE Washington prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue VNUE Washington, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. On July 25, 2016, the court issued judgment awarding HLMG $133,482 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying condensed consolidated balance sheets at December 31, 2017. On April 12, 2018, the Company and Hughes Media Law Group, Inc. (“HLMG”) entered into a conversion and cancellation of debt agreement relating to the outstanding obligation. The Company agreed to convert the total remaining outstanding obligation of $118,065 into 3,935,512 shares of common stock, or $0.03 per share (see Note 8).

NOTE 10 – SUBSEQUENT EVENTS

On July 9, 2018, the Company issued a convertible note to Power Up Lending Group Ltd. (the “Buyer”) in the principal amount of $63,000 with an interest rate of 12% per annum (22% on default) and a maturity date of July 9, 2019. The note is convertible into shares of common stock of the Company at a 38% discount of the two (2) lowest closing bid prices for the Company’s common stock during the prior fifteen (15) trading day period. The Buyer is limited to convert no more than 4.99%, at any one time, of the issued and outstanding common stock of the Company. The convertible note is subject to prepayment penalties. The Company instructed its transfer agent to reserve 25,403,226 shares of its common stock.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The statements in this quarterly report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements appear in a number of different places in this report and can be identified by words such as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include, among others, statements regarding our business plans and availability of financing for our business.

You are cautioned that any such forward-looking statements are not guarantees and may involve risks and uncertainties. Our actual results may differ materially from those in the forward-looking statements due to risks facing us or due to actual facts differing from the assumptions underlying our estimates. Some of these risks and assumptions include those set forth in reports and other documents we have filed with or furnished to the United States Securities and Exchange Commission (“SEC”). We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.

Presentation of Information

As used in this annual report, the terms “we”, “us”, “our” and the “Company” mean VNUE, Inc. and its subsidiaries, unless the context requires otherwise.

All dollar amounts in this annual report refer to US dollars unless otherwise indicated.

Overview

We were incorporated as a Nevada corporation on April 4, 2006.

Overview of our Current Business

Following the Merger on May 29, 2015, we now carry on business as a live entertainment music service company which brings bands and fans together by capturing professional quality audio and video recordings of live performances and delivers the experience of a venue to your home and hand.

By streamlining the processes of curation, clearing, capturing, distribution & monetization, VNUE manages and simplifies the complexities of the music ecosystem.

VNUE captures content through its Front of House mobile application and provides world-wide distribution and monetization through a suite of mobile, web administration applications, allowing an artist to seamlessly deliver and sell their live performances directly to the fans who attend their shows.

On July 10, 2017, the Company entered into a Licensing Agreement with RockHouse Live Media Productions, Inc., DBA “DiscLive” or “DiscLive Network” (“DiscLive”) to formalize the terms of the Strategic Alliance entered into by the Company with DiscLive on July 21, 2016. VNUE has acquired an exclusive license from DiscLive, for a period of three years unless earlier terminated under the Agreement, for the use of all its assets, including but not limited to the DiscLive brand, website (including eCommerce platform), intellectual property, inventory, equipment, trade secrets and anything related to its business of “instant live” recording. Under the terms of the Agreement, DiscLive granted the Company a worldwide exclusive license. In exchange for the license, DiscLive will receive a license fee equal to five percent (5%) of any sales derived from the sale and use of the products and services. DiscLive is controlled by our Chief Executive Officer.

On October 16, 2017, the Company entered into an agreement with PledgeMusic, Inc., whereby the Company acquired the assets of the digital live music distribution platform Set.fm from PledgeMusic (See Note 3 of the condensed consolidated financial statements herein). Additionally, the Company will offer PledgeMusic North America’s full suite of music business tools allowing artists to sell music, merchandise and live experiences directly to fans, enhancing the Company’s clients’ revenue opportunities on a shared revenue basis. Set.fm is a do-it-yourself (DIY) platform that makes it easy for artists to record and sell their live shows directly to fans’ mobile devices, uploading simultaneously with their performance. The platform, which also features an innovative and easy-to-use studio app, already boasts thousands of artists and tens of thousands of fans using it. VNUE plans to update and improve the existing platform for indie artists and their fans, and to implement pro features for artists that VNUE and its affiliate DiscLive produce.

