NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE 1 –
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
FAL
Exploration Corp. (the “Company”), formerly Apps Genius Corp., was incorporated in the State of Nevada on December
17, 2009. On July 9, 2013, the Company changed its name to FAL Exploration Corp. The Company’s business was in
the field of creating innovative social games and mobile applications and operated a crowdfunding platform. In September 2013,
the Company decided to discontinue its social games and mobile applications and crowdfunding business. Prior periods have been
restated in the Company’s financial statements and related footnotes to conform to this presentation.
On
July 22, 2013, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effectuate
a reverse split of 1000 to 1 (the “Reverse Split”) in which each shareholder will be issued 1 share of common stock
in exchange for 1000 shares of their currently issued common stock, which became effective as of July 22, 2013. The
Reverse Split had been previously approved and authorized by the board of directors and majority holders of the Company. All share
and per share values for all periods presented in the accompanying financial statements are retroactively restated for the effect
of the Reverse Split.
Effective
October 7, 2013, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with FAL Minerals
LLC (“FAL Minerals”). Pursuant to the Agreement the Company agreed to purchase from FAL Minerals newly issued membership
interests of FAL Minerals representing 20% of the issued and outstanding membership interests of FAL Minerals. The purchase price
for the interests is $100,000 payable in common stock at a share price of $0.25 (based on contemporaneous sales of common stock
for cash) or a total issuance of 400,000 shares (see Note 6). On October 7, 2013, the Company issued 400,000 shares of common
stock to FAL Minerals in connection with this Agreement. On October 9, 2013 the Company and the other members of FAL
Minerals agreed to assign a 2% interest on a pro-rata basis to a third party for legal fees owed by FAL Minerals. Accordingly,
the Company’s interest in FAL Minerals decreased to 19.6%. Pursuant to the Agreement the Company will receive 19.6% percent
of the gross proceeds from all royalty payments made to FAL Minerals. Such royalty payments are payable quarterly. Following the
purchase of interests, the Company intends to focus its efforts on mineral exploration and has taken a 19.6% ownership in FAL
Minerals. The Company’s ownership interest of 19.6% in FAL Minerals is accounted for as a cost method investment. Investments
where the Company does not exercise significant influence over the operating and financial policies of the investee and holds
less than 20% of the voting stock are generally accounted for using the cost method of accounting in accordance with ASC 325-10, “Investments—Other”. (See
Note 1, Investment – Cost Method)
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis
of presentation and going concern
Management
acknowledges its responsibility for the preparation of the accompanying interim financial statements which reflect all adjustments,
consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position
and the results of its operations for the interim period presented. These financial statements should be read in conjunction with
the summary of significant accounting policies and notes to financial statements included in the Company’s Form 10-K annual
report for the year ended December 31, 2013. The accompanying unaudited financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”)
for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Operating results
for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.
As
reflected in the accompanying unaudited financial statements, the Company had a net loss and net cash used in operations of $71,296
and $29,198, respectively, for the six months ended June 30, 2014 and had a working capital deficit and accumulated deficit of
$219,026 and $2,959,402, respectively, at June 30, 2014 and historically had minimal revenues all of which have been accounted
for in discontinued operations. These matters raise substantial doubt about the company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further
implement its business plan, raise additional capital, and generate more revenues. Management intends to attempt to raise additional
funds by way of a public or private offering. While the Company believes in the viability of its strategy to raise
additional funds, there can be no assurances to that effect. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Use
of estimates
The
preparation of the 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, liabilities, revenues, expenses, and the related
disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from
these estimates. Significant estimates in the six months ended June 30, 2014 and 2013 include the useful life of property and
equipment, assumptions used in assessing impairment of long-term assets and cost method investments, valuation of deferred tax
assets, and the value of stock-based compensation and fees.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
and cash equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three
months or less and money market accounts to be cash equivalents.
Concentration
of credit risk
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains
cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The
Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000.
