NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2013
(UNAUDITED)
Note 1 -
Organization and Significant Accounting Policies
Organization and Lines of Business
Global Leadership Inc. formerly CEPHAS Holding Corp, (the "Company"), was incorporated in Delaware on January 13, 1998 and is the successor to Interactive Entertainment Studio, Inc. (IES). IES was incorporated in the State of Nevada on May 27, 1997 and was merged into the Company in March 1998 for the sole purpose of changing the domicile of the Company to Delaware. On June 27, 2002, the Company filed a Certificate of Amendment to its Certificate of Incorporation to amend the Company's Certificate of Incorporation name from PTN Media, Inc. to Legend Mobile, Inc. In October 2008, the Company amended its articles to change the name to CEPHAS Holding Corp.
The Company is a developer and marketer of branded mobile phone applications for the iPhone platform. The Company is an approved developer by Apple Computer to distribute its products on their iTunes store. The Company currently sells the Iron Sheik Soundboard and it distributes free of charge MMA Underboss -a newswire dedicated to mixed martial arts news. The Company also has a license from Mixed Martial Arts Champion, Fedor Emelianeko to produce iPhone applications under his brand and is currently developing that application.
In February 2001, the Company formed Legend Credit as a wholly owned subsidiary. On April 1, 2003, Mr. Peter Klamka, CEO of the Company, contributed the rights to an affinity credit card business valued at $37,000 to Legend Credit. Mr. Klamka's contribution has been determined pursuant to Accounting Principles Board Opinion No. 29, "Non monetary Transactions," using his cost basis in the investment, which is the most readily determinable cost. In exchange for this contribution, Legend Credit issued to Mr. Peter Klamka 60% of the issued and outstanding shares of Legend Credit common stock and the Company issued to Mr. Klamka 850,000 shares of Series B convertible preferred stock. These issuances were valued at $22,200 and $14,800, respectively. The Company retains a 40% minority interest in Legend Credit which is accounted for using the equity method. Effective October 1, 2004, Mr. Klamka contributed an additional 10% interest in Legend Credit to the Company that was valued at $3,700 (10% of $37,000, the original value of the affinity credit card business). The Company now owns 50% of Legend Credit and accounts for the subsidiary using the acquisition method. The subsidiary currently has no business operations.
In July 1999, the Company formed Legend Studios, Inc. (formerly
FragranceDirect.com
, Inc.) ("Legend Studios"), a majority owned subsidiary. Since June 30, 2011, Legend Studios did not have any operations.
Basis of Presentation and Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company incurred a net loss for the six months ended June 30, 2013, had an accumulated deficit and a working capital deficit. In addition, the Company generates minimal revenue from its operations and is in default on the payment of notes payable and license fee payable obligations. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. In the opinion of management, these interim financial statements include all of the adjustments necessary to make them not misleading.
The financial statements have, in management's opinion, been properly prepared within the framework of the significant accounting policies summarized below:
The Company plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence. The Company is seeking additional equity or debt capital to expand its mobile application business.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its 91%-owned subsidiary, Legend Studios, and its 50% owned subsidiary, Legend Credit. Significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with a maturity of three months or less, plus all certificates of deposit.
Use of Estimates
The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As of June 30, 2012 the Company used estimates in determining the value of common stock issued to consultants for services. Actual results could differ from these estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company extends credit based on an evaluation of the customer's financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Comprehensive Income
The Company has adopted SFAS No. 130 (ASC220-10), "Reporting Comprehensive Income." This statement establishes standards for reporting comprehensive income and its components in a financial statement. Comprehensive income as defined includes all changes in equity (net assets) during a period from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. Comprehensive income (loss) is not presented in the Company's financial statements since there is no difference between net loss and comprehensive loss in any period presented.
Stock Based Compensation
Stock-based compensation is accounted for at fair value in accordance with ASC 718. During the six months ended June 30, 2013, the Company has not adopted a stock option plan and has not granted any stock options.