On April 23, 2018, the Company entered into an agreement with MusicPlay Analytics, LLC (d/b/a Soundstr) (“Soundstr”) whereby the Company acquired the assets of Soundstr, a technology that aims to help businesses pay fairer music license fees based on actual music usage.

The following discussion and analysis of our results of operations and financial condition for the three and six months ended June 30, 2018 and 2017, should be read in conjunction with our condensed consolidated financial statements and related notes included in this report. We are in the process of completing development of our products and services and therefore had minimal revenues during this quarter.

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Revenues

Our revenues for the three months ended June 30, 2018 and 2017, was $5,341 and $37,825, respectively. The revenues resulted from the use of the assets licensed from DiscLive discussed above.

Direct Costs of Revenues

Our direct costs of revenues for the three months ended June 30, 2018 and 2017, was $14,278 and $35,151, respectively. The direct costs of revenues resulted from the use of the assets licensed from DiscLive.

Research and Development

Our research and development expenses for the three months ended June 30, 2018 and 2017, was $11,497 and $24,706, respectively. The decrease in research and development expenses relative to last year reflected the decrease in full time personnel and contract labor caused by our lack of sufficient working capital.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2018 and 2017, was $227,789 and $178,332, respectively. The increase in general and administrative expenses relative to last year was due to increased amortization expense related to our recent acquisitions and increased professional fees.

Other Income (Expenses), Net

We recorded other income, net of $81,407 for the three months ended June 30, 2018, compared to other expense of $220,707 for the three months ended June 30, 2017. The change in other income (expenses), net, was primarily due to the change in the fair value of derivative liabilities of $152,427 and decreased financing costs of $118,295, as compared to the prior year period. In addition, we recorded a gain on the extinguishment of derivative liability of $34,529, a loss on settlement of debt of $44,248, and a gain on settlement of employee and vendor obligation of $41,111, all of which did not occur during the prior year period.

Net Loss

As a result of the foregoing revenues, direct costs of revenues, research and development expenses, general and administrative expenses, and other income (expenses), net, our net loss for the three months ended June 30, 2018 was $166,816 compared to our net loss for the three months ended June 30, 2017 of $421,071.

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Revenues

Our revenues for the six months ended June 30, 2018 and 2017, was $20,824 and $37,825, respectively. The revenues resulted from the use of the assets licensed from DiscLive discussed above.

Direct Costs of Revenues

Our direct costs of revenues for the six months ended June 30, 2018 and 2017, was $37,402 and $35,151, respectively. The direct costs of revenues resulted from the use of the assets licensed from DiscLive.

Research and Development

Our research and development expenses for the six months ended June 30, 2018 and 2017, was $15,173 and $68,127, respectively. The decrease in research and development expenses relative to last year reflected the decrease in full time personnel and contract labor caused by our lack of sufficient working capital.

General and Administrative Expenses

Our general and administrative expenses for the six months ended June 30, 2018 and 2017, was $413,447 and $458,737, respectively. The decrease in general and administrative expenses relative to last year was due to decreased compensation expense offset by increased amortization expense related to our recent acquisitions and increased professional fees.

Other Income (Expenses), Net

We recorded other income, net of $85,001 for the six months ended June 30, 2018, compared to other expense of $249,526 for the six months ended June 30, 2017. The change in other income (expenses), net, was primarily due to the change in the fair value of derivative liabilities of $426,648, the change in loss on extinguishment of debt of $83,700, and the change in financing costs of $5,204 as compared to the prior year period. In addition, we recorded a loss on settlement of debt of $44,248, and a gain on settlement of employee and vendor obligation of $41,111, all of which did not occur during the prior year period.

Net Loss

As a result of the foregoing revenues, direct costs of revenues, research and development expenses, general and administrative expenses, and other income (expenses), net, our net loss for the six months ended June 30, 2018 was $360,197, compared to our net loss for the six months ended June 30, 2017 of $773,717.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through private offerings of our equity securities and loans.

As of June 30, 2018, we had cash and cash equivalents of $7,165.