The Company has not experienced any losses in such accounts through June 30, 2014. There were no balances in excess of FDIC
insured levels as of June 30, 2014.
Fair
value measurements and fair value of financial instruments
The
Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
*
|
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
|
|
|
*
|
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs
derived from or corroborated by observable market data.
|
|
|
*
|
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on the best available information.
|
The
carrying amounts reported in the balance sheets for cash, prepaid expenses, accounts payable and accrued expenses, interest payable,
accounts payable – related party, and accrued salaries – related party approximate their fair market value based on
the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented
on the balance sheets at fair value in accordance with ASC Topic 820.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Prepaid
expenses
Prepaid
expenses consist primarily of prepayments for legal services which were amortized over the terms of their respective agreements.
Therefore, at June 30, 2014 and December 31, 2013, prepaid expenses amounted to $0 and $2,000, respectively.
Property
and equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of
fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Software
development costs
Costs
incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting
Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs
incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development
costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for
market. Amortization of capitalized software development costs begins upon initial product shipment. Capitalized software development
costs are amortized over the estimated life of the related product (generally thirty-six months), using the straight-line method.
The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying
amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by
a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If
such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over
the fair value of the software asset. During the six months ended June 30, 2014 and 2013, the Company did not capitalize
any software development costs.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment
– cost method
The
Company owns non-controlling equity interests in FAL Minerals. The Company used the cost method to account for investments in
which the Company owns less than 20% and does not have significant influence over the underlying investees. Cost method investments
are initially recorded at cost and income is generally recorded when distributions are received. Cost method investments are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment
loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses
are based on current plans, intended holding periods and available information at the time the analyses are prepared. The Company
recorded an impairment loss in connection with its cost method investment of $100,000 during the fourth quarter of 2013 after
the related impairment analyses were made. Therefore, the cost method investment amount in FAL Minerals, LLC was $0 at June 30,
2014 and December 31, 2013.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews, long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did
not record any impairment loss for the six months ended June 30, 2014 and 2013.
Income
taxes
The
Company is governed by the Income Tax Law of the United States. The Company utilizes ASC Topic 740, "Accounting for Income
Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Under
ASC Topic 740, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely
than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation
based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not
threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest
amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the
threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized
in the first subsequent financial reporting period in which the threshold is no longer met. ASC Topic 740 also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. The
portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected
as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of
being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
Stock-based
compensation
The
Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued
to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50.
Advertising
Advertising
is expensed as incurred and is included in selling, general and administrative expenses on the accompanying statements of operations.
For the six months ended June 30, 2014 and 2013, advertising expense was $0 and $567, respectively which is included in other
selling, general and administrative expenses.
Research
and development
Research
and development costs which consisted primarily of salaries and fees paid to third parties for the development of software and
applications were expensed as incurred and have been included in loss from discontinued operation. For the six months ended June
30, 2014 and 2013, research and development costs were $0 and $16,368, respectively.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net
income (loss) per share of common stock
Basic
net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed
by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. Potentially dilutive common shares consist of common stock warrants
and options (using the treasury stock method). These common stock equivalents may be dilutive in the future
.
In period
where the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding
as they would have had an anti-dilutive impact. The following table sets forth the computation of basic and diluted earnings
per share for the three and six months ended June 30, 2014 and 2013:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available for common stockholders from continuing operations
|
|
$
|
(44,298
|
)
|
|
$
|
(62,782
|
)
|
|
$
|
(84,418
|
)
|
|
$
|
(144,435
|
)
|
Net income (loss) available for common stockholders from discounted operations
|
|
|
25
|
|
|
|
314
|
|
|
|
13,122
|
|
|
|
(15,326
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
32,346,758
|
|
|
|
36,734
|
|
|
|
32,032,946
|
|
|
|
36,590
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average shares outstanding - diluted
|
|
|
32,346,758
|
|
|
|
36,734
|
|
|
|
32,032,946
|
|
|
|
36,590
|
|
Net loss from continuing operations per common share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(1.71
|
)
|
|
$
|
0.00
|
|
|
$
|
(3.95
|
)
|
Net income (loss) from discontinued operations per common share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.42
|
)
|
The
Company's aggregate common stock equivalents at June 30, 2014 and 2013 included the following:
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
Warrants
|
|
|
6,314
|
|
|
|
7,914
|
|
Options
|
|
|
500
|
|
|
|
525
|
|
Total
|
|
|
6,814
|
|
|
|
8,439
|
|
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The
Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Recent
accounting pronouncements
Accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption.
