NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Operations
WRIT Media Group, Inc. (“we”, “our”, “WRIT” or the “Company”) (formerly Writers’ Group Film Corp.) was incorporated in Delaware on March 9, 2007 to produce films, television programs and similar entertainment programs for various media formats. The Company has three wholly owned subsidiaries: Front Row Networks, Inc., Amiga Games, Inc., and Retro Infinity, Inc.
Front Row Networks, Inc. is a content creation company which produces, acquires and distributes live concerts in 3D for initial worldwide digital broadcast into digitally-enabled movie theaters, TV and mobile streaming providers.
On August 19, 2013, the Company acquired certain software through the purchase of 100% of Amiga Games Inc. in exchange for 500,000 shares. Amiga Games Inc. became WRIT’s wholly-owned subsidiary.
Amiga Games Inc. licenses classic pre-Windows computer game libraries and adapts and republishes the most popular titles for smartphones, modern game consoles, PCs, tablets, and other television streaming devices.
WRIT also established a new company, Retro Infinity Inc., to publish and brand games that were not originally released for Amiga brand computers. The two companies tap into the growing “retro gaming” marketplace, building on the "Amiga", “Atari”, and “MS-DOS” brands, delivering retro-gaming titles adapted for modern devices as well as merchandise featuring brands and characters from the games.
On January 22, 2014, the Company changed the name of the corporation to WRIT Media Group, Inc.
Basis of Presentation and Consolidation
These consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, Front Row Networks, Inc., Amiga Games, Inc. and Retro Infinity Inc. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
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 dates of the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are recorded at the net invoice value and are not interest bearing. We consider receivables past due based on the contractual payment terms. We perform ongoing credit evaluations of our customers, and generally we do not require collateral on our accounts receivable. We estimate the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and we record a provision for uncollectible accounts when collection is uncertain. To date, we have not experienced any credit related losses.
Long Lived Assets
In accordance with ASC 360 "Property Plant and Equipment," the Company reviews the carrying value of intangibles subject to amortization and long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
Revenue Recognition
The Company follows revenue recognition in two industries, technology and film.
Revenue is measured at the fair value of the consideration received or receivable net of sales tax, trade discounts and customer returns.
Sale of Technology Gaming
Revenue from sale of technology gaming applications is recognized when the following conditions are satisfied:
|
·
|
Persuasive evidence of an arrangement exists
|
|
·
|
Delivery has occurred or services have been rendered
|
|
·
|
The seller’s price to the buyer is fixed or determinable
|
|
·
|
Collectability is reasonably assured
|
During the year ended March 31, 2014, eleven games were delivered and $11,000 was recognized as revenue. The remaining balance of cash advance of $55,395 was recorded as deferred revenue as of March 31, 2014.
Based on Revenue Recognition Requirement for Film Sales (ASC 926-605-25), the Company recognizes film license revenues when all of the following conditions are met:
|
-
|
Persuasive evidence of a sale or licensing arrangement with a customer exists
|
|
-
|
The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery
|
|
-
|
The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale
|
|
-
|
The arrangement fee is fixed or determinable
|
|
-
|
Collection of the arrangement fee is reasonably assured
|
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Software Development Costs
The Company accounts for software development costs in accordance with ASC 985-20, “Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior to the establishment of technological feasibility are expensed as incurred as research and development costs. Costs incurred after establishing technological feasibility and before the product is released for sale to customers are capitalized.
Accounting Standards Codification (“ASC”) 718, “Accounting for Stock-Based Compensation" established financial accounting and reporting standards for stock-based compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans and for share based payments to non-employees in accordance with ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
Embedded Conversion Feature
The Company has issued convertible instruments which contain embedded conversion features. The Company evaluates the embedded conversion feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion feature meets the definition of a liability and therefore need to bifurcate the conversion feature and account for it as a separate derivative liability.
If the embedded conversion feature does not meet the definition of a liability, the Company evaluated the conversion feature under ASC 815-40 for a beneficial conversion feature at inception. The effective conversion price was then computed based on the allocation of the proceeds to the convertible debt to determine if a beneficial conversion feature exists. The effective conversion price was compared to the market price on the date of the original note and was deemed to be less than the market value of the Company’s stock at the inception of the note. A beneficial conversion feature was recognized and gave rise to a debt discount that is amortized over the stated maturity of the convertible debt instrument or the earliest potential conversion date.
If the embedded conversion feature meets the definition of a liability, it is required a bifurcation of the conversion feature from the debt and accounting for the conversion feature as a derivative contract liability with changes in fair value recorded in the Statements of Operations.
Net Loss per Share
In accordance with ASC 260 “Earnings per Share,” basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income/(loss) per share is computed by dividing the net income/(loss) for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Such common equivalent shares have not been included in the computation of net loss per share as their effect would be anti-dilutive.
Fair Value Measurements
As defined in ASC 820 “Fair Value Measurements”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2014 and 2013. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
|
|
|
Total
|
|
Quoted Prices in Active Markets
for Identical Instruments Level 1
|
|
Significant Other Observable
Inputs
Level 2
|
|
Significant Unobservable
Inputs
Level 3
|
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
|
|
|
$
|
-
|
|
|
As of March 31, 2013
|
|
Total
|
|
Quoted Prices in Active Markets
for Identical Instruments Level 1
|
|
Significant Other Observable
Inputs
Level 2
|
|
Significant Unobservable
Inputs
Level 3
|
|
|
Derivative Liabilities
|
|
$
|
23,550
|
|
|
|
|
|
$
|
23,550
|
|
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
NOTE 2 – GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company has retained earnings of $420,023 that includes a net income of $1,044,284 which included a non-cash gain on derivative liability of $1,715,954 at March 31, 2014 and a working capital deficiency of $181,109. At March 31, 2013 the Company had an accumulated deficit of $624,261 that includes a net loss of $392,769 for the year ended March 31, 2013. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from outcome of this uncertainty.
Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.
NOTE 3 – NOTES PAYABLE
Note payable consists of the following:
|
|
|
March 31,
2014
|
|
March 31,
2013
|
|
|
Note payable, net of debt discount of $0 and $7,362 respectively
|
|
$
|
45,500
|
|
|
$
|
101,700
|
|
Mrs. Nancy Louise Jones
On November 26, 2010, the Company borrowed $60,562 from Mrs. Nancy Louise Jones, wife of Mr. John Diaz, the former CEO and former major shareholder, who resigned as an Officer and Director of WRIT in November, 2012. The maturity date of this loan is September 1, 2012 and was extended to September 8, 2013. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded that the extension of maturity constituted a debt modification, rather than a debt extinguishment or a troubled debt restructuring. As this loan bears no interest, in accordance with ASC 835-30 Imputation of Interest, the Company uses 8%, the prevailing rate for similar debt, to recognize the imputed interest expense of $5,449 on this debt for the year ended March 31. The imputed interest expense is accounted as a capital transaction and recorded as an increase of Additional Paid-In Capital. On May 2, 2013, Nancy Louise Jones assigned her $60,562 note to Magna Group LLC (see Note 4). The maturity date of this amended note is January 2, 2014. This loan bears an interest rate of 12% per annum. The note is convertible into common stock at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the addition of a conversion feature constituted a debt extinguishment rather than a troubled debt restructuring. See more discussion about the new debt in Note 4.
On June 12, 2013, the Company borrowed $12,000 from Mrs. Nancy Louise Jones. Out of the $12,000 debt proceeds $2,000 was paid to Mrs. Nancy Louise Jones for legal and administrative fees. The maturity date of this note is August 31, 2013, which was amended by the parties to April 1, 2014. This loan bears an interest rate of 12% per annum. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the extension of maturity date does not constitute a troubled debt restructuring or debt extinguishment. On March 17, 2014, Nancy Louise Jones assigned her $12,000 note to Magna Group LLC, along with accrued interest of $1,077 (see Note 4). The maturity date of this amended note is March 17, 2015. This loan bears an interest rate of 12% per annum. The note is convertible into common stock at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the addition of a conversion feature constituted a debt extinguishment rather than a troubled debt restructuring. See more discussion about the new debt in Note 4.
Asher Enterprises Notes Payable
On November 2, 2012, the Company borrowed $16,000 from Asher Enterprises. The maturity date of this note is August 5, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 25% multiplied by the lowest trading price for the Common Stock during the 120 trading day period ending on the latest complete trading day prior to the conversion date. As of March 31, 2013, the note is not convertible yet. On May 1, 2013, the $16,000 note became convertible. See more discussion in Note 4.
Along with the note payable, the Company issued warrants to purchase 49,231 shares of common stock. The warrants expire 5 years after issuance and have an exercise price of $0. 0325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price.
As of March 31, 2013, the warrants were treated as a derivative liability.
The Company analyzed the warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a liability due to their not being indexed to the Company’s common stock. The warrants were measured at fair value at the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value of the warrants resulted in a full debt discount of $16,000. The unamortized discount is $7,362 as of March 31, 2013. See discussion related to the derivative liabilities in Note 6 and warrants in Note 8.
On January 30, 2013, the Company borrowed $32,500 from Asher Enterprises. The maturity date of this note is November 1, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the lowest two trading price for the Common Stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. As of March 31, 2013, the note is not convertible yet. On July 29, 2013, the $32,500 note became convertible. See more discussion in Note 4.
SCHU Mortgage & Capital, Inc.
On February 18, 2014, the Company borrowed $15,000 from SCHU Mortgage & Capital, Inc. The maturity date of this note is August 18, 2014 and this loan bears an interest rate of 8% per annum from the issuance date. The note is still outstanding as of March 31, 2014.
Mr. John L. Shaw
On October 10, 2013, the Company borrowed $6,000 from John L. Shaw. The maturity date of this note is April 10, 2014 and this loan bears an interest rate of 0% per annum from the issuance date. During the three months ended December 31, 2013, the Company paid off $4,500 of the balance, bringing the note balance to $1,500. On February 3, 2014, the principal balance of the note was paid in its entirety and the note has been surrendered to the Company.
SFH Capital LLC
On October 22, 2013, the Company borrowed $14,000 from SFH Capital LLC. The maturity date of this note is October 22, 2014 and this loan bears an interest rate of 12% per annum from the issuance date. The note is still outstanding as of March 31, 2014.
On October 29, 2013, the Company borrowed $4,000 from SFH Capital LLC. The maturity date of this note is October 29, 2014 and this loan bears an interest rate of 8% per annum from the issuance date. The note is still outstanding as of March 31, 2014.
On December 11, 2013, the Company borrowed $12,500 from SFH Capital LLC. The maturity date of this note is December 11, 2014 and this loan bears an interest rate of 8% per annum from the issuance date. The note is still outstanding as of March 31, 2014.