We had negative cash flows from operating activities of $279,613 for the six months ended June 30, 2018, compared with negative cash flows from operating activities of $184,479 for the six months ended June 30, 2017. Our negative cash flows was to fund our operating losses.

We generated cash flows from financing activities of $276,500 for the six months ended June 30, 2018, as compared to $179,000 for the six months ended June 30, 2017. The cash flows from financing activities for both periods was from proceeds received from the issuance of convertible notes.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the six months ended June 30, 2018, the Company incurred a net loss of $360,197, used cash in operations of $279,613 and had a stockholders’ deficit of $2,254,619 as of June 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2017 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

At June 30, 2018, the Company had cash on hand in the amount of $7,165. Subsequent to June 30, 2018, the Company received additional borrowings of $63,000. Management estimates that the current funds on hand will be sufficient to continue operations through September 2018. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

We have not generated meaningful revenues, have incurred losses since our inception, and rely upon the sale of our common stock and loans from related and other parties to fund our operations. While we do plan to generate increasing revenues in the foreseeable future, if we are unable to raise equity or secure alternative financing, we may not be able to pursue our plans and our business may fail.

Convertible Notes Payable

Ylimit, LLC

On May 9, 2016 the Company issued a convertible note to YLimit, LLC in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. The note is secured by the Company’s rights, titles and interests in all the Company’s tangible and intangible assets, including intellectual property and proprietary software whether existing now or created in the future. On August 25, 2017, the Note was amended to authorize total borrowings on this Note to $517,000, and as such an additional $217,000 was advanced to the Company with the terms remaining the same except that the conversion feature was modified to state that all borrowings under the note will be converted at 85% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. The balance of the notes outstanding was $517,000 as of December 31, 2017 and the balance of the debt discount was $137,358. On April 12, 2018 and again on June 25, 2018, the Company and Ylimit, LLC entered into an amendment to the original secured convertible promissory note. The amendments increased the borrowing limits by $176,500 to a total of $693,500, and extended the maturity date to May 9, 2019. In addition, the amendment on April 12, 2018 modified the conversion feature to state that all borrowings under the note will be converted at 75% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. During the six months ended June 30, 2018, the Company borrowed an additional $176,500. The balance of notes outstanding was $693,500 as of June 30, 2018 and the balance of the debt discount was $139,144.

Crossover Capital Fund II, LLC

On August 21, 2017, the Company issued a convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $61,000 with an interest rate of 8% per annum and a maturity date of August 21, 2018. The note included an original issue discount of $6,000. The note is convertible into shares of common stock of the Company at 50% of the lowest closing bid price in the 20 trading days prior to the day that the Buyer requests conversion. The balance of the note outstanding was $61,000 as of December 31, 2017. On April 24, 2018, the Buyer elected to convert $8,765 of outstanding principal and $3,335 of outstanding accrued interest into 2,200,000 shares of the Company’s common at $0.005 per share. The balance of convertible note was $52,235 as of June 30, 2018 and the balance of the debt discount was $8,690.

On March 2, 2018, the Company issued a second convertible note to Crossover Capital Fund II, LLC (the “Buyer”) in the principal amount of $38,500 with an interest rate of 10% per annum and a maturity date of December 2, 2018. The note included an original issue discount of $3,500. The note is convertible into shares of common stock of the Company at the lower of (i) $0.019 per share or, (ii) 50% of the lowest closing bid price in the 20 trading days prior to the day that the Buyer requests conversion. In the event of default, as defined in the note agreement, interest shall accrue at a default interest rate of 19% per annum or at the highest rate of interest permitted by law, whichever is less. If the Company loses the bid price for its stock in the market (including the OTC marketplace or other exchange) or the Company’s common stock is delisted from an exchange or if trading has been suspended for more than 10 consecutive days, the outstanding principal amounts would increase 20% or 50%, respectively. The Company is required to instruct its transfer agent to reserve 25,000,000 share of its common stock. The balance of the note outstanding, and the related debt discount was $38,500 and $21,700 as of June 30, 2018, respectively.