Reclassification
Certain
reclassifications have been made in prior year same period’s unaudited financial statements to conform to the current period’s
financial statement presentation.
NOTE
2 - PROPERTY AND EQUIPMENT
At
June 30, 2014 and December 31, 2013, property and equipment consisted of the following:
|
|
Useful Life
|
|
June 30,
2014
|
|
|
December 31, 2013
|
|
Computer equipment
|
|
5 Years
|
|
$
|
6,581
|
|
|
$
|
6,581
|
|
Land
|
|
-
|
|
|
400,000
|
|
|
|
-
|
|
Total
|
|
|
|
|
406,584
|
|
|
|
6,581
|
|
Less: accumulated depreciation
|
|
|
|
|
(5,621
|
)
|
|
|
(4,963
|
)
|
Total
|
|
|
|
$
|
400,960
|
|
|
$
|
1,618
|
|
For
the six months ended June 30, 2014 and 2013, depreciation expense amounted to $658 and $666, respectively.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
2 - PROPERTY AND EQUIPMENT (continued)
Land
In
November 2013, the Company entered into a Real Estate Purchase and Sale Agreement (the “Real Estate Purchase and Sale Agreement”)
with certain sellers (the “Seller”). One of the sellers is a majority stockholder of the Company. Pursuant
to the Agreement, the Seller desires to sell real estate properties they owned located in Clay County, Alabama and the Company
desires to purchase the real estate properties. The purchase price of $400,000 was paid as follows:
|
(a)
|
At
Closing, the Company agreed to issue a total of 800,000 shares of common stock of the Company at a price of $0.25 per share
(based on contemporaneous sales of common stock for cash).
|
|
(b)
|
In
addition, at Closing, The Company executed a promissory note (the “Note”) in the original principal amount of
$200,000, payable to Seller bearing interest at the lowest imputed rate, with no payments of principal or interest due or
payable until the 36 month after Closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to either
(i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate
amount equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination
of the number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company
may prepay the Note in whole or in part at any time prior to the Maturity Date.
|
On
February 13, 2014, the Company closed the transaction contemplated by this Real Estate Purchase and Sale Agreement dated in November
2013 and issued a promissory note amounting to $200,000 to the Seller. One of the sellers is a majority stockholder of the Company.
The note bears interest at the “applicable federal rate” for demand loans as defined in Section 7872(f)(2) of the
Internal Revenue Code of 1986, as amended from the date of this note, until paid, with no payments of principal or interest due
or payable until the 36 month after closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to either
(i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate amount
equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination of the
number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company may prepay
the note in whole or in part at any time prior to the Maturity Date (see Note 5 and Note 7).
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
2 - PROPERTY AND EQUIPMENT (continued)
In
addition, on February 13, 2014, the Company executed a Mortgage and Security Agreement with the Seller (see Note 5 and Note 7)
whereby the Company hereby grants and conveys to Seller a present, absolute, unconditional and continuing security interest in,
all of the land, real estate, leasehold, buildings, improvements, fixtures, furniture and personal property situated in the purchased
real estate properties as defined in such Mortgage and Security Agreement. The indebtedness under the Mortgage and Security Agreement
is evidenced by the $200,000 promissory note discussed above. The title deed to the real estate properties were recorded in the
State of Alabama, Clay County on March 13, 2014.