NOTE 4 – CONVERTIBLE DEBT
|
Convertible debt outstanding, net of debt discount of $15,120, on March 31, 2012
|
|
$
|
4,612
|
|
|
Add: reclassification from nonconvertible debt to convertible debt, net of debt discount of $45,000
|
|
|
-
|
|
|
Add: issuance of convertible debts, net of debt discount of $70,000
|
|
|
-
|
|
|
Add: reclassification from related-party convertible debt
|
|
|
18,900
|
|
|
Less: principal converted into common stock
|
|
|
(132,905
|
)
|
|
Add: amortization of debt discount
|
|
|
130,120
|
|
|
Add: convertible debt due to related party, net of debt discount of $0, on March 31, 2013
|
|
|
1,550
|
|
|
Convertible debt outstanding, net of debt discount of $0, on March 31, 2013
|
|
$
|
22,277
|
|
|
Add: issuance of convertible debts, net of discount of $67,000
|
|
|
13,077
|
|
|
Assignment from Nancy Louise Jones, net of discount of $60,562
|
|
|
12,000
|
|
|
Reclassification from accrued interest to convertible debt, net of discount of $3,952
|
|
|
675
|
|
|
Reclassification from nonconvertible debt to convertible debt, net of debt discount of $39,862
|
|
|
8,638
|
|
|
Less: principal converted into common stock
|
|
|
(140,136
|
)
|
|
Principal repayment
|
|
|
(61,200
|
)
|
|
Add: amortization of debt discount
|
|
|
171,376
|
|
|
Convertible debts outstanding, net of debt discount of $0 on March 31, 2014
|
|
$
|
26,707
|
|
During the year ended March 31, 2014, $145,589 of convertible debts and accrued interests was converted into 2,774,552 shares of common stock.
During the year ended March 31, 2013, $137,505 of convertible debts and accrued interests was converted into 637,644 shares of common stock.
FOR THE YEAR ENDED MARCH 31, 2014
Asher Enterprises, Inc.
On November 2, 2012, the Company borrowed $16,000 from Asher Enterprises. The maturity date of this note is August 5, 2013. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 25% multiplied by the lowest trading price for the Common Stock during the one hundred twenty trading day period ending on the latest complete trading day prior to the conversion date. Along with the note payable, the Company issued warrants to purchase 49,231 shares of common stock. The warrants expire 5 years after issuance and have an exercise price of $0.0325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price. On May 1, 2013, the $16,000 note became convertible. This note has been converted in its entirety along with accrued interest of $640 into 135,938 common shares, and has been surrendered to the Company. Debt discount of $7,362 was fully amortized as of March 31, 2014. The warrants have been exercised in their entirety and no warrant shares remain un-exercised.
On January 30, 2013, the Company borrowed $32,500 from Asher Enterprises. The maturity date of this note is November 1, 2013. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. On July 29, 2013, the $32,500 note became convertible. This note has been converted in its entirety along with accrued interest of $1,300 into 338,000 common shares and has been surrendered to the Company. Debt discount of $32,500 was fully amortized as of March 31, 2014.
On April 10, 2013, the Company borrowed $28,000 from Asher Enterprises. The maturity date of this note is January 15, 2014. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. On October 7, 2013, the $28,000 note became convertible. An amount equal to $5,800 of the principal balance of the note was converted into 116,000 common shares on October 21, 2014. On February 3, 2014, the principal balance of the note plus interest was paid in its entirety and the note has been surrendered to the Company. Debt discount of $28,000 was fully amortized as of March 31, 2014.
On May 13, 2013, the Company borrowed $27,500 from Asher Enterprises. The maturity date of this note is February 17, 2014. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the forty trading day period ending on the latest complete trading day prior to the conversion date. On November 9, 2013, the $27,500 note became convertible. On February 18, 2014, the principal balance of the note plus interest was paid in its entirety and the note has been surrendered to the Company. Debt discount of $27,500 was fully amortized as of March 31, 2014.
The Company analyzed the conversion option of all the Asher notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings.
The Company analyzed the warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a liability due to their not being indexed to the Company’s common stock. The warrants were measured at fair value at the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. See discussion related to the derivative liabilities in Note 6, and warrants in Note 8.
Magna Group LLC
On May 2, 2013 Magna Group LLC purchased the note payable of $60,562 from Mrs. Nancy Louise Jones and entered into an amended debt agreement with the Company. See Note 3. The maturity date of this amended note is January 2, 2014. This loan bears an interest rate of 12% per annum. The note is convertible into common stock at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004.
On May 10, 2013, May 31, 2013, June 20, 2013, July 2, 2013, July 30, 2013, and August 19, 2013, principal amounts of $10,000, $10,000, $10,000, $13,200, $8,000, and $9,362, along with accrued interest of $579, were converted into a total of 303,884 common shares. The debt balance was brought to zero.
Debt discount of $60,562 was fully amortized as of March 31, 2014.
On May 9, 2013, Magna issued another convertible note of $11,500 to the Company. The note bears interest of 12% per annum, is due on January 9, 2014 and is convertible into common shares at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004. On January 9, 2014, the principal balance of the note plus interest was paid in its entirety and the note has been surrendered to the Company. Debt discount of $11,500 was fully amortized as of March 31, 2014.