Stock-based compensation represents the cost related to common stock and options to purchase common stock granted to employees and related parties of the Company. The Company determines the cost of common stock grants at the date the common stock was issued, based on the quoted market price of the Companys common stock and recognizes the cost as expense over the requisite service period. The Company estimates the fair value of all warrants and options issued during the period using the Black-Scholes option-pricing model with the assumptions appropriate to the circumstances of the Company at the time of the transaction. There were no options or warrants issued during the six months ended June 30, 2013.
The Company records deferred tax assets for awards that result in deductions on the Companys income tax returns, based on the amount of compensation cost recognized and the Companys statutory tax rate in the jurisdiction in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Companys income tax return are recorded in Additional Paid-In Capital.
Fair Value of Financial Instruments
In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820
Fair Value Measurements and Disclosures
(ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
·
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
·
|
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
·
|
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
|
The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, investments, accounts payable, accrued expenses, accrued interest, license fee payable, due to related parties, and advances from an officer. The fair value of the Companys notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
|
|
|
|
|
Financial Asset
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Investment, at cost
|
$ 388,680
|
|
|
$ 388,680
|
|
$ 388,680
|
$ --
|
$ --
|
$ 388,680
|
Property and equipment
Property and equipment is recorded at cost. Depreciation is provided on a straight-line basis over estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations.
Revenue Recognition
The Company generates revenue from the sale of products on its web sites and through other channels, the sale of advertisements on radio stations it operated and service fees from the sale of debit cards. The Company recognizes revenue for these product sales when the product is shipped to the customer. The Company recognizes revenue from the radio stations it operated when advertisements were aired. The Company recognizes service fee revenue from the sale of debit cards at the time the customer is sent the debit card. Shipping and handling costs are recorded as revenue and related costs are charged to cost of sales.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Impairment of Long-Lived Assets
In October 2001, the FASB issued SFAS No. 144 (ASC 360), "Accounting for Impairment or Disposal of Long-Lived Assets". This statement also amends ARB No. 51 (ASC 810), "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be impaired. SFAS No. 144 (ASC 360) requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 (ASC 360) broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 (ASC 360) also establishes a "primary-asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. The Company's adoption effective January 1, 2002 did not have a material impact to the Company's financial position or results of operations.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share in accordance with SFAS No. 128 (ASC 260), "Earnings per Share." Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share have not been presented since the effect of the assumed conversion of options and warrants to purchase common shares would have an anti-dilutive effect. The following potential common shares have been excluded from the computation of diluted net loss per share for the six months ended June 30, 2013 and 2012 respectively because the effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Conversion of Series A preferred stock
|
|
|
44,500
|
|
|
|
44,500
|
|
Conversion of Series B preferred stock
|
|
|
8,500,000
|
|
|
|
8,500,000
|
|
Conversion of Series C preferred stock
|
|
|
14,777,500
|
|
|
|
14,777,500
|
|
Total
|
|
|
23,322,000
|
|
|
|
23,322,000
|
|
All warrants and stock options were cancelled during the year ended December 31, 2007.
Non-Controlling Interest
In December 2007, the FASB issued SFAS No. 160 (ASC 810), Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (ASC 810), which addresses the accounting and reporting framework for minority interests by a parent company. SFAS 160 (ASC 810) also addresses
disclosure requirements to distinguish between interests of the parent and interests of the non-controlling owners of a subsidiary. SFAS 160 (ASC 810) became effective beginning with our first quarter of 2009. We will be reporting minority interest as a component of equity in our Consolidated Balance Sheets and below income tax expense in our Consolidated Statement of Operations. As minority interest will be recorded below income tax expense, it will have an impact to our total effective tax rate, but our total taxes will not change. For comparability, we will be retrospectively applying the presentation of our prior year balances in our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. The Company has reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Note 2
Property and Equipment
Property and equipment as June 30, 2013 and December 31, 2012 consisted of the following:
June 30, Dec 31,
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Computer equipment
|
|
$
|
54,124
|
|
|
$
|
54,124
|
|
Less: Accumulated depreciation
|
|
|
(53,542
|
)
|
|
|
(53,421
|
)
|
Net Fixed Assets
|
|
$
|
582
|
|
|
$
|
703
|
|
Depreciation expense for the six months ended June 30, 2013 and 2012 was $121 and $119, respectively.