Further,
the Company issued 800,000 shares of common stock which were valued at $0.25 per share (based on contemporaneous sales of
common stock for cash) with an aggregate amount of $200,000 to pay off a portion of the purchase price in the first quarter of
2014 pursuant to the Real Estate Purchase and Sale Agreement.
The
$400,000 purchase price is the original cost basis of the sellers and therefore an asset was recorded for the $400,000, since
one of the sellers is a related party which is included in property and equipment on the accompanying balance sheets at June 30,
2014.
The
Company acquired this land as it is in close proximity to FAL Mineral's Brown Mine. The Company plans to explore the
property and either may utilize it as the main production plant should the Brown Mine prove to be commercially viable or seek
to monetize the graphite, should that prove to be commercially viable.
NOTE
3 – DISCONTINUED OPERATIONS
In
September 2013, the Company decided to discontinue its social games and mobile applications and crowdfunding business. The Company
intends to focus its efforts on mineral exploration following the purchase of 19.6% ownership in FAL Minerals in October 2013.
Certain amounts in the prior periods have been retrospectively reclassified in the Company’s financial statements and related
footnotes to conform to this discontinued operations presentation.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
3 – DISCONTINUED OPERATIONS (continued)
The
following table reflects results of operations of the Company’s discontinued operations of its social games and mobile applications
and crowdfunding business.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
348
|
|
|
$
|
97
|
|
|
$
|
1,042
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
348
|
|
|
|
97
|
|
|
|
1,042
|
|
Operating and other non-operating income (expenses)
|
|
|
25
|
|
|
|
(34
|
)
|
|
|
13,025
|
|
|
|
(16,368
|
)
|
Gain (loss) from discontinued operations
|
|
$
|
25
|
|
|
$
|
314
|
|
|
$
|
13,122
|
|
|
$
|
(15,326
|
)
|
The
Company did not have any assets or liabilities of discontinued operations at June 30, 2014 and December 31, 2013.
NOTE
4 – RELATED PARTY TRANSACTIONS
As
of June 30, 2014 and December 31, 2013, the Company owed $62,550 and $48,550, respectively, to a company owned by its chief financial
officer for services rendered.
On
February 13, 2014, the Company closed the transaction contemplated by a Real Estate Purchase and Sale Agreement dated in November
2013 and issued a promissory note amounting to $200,000 to the Seller. Additionally, the Company issued 800,000 shares of
common stock which were valued at $0.25 per share with an aggregate amount of $200,000 (based on contemporaneous sales of common
stock for cash) to pay off a portion of the purchase price in the first quarter of 2014 pursuant to the Real Estate Purchase and
Sale Agreement. One of the sellers is a majority stockholder of the Company (see Note 2 and Note 5).
NOTE
5 – NOTES PAYABLE
Between
January 27, 2014 and April 30, 2014, the Company issued promissory notes to an unrelated party in the principal amount of $30,000.
The notes bear interest at 5.0% per annum, compounded monthly, and is due on the earlier of 1) six months from the date of the
notes or 2) within three business days of the closing date of a private placement of certain equity securities offered by the
Company, of a minimum amount of $250,000, with the proceeds of the offering to be received directly by the Company. At the sole
option of the Company, the Company may elect to extend the maturity date up to 12 months (the “Extended Maturity Date”).