On March 17, 2014, Nancy Louise Jones assigned her $12,000 note to Magna Group LLC, along with accrued interest of $1,077. The maturity date of this amended note is March 17, 2015. This loan bears an interest rate of 12% per annum. The note is convertible into common stock at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004. An amount equal to $2,577 of the principal balance of the note was converted into 48,858 common shares on March 21, 2014, leaving a principal balance of $10,500.
On March 17, 2014, a convertible note was issued with Magna Group, LLC in the amount of $13,077
.
The notes bears interest of 12% per annum, and is due on March 17, 2015 and is convertible into common shares at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Additionally, in no event shall the conversion price be less than $0.00004.
As the Asher debt became convertible on May 1, 2013, July 29, 2013, October 7, 2013, and November 9, 2013, the conversion option of Magna $60,562 note and Magna $11,500 note became tainted, that is, under ASC 815-15 “Derivatives and Hedging”, it should be recorded as derivative liability.
Other Convertible Notes
Convertible debts were issued September 2009, bearing interest at a rate of 8% per annum, due in one year, and are convertible at $0.01 per share, and the total balance outstanding as of March 31, 2013 was 22,277, including related party convertible note of $1,550.
On September 12, 2013, one of the debt holders assigned $9,170 note to Fierce Entertainment LLC. The maturity date of this amended note is September 12, 2014. This loan bears an interest rate of 8% per annum. The note is convertible into common stock at $0.1 per share. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the amended term dose not constituted a debt extinguishment or troubled debt restructuring. On October 11, 2013 Fierce Entertainment LLC converted debt principal of $9,170 into 91,705 common shares, bringing the note balance to $0.
On November 5, 2013, one of the debt holders assigned $402 along with accrued interest of $3,550 to another debt holder. The term stays the same as the original note, with maturity date on September 2010, interest rate of 8%, and conversion price of $0.01 per share. The note is in default. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the amended term dose not constituted a debt extinguishment or troubled debt restructuring. On January 22, 2014, debt principal of $1,482 along with accrued interest of $84.25 was converted into 156,625 common shares. In February 2014, the Company entered into an amended debt agreement with the debt holder and the conversion rate was modified to $0.1, and there were no other changes to the original terms of the promissory note. Debt discount of $3,952 was fully amortized as of March 31, 2014.
Beside the conversions described above, during the year ended March 31, 2014, debt principal of $12,045, including the related party convertible note of $1,550, and interest of $2,850 have been converted into 1,583,542 common shares. As of March 31, 2014, the convertible notes have a total outstanding balance of $3,130.
As the Asher debt became convertible on May 1, 2013, July 29, 2013, October 7, 2013, and November 9, 2013 the conversion option all other convertible notes became tainted, that is, under ASC 815-15 “Derivatives and Hedging”, it should be recorded as derivative liability.
FOR THE YEAR ENDED MARCH 31, 2013
Asher Enterprises, Inc.
On February 9, 2012, the Company borrowed $45,000 from Asher Enterprises. The maturity date of this note is November 10, 2012. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. On August 7, 2012, after 180 days following the date of the issuance, the note became convertible and was reclassified from nonconvertible debts. Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price is 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2013, Asher Enterprise converted the whole note along with accrued interest of $1,800 into 100,522 common shares.
On March 29, 2012, Asher Enterprises, Inc. purchased a convertible note for $15,120 with an annual interest rate of 10%, from Armada International, which is a related party. The new Asher convertible note is due on demand, with interest at 10%, and changes the conversion price from $0.01 to 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2013, Asher Enterprise converted the whole note into 7,958 common shares.
On April 23, 2012, the Company borrowed $32,500 from Asher Enterprises. The maturity date of this note is January 25, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The note became convertible on October 20, 2012, after 180 days following the date of the note. Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price is 49% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2013, Asher Enterprise converted principal of $32,500 and accrued interest of $1,300 into 107,447 common shares, bringing the note balance to $0.
On June 21, 2012, the Company borrowed $37,500 from Asher Enterprises. The maturity date of this note is March 25, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The note became convertible on December 18, 2012, after 180 days following the date of the note. Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price is 53% multiplied by the average of the lowest two trading prices for the Common Stock during the forty trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2013, Asher Enterprise converted principal of $37,500 and interest of $1,500 into 143,287 common shares, bringing the note balance to $0.
As of March 26, 2013, all the Asher convertible notes were fully converted.
The Company analyzed the conversion option of all the Asher notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings.
Other Third Party Convertible Notes
The convertible debts were issued in September 2009, bear an interest rate at 8% per annum, due in one year, and are convertible at $0.01 per share.
During the year ended March 31, 2013, $18,900 related party convertible debt was reclassified to third party convertible note. This is due to the debt assignment from a related-party debt holder to a third-party debt holder. The Company did not enter into a new debt agreement with the new debt holder and there is no change to the original terms of the promissory note.
During the year ended March 31, 2013, debt principal of $2,785 has been converted into 278,450 common shares.
As a result of the issuance of convertible debt to Asher Enterprise on March 29, 2012 and the reclassification of Asher Enterprise nonconvertible note to convertible note during the year ended March 31, 2013, the conversion option of all other third party convertible notes became tainted. Under ASC 815-15 “Derivatives and Hedging”, all other tainted share settle able instruments must be reclassified from liability to equity. As a result of the full conversion of Asher convertible debts on March 26, 2013, the derivative treatment on these other third convertible notes ended and the derivative liabilities must be reclassified back to equity. See discussion in Note 6.