Golock Capital, LLC

From September 1, 2017 to December 31, 2017, the Company issued convertible notes to Golock Capital, LLC (“Lender”) in the aggregate principal amount of $191,750 with an interest rate at 10% per annum and maturity dates between June 1, 2018 and August 31, 2018. The notes are convertible into shares of the Company’s common stock at prices between $0.015 and $0.02 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 4,804,708 shares of the Company’s common stock at a weighted average exercise price of $0.014 per share. In addition, the Lender shall have the first right of refusal as to any future funding of Borrower in that Lender shall have the right to provide all or a portion of the funding upon the same terms as those offered in writing by any third party or contained in any private placement of borrower. The Lender, upon conversion, shall have piggy back registration rights for all of its common stock shares in any registration or post-effective amendment to any registration initiated by Borrower with the Securities and Exchange Commission. The balance of the notes outstanding was $191,750 as of June 30, 2018 and December 31, 2017. The balance of the debt discount was $544 and $19,652 as of June 30, 2018 and December 31, 2017, respectively.

On February 2, 2018, the Company issued a convertible note to Golock Capital, LLC (“Lender”) in the principal amount of $40,000 with an interest rate at 10% per annum and a maturity date of November 2, 2018. The note included an original issue discount of $5,000. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 2,500,000 shares of the Company’s common stock at an exercise price of $0.015 per share. In addition, the Lender shall have the first right of refusal as to any future funding of Borrower in that Lender shall have the right to provide all or a portion of the funding upon the same terms as those offered in writing by any third party or contained in any private placement of borrower. The Lender, upon conversion, shall have piggy back registration rights for all of its common stock shares in any registration or post-effective amendment to any registration initiated by Borrower with the Securities and Exchange Commission. The balance of the note outstanding, and the related debt discount was $40,000 and $18,315 as of June 30, 2018, respectively.

DBW Investments

On December 20, 2017, the Company issued a convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $21,000 with an interest rate of 10% per annum and a maturity date of September 20, 2018. The note included an original issue discount of $1,000. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued a warrant to the Lender for 200,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The balance of the note outstanding was $21,000 as of June 30, 2018 and December 31, 2017. The balance of the debt discount was $620 and $2,073 as of June 30, 2018 and December 31, 2017, respectively.

On January 18, 2018, the Company issued a second convertible note to DBW Investments, LLC (“Lender”) in the principal amount of $35,000, which included an original issue discount of $5,000, with an interest rate at 10% per annum and a maturity date of October 18, 2018. The note is convertible into shares of the Company’s common stock at $0.015 per share. As additional consideration for the Lender to enter into this agreement with the Company, the Company issued warrants to the Lender to acquire in the aggregate 2,500,000 shares of the Company’s common stock at an exercise price of $0.015 per share. The balance of the note outstanding, and the related debt discount was $35,000 and $4,177 as of June 30, 2018, respectively.

2Doors Management

On April 12, 2018, the Company issued a convertible note to 2 Doors Management, LLC (“Lender”) in the principal amount of $15,000 with an interest rate of 10% per annum, and a maturity date of January 12, 2019. The convertible note was issued in conjunction with a prior year legal settlement with a vendor for which $15,000 was previously included in the Company’s accounts payable and accrued expenses balance on the Company’s consolidated balance sheet. No cash was received for the convertible note. The convertible note can be prepaid without penalty. In the event of default, the interest rate increases to the highest rate legally allowed. The note is convertible into shares of the Company’s common stock at $0.08 per share. In the event the Company successfully closes on a private offering of $1,000,000 or more, the Lender at closing of the offering may choose to either convert the convertible note into shares of the Company’s common stock at $0.08 per share or request repayment of up to 100 percent of the remaining principal and interest of the convertible note. The balance of the note outstanding was $15,000 as of June 30, 2018.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which were prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this prospectus, we believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations. (See Note 2 - Significant and Critical Accounting Policies and Practices herein).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include the assumptions used to determine the value of the derivative liabilities, the valuation allowance for the deferred tax asset and the accruals for potential liabilities.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Stock-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of the Company’s stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

Recent Accounting Pronouncements

See Note 2 of the Condensed Consolidated Financial Statement herein for management’s discussion of recent accounting pronouncements.

Selected Financial Data

Not applicable.