The interest shall be increased to 5.5% per annum during the Extended Maturity Date period. For the six months ended June 30,
2014, interest amount due under the note payable amounted to $442 and the principal due under the note payable amounted to $30,000.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
5 – NOTES PAYABLE (continued)
On
February 13, 2014, the Company closed the transaction contemplated by the Real Estate Purchase and Sale Agreement dated in November
2013 and issued a promissory note amounting to $200,000 to certain sellers (see Note 2). One of the sellers is a majority stockholder
of the Company. The note bears interest at the “applicable federal rate” for demand loans as defined in Section 7872(f)(2)
of the Internal Revenue Code of 1986, as amended from the date of this note, until paid, with no payments of principal or interest
due or payable until the 36 month after closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to
either (i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate
amount equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination
of the number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company may
prepay the note in whole or in part at any time prior to the Maturity Date. The principal amount of $62,500 under the loan was
from a majority stockholder of the Company and the rest of $137,500 under the loan was from other unrelated parties. For the six
months ended June 30, 2014, interest amount due under the note payable – unrelated parties amounted to $129 and interest
amount due under the note payable – related party amounted to $59. The principal due under the note payable – unrelated
parties amounted to $137,500 and principal due under the note payable – related party amounted to $62,500 at June 30, 2014.
At
June 30, 2014, the aggregate unrelated parties’ principal due under the above notes amounted to $167,500 and the aggregate
related party’ principal due under the above notes amounted to $62,500, respectively, and unrelated parties’ interest
amounts due under the loans amounted to $129 and related party’s interest amount due under the loans amounted to $59, respectively.
The weighted average interest rate on the Company’s above notes payable was approximately 5%.
Notes
payable – short and long term portion consisted of the following:
|
|
June 30,
2014
|
|
Notes payable - unrelated
|
|
$
|
167,500
|
|
Note payable - related
|
|
|
62,500
|
|
Total notes payable
|
|
|
230,000
|
|
Less: current portion
|
|
|
(30,000
|
)
|
Long term portion
|
|
$
|
200,000
|
|
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
6 – STOCKHOLDERS’ EQUITY (DIFICIT)
Preferred
stock
The
Company authorized 20,000,000 preferred shares. Preferred shares may be designated by the Company’s board of directors. There
were no shares designated as of June 30, 2014.
Common
stock
On
July 22, 2013, the Company received approval from FINRA to effectuate a reverse split of 1000 to 1 in which each shareholder was
issued 1 share of common stock in exchange for 1000 shares of their currently issued common stock, which became effective as of
July 22, 2013. The Reverse Split had been previously approved and authorized by the board of directors and majority
holders of the Company. All share and per share values for all periods presented in the accompanying financial statements are
retroactively restated for the effect of the Reverse Split.
On
February 13, 2014, the Company closed the transaction contemplated by the Real Estate Purchase and Sale Agreement executed in
November 2013 (see Note 2). In the first quarter of 2014, the Company issued 800,000 shares of its common stock to these
sellers and the shares were valued at $0.25 per share with an aggregate amount of $200,000 (based upon contemporaneous sales of
common stock for cash) to pay off a portion of the purchase of land pursuant to the Real Estate Purchase and Sale Agreement.
Warrants
Stock
warrant activities for the six months ended June 30, 2014 are summarized as follows:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Balance at December 31, 2013
|
|
|
6,814
|
|
|
$
|
249.6
|
|
|
|
2.90
|
|
|
$
|
-
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised/forfeited/expired
|
|
|
(500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at June 30, 2014
|
|
|
6,314
|
|
|
|
249.6
|
|
|
|
2.61
|
|
|
|
-
|
|
Warrants exercisable at June 30, 2014
|
|
|
6,314
|
|
|
$
|
249.6
|
|
|
|
2.61
|
|
|
$
|
-
|
|
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2014
NOTE 6 – STOCKHOLDERS’ EQUITY (DIFICIT) (continued)
Options
On
March 1, 2012, the Company entered into a financial service agreement with a third party for a seven month term. In
connection with the financial service agreement, the Company issued an aggregate of 500 stock options to purchase 500 shares of
the Company’s common stock at an exercise price of $140 per common share. The stock options expire on March 1, 2017. The
Company calculated the $66,749 fair value of the 500 stock options granted using the Black-Scholes option pricing model and using
actual historical volatility of 177.3%.