NOTE 5 – CONVERTIBLE DEBTS – RELATED PARTY
As of March 31, 2012, the Company has related party convertible debt of $20,450. During the year ended March 31, 2013, $18,900 related party convertible debt was reclassified to third party convertible note.
As of March 31, 2013, the Company has related party convertible debt of $1,550. The note was converted in its entirety during the year ended March 31, 2014. See Note 4. The Company has no current or anticipated related party convertible note borrowings.
NOTE 6 – DERIVATIVE LIABILITIES
FOR THE YEAR ENDED MARCH 31, 2014
Asher Enterprise, Inc. Convertible Notes
As discussed in Note 4, the Company determined that the instruments embedded in the Asher convertible note should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The fair value of the instruments was determined by using Black-Scholes option-pricing model, assuming maximum value.
As di
scussed in Note 4, Asher note of $16,000 and $32,500 became convertible on May 1, 2013 and July 29, 2013, respectively. The conversion feature for Asher note of $16,000 and $32,500 should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature for Asher note of $16,000 was determined to be $147,692 on May 1, 2013 and was recognized as additional paid in capital. The fair value of the conversion feature for Asher note of $32,500 was determined to be $74,286 on July 29, 2013 of which $32,500 was recorded as debt discount and 41,786 was recorded as derivative loss. As a result of full conversion on May 29, 2013 and September 9, 2013, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion dates was $239,307 and this value was reclassified out of liabilities to equity.
As discussed in Note 4, Asher note of $28,000 became convertible on October 7, 2013. The conversion feature for Asher note of $28,000 should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature for Asher note of $28,000 was determined to be $84,000 on October 7, 2013, of which $28,000 was recorded as debt discount and $56,000 was recorded as derivative loss. On October 21, 2013, $5,800 out of the $28,000 was converted, and as a result, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the conversion with the change in fair value recorded in earnings. Prorated fair value of the conversion feature on conversion dates was $11,600 and this value was reclassified out of liabilities to equity. On February 3, 2014, the remaining principal balance of $22,200 plus interest was paid in its entirety. Total fair value of the conversion feature on debt repayment date was $44,400 and this value was recorded in earnings.
As discussed in Note 4, Asher note of $27,500 became convertible on November 9, 2013. The conversion feature for Asher note of $27,500 should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature for Asher note of $27,500 was determined to be $110,000, on November 9, 2013, of which $27,500 was recorded as debt discount and $82,500 was recorded as derivative loss. On February 18, 2014, the principal balance of the note plus interest was paid in its entirety. Total fair value of the conversion feature on debt repayment date was $82,500 and this value was recorded in earnings.
Magna Group LLC Convertible Notes
As discussed in Note 4, the conversion feature of Magna $60,562 note and Magna $11,500 note were tainted by Asher note on May 2, 2013, May 9, 2013, July 29, 2013, and October 7, 2013, and should be classified as derivative liabilities and recorded at fair value. On May 2, 2013, and May 9, 2013, the fair value of the conversion feature of the two Magna notes was determined to be $164,056, out of which $72,062 was recorded as debt discount and $91,994 was recorded as derivative loss. On July 29, 2013 the fair value of the conversion feature of the two Magna notes was determined to be $50,575 and was recognized as additional paid in capital. As a result of conversion of $10,000, $8,000 and $9,362 debt principal on May 10, 2013, July 30, 2013 and August 19, 2013, respectively and the termination of derivative treatment on May 29, 2013 and September 9, 2013, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion and termination dates was $233,395 and this value was reclassified out of liabilities to equity. On October 7, 2013, the Magna $60,562 note has been fully converted, and the fair value of the Magna $11,500 note conversion feature was determined to be $86,250 and was recognized as additional paid in capital. On January 9, 2014, the principal balance of the note plus interest was paid in its entirety. Total fair value of the conversion feature on debt repayment date was $20,909 and this value was recorded in earnings.
Other Third Party and Related Party Convertible Notes
As discussed in Note 4, the conversion feature of other third party convertible notes was tainted by Asher note on May 1, 2013, July 29, 2013 and October 7, 2013. In addition, the conversion feature of related party convertible debt of $1,550 was also tainted for the same reason. The conversion features should be classified as derivative liabilities and recorded at fair value. On May 1, 2013 July 29, 2013 and October 7, 2013, the fair value of the conversion feature of these debts was determined to be $2,505,840, $805,280 and $467,400, respectively and was recorded as additional paid in capital. As discussed in Note 4, on November 5, 2013, one of the debt holders assigned $402 along with accrued interest of $3,550 to another debt holder. The fair value of the conversion feature of the new note was determined to be $39,520, on November 5, 2013, out of which $3,952 was recorded as debt discount, and $35,568 was recorded as derivative loss.
As a result of conversion of $18,902 debt principal during the period that the convertible notes got tainted and the termination of derivative treatment on May 29, 2013, September 9, 2013, and February 18, 2014, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion and termination dates was $2,025,730 and this value was reclassified out of liabilities to equity.
.
Warrants
As discussed in Note 4, 49,231 warrants issued with the Asher debt should be classified as derivative liability and recorded at fair value at the termination date. Asher settled all the warrants on June 5, 2013. The fair value of the warrants on June 5, 2013 was determined to be $24,615 using Black-Scholes Option Pricing Model, assuming maximum value, and was reclassified out of liabilities to equity.