Note 3
Investments
The Company has made investments in a private company, in the amount of $388,680 and $360,000 as of June 30, 2013 and December 31, 2012, respectively. Cephas does not have a controlling interest (less than 20%) or participate in management or share in profits or losses of the Company. Cephas accounts for the investment at cost, as the investments are collateralized by demand notes payable. There has been no negative evidence of impairment or reasons to reduce the investment. Management has considered like values of like investment, future discounted cash flows, estimated return on investment and other unobservable considerations in determining that cost represents fair market value. See Note 10 Commitment and Contingencies.
Note 4 -
Accrued Expenses
Accrued expenses at June 30, 2013 and December 31, 2012 consisted of the following:
The amount owing to Michael Jordan bears interest at 12% per annum and is currently in default. Accrued interest on settlement, to date, amounts to $468,750.
An officer of the Company, as approved by the Board of Directors, is paid a salary of $175,000 per annum, renewable annually upon mutual consent until terminated by either party. Amounts are currently being accrued until sufficient cash flows from operation allow payment.
|
|
|
|
|
|
|
|
|
|
|
June 30 2013
|
|
|
Dec 31, 2012
|
|
Michael Jordan settlement
|
|
$
|
468,750
|
|
|
$
|
468,750
|
|
Management salary
|
|
|
481,250
|
|
|
|
393,750
|
|
Professional fees
|
|
|
7,101
|
|
|
|
7,101
|
|
Total Accrued Expenses
|
|
$
|
957,101
|
|
|
$
|
869,601
|
|
Note 5 -
Notes Payable - Officer
An officer, the controlling shareholder, has pledged his support to fund continuing operations; however there is no written commitment to this effect. The Company is dependent upon continued support.
As of September 30, 2004, the Company converted $291,000 of advances from its CEO, Mr. Klamka, into a note payable that bears interest at 21% per annum and is payable upon demand. As of June 30, 2013, the balance on this note is $263,496 with accrued interest related to this note amounted to $477,566.
During the year ended December 2006 the Company converted certain of the accrued amounts owing to the CEO and for salaries payable to the CEO into a note totaling $758,920. This note is unsecured and bears interest at the rate of 21% per annum. Accrued interest to date is $773,540.
A promissory note were issued during 2007 to Peter Klamka for prior year (2006) unpaid salaries of $175,000 bearing interest at the rate of 8% per annum. In 2011 payments, in the amount of $8,000 were applied to this note, resulting in a balance due of $167,000 as of June 30, 2013. Interest accrued to date is $74,034.
Per the convertible debt agreements the conversion price is to be calculated by dividing the amount of outstanding principal by the stated conversion price. Since the convertible debt can be converted at anytime from the signing of the agreement forward, the closing prices of the convertible debt agreement dates were used for the calculation of the beneficial conversion feature, in accordance with ASC 470. There was no beneficial conversion feature associated with the convertible debt, as the conversion rate approximated the fair market value of the trading shares at the date of signing.
Note 6 -
Notes Payable
During the year ended December 31, 2010, an outside party loaned the Company a total $85,000. This loan is repayable interest only at the rate of 7% per annum with no fixed terms of repayment and may be converted into common stock at $.005 per share. In 2011 an additional 70,000 was advanced by the party. The balance of the loan as at June 30, 2013 is $155,000 and accrued interest of $11,032. The conversion feature of the notes resulted in a beneficial conversion expense of $155,000, which has been recognized in 2011.
During 2011 the company issued a series of notes for expenses paid on behalf of the Company. The notes totaled $19,700, payable upon demand, stated interest rate of 7%, convertible into shares of common stock at a fixed conversion price of $.005 per share. A beneficial conversion has been recognized in the amount of $19,700, based on the fair market value of the stock at the time of agreement. Interest accrued to date is $2,385 on these notes.