Item 3. Quantitative and Qualitative Disclosures of Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report, an evaluation was carried out by our management, with the participation of our principal executive officer and principal accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2018. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

Based on that evaluation, and the material weaknesses outlined below under Internal Control Over Financial Reporting, our principal executive officer and principal accounting officer concluded, as of the end of the period covered by this annual report, that, due to weaknesses in our internal controls described below, our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting information required to be disclosed, within the time periods specified in the SEC’s rules and forms, and that such information may not be accumulated and communicated to our principal executive officer and principal accounting officer to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our principal executive officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, the Company determined that there were deficiencies that constituted material weaknesses, as described below.

Management is currently evaluating remediation plans for the above control deficiencies.

In light of the existence of these material weaknesses, management concluded that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2017 based on criteria established in Internal Control—Integrated Framework issued by COSO.

Changes in Internal Control

During the six months ended June 30, 2018, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than described herein, neither the Company, nor its officers or directors are involved in, or the subject of, any pending legal proceedings or governmental actions the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.

On December 11, 2015, Hughes Media Law Group, Inc. filed a lawsuit against VNUE, Inc. in the Superior Court of King County, Washington, under case number 15-2-30108-0. HMLG claims damages of $130,553 for unpaid legal fees HMLG alleges are owed pursuant to an April 4, 2014 agreement with VNUE Washington, for legal work performed by HMLG for VNUE Washington prior to the Merger. The Complaint sets forth no legal basis for a lawsuit against VNUE, Inc. (Nevada) and does not, in fact, sue VNUE Washington, HMLG’s former client. The Company believes that VNUE, Inc. (Nevada) is not the proper party for this lawsuit, and reserves all available defenses and counterclaims. Under Washington Superior Court rules, VNUE, Inc. (Nevada) if service of process takes place outside of Washington, a defendant has Sixty (60) days from the date on which it was served the Complaint, to file a response setting forth its defenses. The lawsuit was amended by HMLG, and now includes VNUE Media, Inc. and VNUE Technology, Inc. as additional parties. On July 25, 2016, the court issued judgment awarding HLMG $133,482 with interest at a rate of 12% per annum. The judgment stipulated that $12,000 be paid within five days of the judgment and payments of $4,000 per month to start in October, 2016. The amount of the settlement has been recorded in accounts payable in the accompanying condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017. On April 12, 2018, the Company and Hughes Media Law Group, Inc. (“HLMG”) entered into a conversion and cancellation of debt agreement relating to the outstanding obligation. The Company agreed to convert the outstanding obligation of $118,065 into 3,935,512 shares of common stock, or $0.03 per share.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

On July 20, 2018 we initiated a private placement of our preferred stock under Regulation D Rule 506(b). We are selling up to 5,000,000 shares of the Company’s Series A 2018 7% Convertible Preferred Stock, $0.0001 par value per share (the “Preferred Stock”). Each share of Preferred Stock bears a seven percent (7%) cumulative dividend (the “Dividend”), due and payable annually at December 31. For every one share of the Company’s Series A 2018 7% Convertible Preferred Stock purchased the holder will receive a warrant to purchase one share of the Company’s common stock at a fixed exercise price of $2.50 per share at any time during the two years from the date of issue. Each Preferred Stock share may be converted by the holder thereof, at any time beginning one year from the date of issuance and from time to time thereafter into that number of fully paid and nonassessable shares of common stock derived from dividing the average closing bid price of Vnue common stock for the five business days prior to the date of conversion into the face amount of each Preferred Share. [Example: If the average five day bid price = $0.25 and the face value is $1.00 then each Preferred Share is convertible into four (4) common stock shares of the Corporation. The Company has the ability to require the holder of the Preferred Stock to convert his shares to common stock upon the occurrence of certain events including the initiation of a public offering by the Company or any time after one year from its date of issuance. We will use the net proceeds of the offering as working capital for the operation of the Company including the payment of salaries, related employment expenses and for the repayment of debt. There can be no assurance that we will successfully complete the offering. A copy of our Private Placement Memorandum without the financial exhibits is attached to this report as Exhibit 99.1.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the period ended June 30, 2018.

ITEM 4. MINING SAFETY DISCLOSURES

N/A

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits

__________

*Filed herein

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.