FOR THE YEAR ENDED MARCH 31, 2013
Asher Enterprise, Inc. Convertible Notes
As discussed in Note 4, the Company determined that the instruments embedded in the convertible note should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The fair value of the instruments was determined using multinomial lattice model based on the following assumptions:
- The projected volatility curve for each valuation period was based on the historical volatility of 20 comparable companies.
- 1-year Volatility 156%-195%
- An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 5%;
- Asher would redeem based on availability of alternative financing, increasing 2.0% monthly to a maximum of 20%;
- Asher would automatically convert the note at maturity if the registration was effective and the company was not in default.
The fair value of the conversion feature of $15,120 Asher note issued on March 29, 2012 was determined to be $23,309. Out of $23,309, $15,120 was recognized as debt discount and $8,189 was recognized as loss on extinguishment of debt. As a result of the full conversions in April, 2012, under ASC 815-15 “Derivatives and Hedging”, the instruments are measured at fair value at the date of termination with the change in fair value recorded to earnings. The fair value of the instruments related to the $15,120 Asher note converted was $25,007 and was reclassified out of liabilities to equity.
As discussed in Note 4, $45,000 Asher note issued on February 9, 2012 became convertible on August 7, 2012. The fair value of the conversion feature was determined to be $65,835. Out of $65,835, $45,000 was recognized as debt discount and $20,835 was recognized as loss on derivative. As a result of the note conversions in August, September October and November, 2012, under ASC 815-15 “Derivatives and Hedging”, the instruments are measured at fair value at the date of conversions with the change in fair value recorded to earnings. The fair value of the instruments related to $45,000 Asher note converted was $62,087 and was reclassified out of liabilities to equity.
As discussed in Note 4, $32,500 Asher note issued on April 23, 2012 became convertible on October 20, 2012. The fair value of the conversion feature on October 20, 2012 was determined to be $58,137. Out of $58,137, $32,500 was recognized as debt discount and $25,637 was recognized as loss on derivative. As a result of note conversions in October, November, December, 2012 and January 2013, under ASC 815-15 “Derivatives and Hedging”, the instruments are measured at fair value at the date of termination with the change in fair value recorded to earnings. The fair value of the instruments related to $32,500 Asher note converted was $60,238 and was reclassified out of liabilities to equity.
As discussed in Note 4, $37,500 Asher notes became convertible on December 18, 2012. The fair value of the conversion feature was determined to be $66,326. Out of $66,326, $37,500 was recognized as debt discount and $28,826 was recognized as loss on derivative. As a result of note conversions in January, February and March, 2013, under ASC 815-15 “Derivatives and Hedging”, the instruments are measured at fair value of termination with the change in fair value recorded to earnings. The fair value of the instruments related to $37,500 Asher note converted was $68,693 and was reclassified out of liabilities to equity.
Other Third Party and Related Party Convertible Notes
The fair value of the instruments was determined based on the following assumptions:
- The projected volatility curve for each valuation period was based on the historical volatility of 20 comparable companies.
- 1-year Volatility 156%-195%
- An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 5%;
- The holder redeem based on availability of alternative financing, increasing 20.0% monthly to a maximum of 95%;
- The holder would convert monthly (equal to the average trading volume over the last 6 months)
- The holder would exercise the note as they become exercisable at the target price which is the greater of 20 times the initial exercise price; reset exercise price or stock price.
As a result of full conversion of $15,120 Asher note on April 9, 2012, under ASC 815-15 “Derivatives and Hedging”, all other tainted share settle able instruments must be measured at fair value of termination with the change in fair value recorded to earnings. The fair value of the conversion feature on April 9, 2012 was $246,559 and this value was reclassified out of liabilities to equity.
As discussed in Note 4, on August 7, 2012, $45,000 Asher note issued on February 9, 2012 became convertible. Under ASC 815-15 “Derivatives and Hedging”, all other share-settle able instruments must be reclassified from equity to liability. The fair value of the conversion feature on August 7, 2012 was determined to be $377,248 and this was recorded as a deduction in Additional Paid-in Capital.
As discussed in Note 4, $2,785 other convertible notes were converted to common stock during the year ended March 31, 2013. Under ASC 815-15 “Derivatives and Hedging”, the instruments are measured at fair value at the date of termination with the change in fair value recorded to earnings. The fair value of the instruments related to $2,785 notes converted was $52,562 and was reclassified out of liabilities to equity.
As discussed in Note 4, all the convertible Asher notes were fully converted to common stock on March 26, 2013, the conversion feature of these other convertible debts was no longer tainted. Under ASC 815-15 “Derivatives and Hedging”, the conversion feature of these other convertible debts must be measured at fair value of termination with the change in fair value recorded to earnings. The fair value of the conversion feature on these other convertible debts on March 26, 2013 was $305,980 and was reclassified out of liabilities to equity.
Warrants
As discussed in Note 4, 49,231 warrants to purchase common stock were issued to Asher Enterprise on November 2, 2012. The fair value of the warrants was determined using multinomial lattice model based on the following assumptions:
- The projected volatility curve for each valuation period was based on the historical volatility of 20 comparable companies.
- 5-year Volatility 342%-380%
- The holder would exercise the warrant as they become exercisable at target prices of 2 times the stock price or higher
- The holder would exercise the warrant at maturity if the stock price was above the project reset prices.