In December 2011 an outside party advanced an additional $45,000 bearing interest at 7% per annum. As of June 30, 2013 the balance owing was $142,856. The note is payable on demand and there are no fixed terms of repayment. Interest accrued to date is $22,515.
The Company issued a note to an employee for unpaid salaries for 2006 for $100,000 of which $23,750 was repaid. The remaining balance of $156,250 of which $12,356 was repaid in 2012 leaving a balance of $143,894 and bears interest at 7% per annum and accrued interest to date is $43,530. An additional note
was issued on December 31, 2012 for $80,000 for the employees 2012 salary. Accrued interest to date on this note is $2,800.
Note 7 -
Stockholders' Deficit
Series A Preferred Stock
The Company has 1,000,000 shares of $0.001 par value Series A Preferred Stock ("Series A") authorized of which 44,500 shares are issued and outstanding at June 30, 2013. Each share of Series A can be converted into 20 shares of common stock.
Series B Convertible Preferred Stock
The Company has 850,000 shares of $0.01 par value Series B Convertible Preferred Stock (Series B) authorized of which 850,000 shares are issued and outstanding at June 30, 2013.
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, prior to the time the Series B becomes convertible into common shares, the holders of Series B shall be entitled to $0.01 per share. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company after the time the Series B becomes convertible into common shares, the holders of Series B shall be entitled to share with the holders of common stock pari passu in the assets of the Company, on an as converted basis, whether such assets are capital or surplus of any nature. The Series B shall be convertible upon the earlier to occur of: (i) the date the Company generates net profits in any two consecutive fiscal quarters or (ii) April 1, 2006.
The conversion of Series B shall be on the basis of ten shares of common stock for one Series B share, as may be adjusted from time to time. Upon conversion, the holder of the Series B will be required to pay to the Company a conversion price for each share of common stock equal to $0.10.
The holders of the Series B shall vote on all matters with the holders of the common stock (and not as a separate class) on a ten vote per share basis. The holders of the Series B shall be entitled to receive all notices relating to voting as are required to be given to the holders of the common stock.
During 2003, the Company issued to Mr. Peter Klamka, the Company's CEO, 850,000 shares of Series B as consideration for the contribution of an affinity credit card business to Legend Credit.
Series C Convertible Preferred Stock
The Company has 147,775 shares of $0.01 par value Series C Convertible Preferred Stock (Series C) authorized of which 147,775 shares are issued and outstanding at June 30, 2013.
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company prior to the time the Series C becomes convertible into common shares, the holders of Series C shall be entitled to $0.01 per share. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company after the time the Series C becomes convertible into common shares, the holders of Series C shall be entitled to share with the holders of shares of common stock and Series B convertible preferred stock pari passu in the assets of the Company, on an as converted basis, whether such assets are capital or surplus of any nature. The Series C shall be convertible upon the earlier to occur of: (i) the date the Company generates net profits in any two consecutive fiscal quarters; (ii) April 1, 2006; or (iii) any date that the market price per share of common stock equals or exceeds $0.50.
The conversion of Series C shall be on the basis of one hundred shares of common stock for one Series C share, as may be adjusted from time to time. Upon conversion, the holder of the Series C will be required to pay to the Company a conversion price for each share of common stock equal to $0.10.
The holders of the Series C shall vote on all matters with the holders of the common stock (and not as a separate class) on a ten vote per share basis. The holders of the Series C shall be entitled to receive all notices relating to voting as are required to be given to the holders of the common stock.
During 2004, the Company issued to Mr. Peter Klamka, the Company's CEO, 147,775 shares of Series C as consideration for the contribution of an additional 10% ownership in Legend Credit. (See Note 3)
Common Stock
During the quarter ended March 31, 2010 the Company issued a total of 3,100,000 (12,400 post split) common shares to convert notes payable for a total consideration of $15,500.
During the quarter ended September 2010 the Company issued a total of 8,000,000 (32,000 post split) shares of common stock to convert certain notes payable in the amount of $40,000.