In
connection with services rendered related to the purchase of a game for a period of 12 months, on March 21, 2012, the Company
issued options exercisable for the purchase of 25 shares of the Company’s common stock at an exercise price equal to $120
per share exercisable for a two year period. The stock options expired on March 21, 2014. The Company calculated
the $2,342 fair value of the 25 stock options granted using the Black-Scholes option pricing model and using actual historical
volatility of 173.4% were amortized over the one year service period.
Stock
option activities for the six months ended June 30, 2014 are summarized as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Balance at December 31, 2013
|
|
|
525
|
|
|
$
|
140.0
|
|
|
|
3.03
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised/forfeited/expired
|
|
|
(25
|
)
|
|
|
(120.0
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at June 30, 2014
|
|
|
500
|
|
|
|
140.0
|
|
|
|
2.67
|
|
|
|
-
|
|
Options exercisable at June 30, 2014
|
|
|
500
|
|
|
$
|
140.0
|
|
|
|
2.67
|
|
|
$
|
-
|
|
The
weighted-average grant-date fair value of options granted to employees/consultants during the six months ended June 30, 2014 was
none. As of June 30, 2014, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements
of $0.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE
7 – COMMITMENT AND CONTINGENCIES
In
November 2013, the Company entered into a Real Estate Purchase and Sale Agreement (the “Agreement”) with certain sellers
(the “Seller”). One of the sellers is a majority stockholder of the Company. Pursuant to the Agreement,
the Seller desires to sell real estate properties they owned located in Clay County, Alabama and the Company desires to purchase
the real estate properties.
The
purchase price of $400,000 was paid as follows:
|
(a)
|
At
Closing, the Company agreed to issue a total of 800,000 shares of common stock of the Company, based on a price of $0.25 per
share.
|
|
(b)
|
In
addition, at Closing, The Company executed a promissory note (the “Note”) in the original principal amount of
$200,000, payable to Seller bearing interest at the lowest imputed rate, with no payments of principal or interest due or
payable until the 36 month after Closing (the “Maturity Date”). On the Maturity Date, Buyer shall elect to either
(i) pay all outstanding principal and interest in cash, or (ii) issue common stock of the Company to Seller in an aggregate
amount equal to the principal and interest outstanding on the Maturity Date. The value of the common stock and the determination
of the number of shares shall be the then market price on the Maturity Date, discounted by ten percent (10%). The Company
may prepay the Note in whole or in part at any time prior to the Maturity Date.
|
On
February 13, 2014, the Company closed the transaction contemplated by this Agreement and issued a promissory note amounting to
$200,000 to the Seller. Additionally, on February 13, 2014, the Company executed a Mortgage and Security Agreement with the Seller
(see Note 24) whereby the Company hereby grants and conveys to Seller a present, absolute, unconditional and continuing security
interest in, all of the land, real estate, leasehold, buildings, improvements, fixtures, furniture and personal property situated
in the purchased real estate properties as defined in such Mortgage and Security Agreement. The indebtedness under the Mortgage
and Security Agreement is evidenced by the $200,000 promissory note discussed above. The title deed to the real estate properties
were recorded in the State of Alabama, Clay County on March 13, 2014.
FAL EXPLORATION
CORP.
(FORMERLY
APPS GENIUS CORP.)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
JUNE
30, 2014
NOTE 8 – SUBSEQUENT EVENTS
On
July 30, 2014, the Company issued a promissory note to an unrelated party in the principal amount of $15,000. The note bears interest
at 5.0% per annum, compounded monthly, and is due on the earlier of 1) 6 months from the date of the note or 2) within three business
days of the closing date of a private placement of certain equity securities offered by the Company, of a minimum amount of $250,000,
with the proceeds of the offering to be received directly by the Company. At the sole option of the Company, the Company may elect
to extend the maturity date up to 12 months (the “Extended Maturity Date”). The interest shall be increased to 5.5%
per annum during the Extended Maturity Date period.