- The reset of the exercise price is highly probable and resets are projected to decrease the $0.0325 exercise at issuance to $0.0123 at maturity
The fair value of the warrants on issuance date was $21,143, out of which $16,000 was recorded as debt discount and $5,143 was recognized as loss on derivative.
Under ASC 815-15 “Derivatives and Hedging”, the derivative liabilities were subsequently measured at fair value at the end of each reporting period with the change in fair value recorded to earnings. The fair value of the derivatives related to the warrants on March 31, 2013 was $23,550. The change in fair value is $2,407 and was recognized as loss on derivative.
The following table summarizes the derivative liabilities included in the consolidated balance sheet:
|
Balance at March 31, 2012
|
|
$
|
529,583
|
|
|
Record derivative liability as debt discount
|
|
|
131,000
|
|
|
Change in fair value of derivative liability
|
|
|
(193,155
|
)
|
|
Reclassification of derivative liability to additional paid in capital
|
|
|
(443,878
|
)
|
|
Balance at March 31, 2013
|
|
$
|
23,550
|
|
|
Record derivative liability as debt discount
|
|
|
164,014
|
|
|
Change in fair value of derivative liability
|
|
|
(1,715,954
|
)
|
|
Reclassification of additional paid in capital to derivative liability
|
|
|
1,528,390
|
|
|
Balance at March 31, 2014
|
|
$
|
-
|
|
NOTE 7 – PREFERRED STOCK
Each share of Series A preferred stock is convertible at any time into the number of common shares equal to four times the sum of all outstanding common and Series B and Series C preferred shares at the time of conversion divided by the number of Series A preferred shares. Series A shareholders may receive dividends as declared by the Board. The Company has 10,000 Series A preferred shares outstanding at March 31, 2014 and 2013.
On March 3, 2013 a Stock Purchase Agreement was consummated between John Diaz; the largest and controlling shareholder of WRIT Media Group, Inc., and its former President and Chairman, and EAM Delaware LLC, a Delaware limited liability company controlled by Eric Mitchell, the current President and Chairman of WRIT Media Group, Inc.
The transaction was for the sale of 10,000 shares of Preferred Class, Series A Stock in WRIT currently held by EAM Delaware LLC, which represents a controlling block of stock in consideration for $10,000.
Each share of Series B preferred stock is convertible into the number of common shares equal to the designated $2 initial price of the Series B preferred stock divided by one hundred times the par value of the common stock subject to adjustments as may be determined by the Board of Directors from time to time. Series B shareholders may receive dividends as declared by the Board. On July 7, 2011, the Company modified the February 3, 2011 Share Exchange Agreement and assumed $100,000 in new debt which is shown as a reduction of Paid-In Capital. The note was converted into 10,000 Series B shares during fiscal 2012. The Company has 10,000 Series B shares outstanding at March 31, 2013. On May 1, 2013, 10,000 shares of preferred stock series B were converted into 100,000 common shares. The Company has no Series B shares outstanding at March 31, 2014.
Each share of Series C preferred stock is convertible at any time into 500 common shares. Series C holders may receive dividends as declared by the Board. The Company has no Series C shares outstanding at March 31, 2014 and 2013.
The Company evaluated the application of ASC 815-15 and ASC 815-40 for the embedded conversion feature of preferred stock listed above and concluded the embedded conversion option should be classified as equity.
NOTE 8 – EQUITY
On January 22, 2014, shareholders approved of a 1 for 1,000 reverse split of the Company’s issued and outstanding common shares. The Company accounted for the reverse stock split retrospectively and is presented accordingly in the Company’s financial statements as of March 31, 2014, and 2013.
For the Year Ended March 31, 2014:
Shares issued for convertible notes:
During the year ended March 31, 2014, convertible debts of $140,136 along with accrued interest of $5,453 were converted into 2,774,552 common shares. See Note 4.
Shares issued for services:
During the year ended March 31, 2014, the Company issued 1,631,672 shares to employees and third party consultants as compensation at their fair value of $258,418.
Shares issued for cash
During the year ended March 31, 2014, the Company issued 2,685,633 shares for cash totaling $247,774 out of which $25,000 was received subsequently in April, 2014.
Cancellation of Common shares
On October 22, 2013 the Company cancelled 10,000 common shares. The common shares were cancelled due to partial cancellation of a stock purchase agreement between convertible note holder and other party.
Warrants Issued
As discussed in Note 4, along with the Asher note payable, the Company issued warrants to purchase 49,231 shares of common stock to Asher Enterprise Inc. The warrants expire 5 years after issuance and have an exercise price of $0.0325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price.
On June 5, 2013, Asher Enterprises exercised 26,374 warrants for common stock. Instead of paying cash to the Company, Asher Enterprises forfeited the remaining 22,857 warrants as consideration given to exercise the warrants.
Under a subscription agreement dated March 18, 2014, the Company issued 625,000 restricted common shares to Irwin Zalcberg for cash totaling $50,000. Along with the subscription agreement, the Company issued warrants to purchase 625,000 shares of common stock. The warrants expire 2 years after issuance and have an exercise price of $0.12. The warrants do not entitle the holder to any voting rights or other rights as a shareholder of the Company. The warrants remain un-exercised.