During the quarter ended September 30, 2010 the Company issued a total of 2,000,000 (8,000 post split) shares of common stock for services rendered totaling $14,000.
During the quarter ended December 31, 2010, the Company issued a total of 7,000,000 (28,000 post split) shares of common stock for services totaling $5,000 and to reduce notes payable by $32,500.
During 2011 the Company issued common shares to consultants for services provided. We have recorded compensation costs at the fair value at the time of issuance and expensed in the periods the service were performed. Total common shares issued for these services were 15,645,000 (62,580 post split) and recorded expenses of $110,000 related to the issuances.
During the quarter ended March 31, 2011, the Company issued a total of 54,800,000 (219,200 post split) shares for services of $2,000 and to reduce notes and loans by $85,600.
During the three months ended June 30, 2011 a total of 10,750,000 (43,000 post split) shares were issued to reduce notes payable by $21,750.
During the year ended December 31, 2012 a total of 37,801,500 shares were issued to reduce notes payable for a value of $337,757.
During the three months ended March 31, 2013, the Company issued 1,000,000 shares of common stock for services rendered for a value equal to $5,000.
During the three months ended June 30, 2013, the Company issued a total of 16,037,778 shares of common stock to reduce notes payable by $48,040.
Note 8 - Income Taxes
The components of income tax (benefit) expense for the six months ended June 30, 2013 and 2012 respectively, are as follows:
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|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
State:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has a net operating loss carry forward to offset future taxable income of approximately $28,000,000 for federal purposes. Subject to current regulations, this carry forward will begin to expire in
2013 in varying amounts until 2021. The amount and availability of the net operating loss carry forwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carry forwards.
.
The Companys income tax expense (benefit) for the six months ended June 30, 2013 and 2012 respectively, differed from the statutory federal rate of 34 percent as follows:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Statutory rate applied to loss before income taxes
|
|
$
|
(153,500)
|
)
|
|
$
|
(43,600)
|
|
|
|
|
|
|
|
|
|
|
Increase(decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, income taxes
|
|
|
-
|
|
|
|
-
|
|
Other, including reserve for deferred tax asset
|
|
|
153,500
|
|
|
|
43,600
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Temporary differences due to statutory requirements in the recognition of assets and liabilities for tax and financial reporting purposes, generally including such items as organizational costs, accumulated depreciation and amortization, allowance for doubtful accounts, organizational and start-up costs and vacation accruals. These differences give rise to the financial statement carrying amounts and tax bases of assets and liabilities causing either deferred tax assets or liabilities, as necessary, as of June 30, 2013 and 2012, respectively:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
9,519,400
|
|
|
$
|
7,851,700
|
|
Less: valuation allowances
|
|
|
(9,519,400
|
)
|
|
|
(7,851,700
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 9 -
Commitments and Contingencies
Litigation
Legend Studios, Inc. vs. Quorum Radio Partners, Inc., Quorum Radio Partners of Virginia, Inc. and Quorum Communications, Inc.
Legend Studios lawsuit arises from defendants' breach of the parties' Asset Purchase Agreement and Time Brokerage Agreement that govern the sale, programming, operations and revenues of certain radio stations (KELE-AM, KELE-FM, WIQO, WKEY and WKCI). Legend Studios seeks specific performance of the agreements, as well as in excess of $1.5 million in damages. Defendants have been served with the complaint, but have not filed answers and may be subject to entry of default. Quorum Radio Partners of Virginia, Inc., however, filed a bankruptcy petition after being served with the complaint, which stays Legend Studios proceedings solely against that entity.
In the ordinary course of business, the Company is generally subject to claims, complaints, and legal actions. At June 30, 2013, management believes that the Company is not a party to any action which result would have a material impact on its financial condition, operations, or cash flows.
Commitments
During the year ended December 31, 2010 the Company invested a total of $135,000 worth of units in Network Talent, LLC, (Network), a modeling agency in California.
The Company has committed to advance by way of purchase of units of Network a total of $400,000 of which $388,680 has been advanced to date.
Item 2.