The following table summarizes the Company’s warrant activity for the year ended March 31, 2014:
|
|
|
Number of
Units
|
|
|
Weighted-Average Exercise Price
|
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
|
Intrinsic
value
|
|
|
Outstanding at March 31, 2013
|
|
|
49,231
|
|
|
$
|
-
|
|
|
|
4.59
|
|
|
$
|
52,554
|
|
|
Issuance
|
|
|
625,000
|
|
|
|
0.12
|
|
|
|
2.00
|
|
|
|
-
|
|
|
Exercises
|
|
|
(26,374
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeitures
|
|
|
(22,857
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding at March 31, 2014
|
|
|
625,000
|
|
|
$
|
0.12
|
|
|
|
1.97
|
|
|
$
|
-
|
|
For the Year Ended March 31, 2013:
Shares issued for convertible notes:
During the year ended March 31, 2013, convertible debts of $132,905 along with accrued interest of $4,600
were converted into 637,664 common shares. See Note 4.
Shares issued for services:
During the year ended March 31, 2013, the Company issued 331,197 shares to employees and third party consultants as compensation. The fair value of the shares was determined to be $254,340.
Shares issued for cash
During the year ended March 31, 2013, the Company issued 70,000 shares for cash totaling $35,000.
Warrants Issued
As discussed in Note 4, along with the note payable, the Company issued warrants to purchase 49,231 shares of common stock to Asher Enterprise Inc. The warrants expire 5 years after issuance and have an exercise price of $0.0325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price. These are the only outstanding and exercisable warrants the Company has as of March 31, 2013. The weighted average exercise price is $0.0325, and the weighted average remaining term is 4.59 years. As of March 31, 2013, the warrants had an intrinsic value of $52,554.
NOTE 9 – ASSETS ACQUISITION AND INTANGIBLE ASSETS
On August 19, 2013, the Company issued 500,000 common shares to acquire software from Amiga Games, Inc. Amiga Games, Inc. licenses classic video game libraries and intends to resurrect classic game titles by giving them new life on today's gaming platforms such as smart phones, PCs, modern game consoles, and tablets. The 500,000 shares were valued using the $0.80 per share closing price on the acquisition date for total purchase price consideration of $400,000.
In addition, during the year ended March 31, 2014, the Company incurred another $132,521 on software development cost to upgrade the acquired software.
The following table summarizes the composition of intangible assets as of March 31, 2014.
|
Total purchase price of intangible assets
|
|
$
|
400,000
|
|
|
Software development capitalized costs
|
|
|
132,521
|
|
|
Total Intangible Assets
|
|
$
|
532,521
|
|
NOTE 10 – CONCENTRATION
For the fiscal year ended March 31, 2013, 100% of the Company’s revenue is generated from license fees from two customers, Anvil International and 3D Conversion Rights.
For the fiscal year ended March 31, 2014, 100% of the Company’s revenue is generated from gaming applications development with one customer, Microsoft Corporation.
NOTE 11 – RELATED PARTY BALANCES AND TRANSACTIONS
As of March 31, 2014 and 2013, the accrued compensation owed to Eric Mitchell, the Company CEO and CFO, is $8,473, and $12,317, respectively.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has net income of $1,044,284 as of March 31, 2014 and a net loss of $392,769 as of March 31, 2013. The following table shows the net deferred tax benefit:
|
|
|
March 31,
2014
|
|
|
March 31,
2013
|
|
|
Deferred Tax Benefit
|
|
$
|
147,000
|
|
|
$
|
69,000
|
|
|
Allowance
|
|
|
(147,000)
|
|
|
|
(69,000
|
)
|
|
Net Deferred Tax Benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely-than-not it will utilize the net operating losses carried forward in future years which will start to expire in the year of 2031.
NOTE 13 – SUBSEQUENT EVENTS
On April 1, 2014, the Company borrowed $5,000 from John L. Shaw. The maturity date of this note was May 1, 2014 and this loan bears an interest rate of 0% per annum from the issuance date. On April 23, 2014, the principal balance of the note was paid in its entirety and the note has been surrendered to the Company.
On April 21, 2014, the Company issued 3,333,333 common shares to Irwin Zalcberg for cash totaling $200,000. Along with the subscription agreement, the Company issued warrants to purchase 4,166,667 shares. The warrants expire 2 years after issuance and have an exercise price of $0.25. The warrants do not entitle the holder to any voting rights or other rights as a shareholder of the Company. The warrants remain un-exercised.
On April, 4 2014 and April 21, 2014, Magna Group LLC converted $10,500 plus interest of the convertible note dated March 17, 2014 into 242,891 common shares. This note has been converted in its entirety and has been surrendered to the Company.
On June 3, 2014, the Company borrowed $53,000 from Asher Enterprises. The maturity date of this note is March 5, 2015. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The conversion price is 55% multiplied by the average of the lowest three trading prices for the Common Stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.
On June 6, 2014 the Company entered into a debt modification agreement with SFH Capital LLC. The principal amount of the amended note was $15,044.82, and it was converted into 300,896 common shares.
On June 6, 2014 the Company entered into a debt modification agreement with SFH Capital LLC. The principal amount of the amended note was $4,192.88, and it was converted into 83,858 common shares.
On June 6, 2014 the Company entered into a debt modification agreement with SFH Capital LLC. The principal amount of the amended note was $12,984.93, and it was converted into 200,000 common shares.
During April, May and June 2014, principal and interest of $1,285.30 from the convertible note originated from September 2009 was converted into 1,285,300 common shares. This note has been converted in its entirety and has been surrendered to the Company.
During April, May and June 2014, the Company issued 196,037 shares sold by Dutchess Opportunity Fund, under the Company’s equity financing line, for net cash totaling $26,782.