Notes to Financial Statements
March 31, 2014
(Unaudited)
NOTE 1: HISTORY OF OPERATIONS
Business Activity
Independent Film Development Corporation was
incorporated in the State of Nevada on September 14, 2007. Effective April 24, 2008 we commenced operating as a Business Development
Company ("BDC") under Section 54(a) of the Investment Company Act of 1940 ("1940 Act"). On September
30, 2009, our board of directors elected to cease operating as a BDC.
The company’s plan of operations seeks
to acquire real estate assets primarily, but not exclusively, in the hospitality space, which present value creation potential
due to the complexity or illiquidity of their existing ownership and / or capital structure. In such situations, IFLM will seek
to actively work through the complexities, gain control of the asset, actively manage, recapitalize and thereby create value. For
those assets lying outside of the hospitality space, IFLM will sell the assets at a price which realizes that value created. For
those assets lying within the hospitality space, IFLM will then leverage its film, entertainment and hospitality capabilities to
transform the property into genre themed hotels and resorts. The final product will be a paradigm-shifting convergence of hospitality
and entertainment, providing guests with a full immersion experience during their stay. Additionally, should any opportunities
for content creation/distribution projects present themselves, IFLM will pursue those that align with the company’s strategic
vision.
Since the change in leadership in January 2014,
IFLM has made significant progress in focusing and executing on its business plan of operations, as well as addressing outstanding
liabilities on the company’s balance sheet and laying a foundation for the long-term profitability of the company.
On February 6, 2014, the Company created two
new subsidiaries, the IFLM LA Realty Fund, LLC and the Hilltop Manor Fund, LLC. The Companies will be used to hold two separate
offerings for real estate investment funds. The net cash proceeds from these two offerings, less working capital expenses,
will be used to invest in real estate and/or the costs associated with the acquisition and development of real estate. The
real estate investments under the IFLM LA Realty Fund will focus on undervalued properties on the West Coast of the United States.
The Hilltop Manor Fund will focus on the initial costs associated with the acquisition and development of the Hilltop Manor
theme park and resort concept.
The Company is in the development stage as
defined under Statement on Financial Accounting Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage
Entities.”
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the
Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments necessary in order for the
financial statements to be not misleading have been reflected herein. The Company has adopted a September 30 year end.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
There were no cash equivalents as of March 31, 2014 or September 30, 2013.
Stock Based Compensation
We account for equity instruments
issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of
the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The value of equity instruments issued for consideration other than employee services is determined on the earlier of
the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date
performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset
or expense being recorded by the Company, in the same period(s) and in the same manner, as if the Company has paid cash
for the goods or services.
The Company accounts for equity based
transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees”
(“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall
be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the
date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation
model. In general, the Company recognizes an asset or expense in the same manner as if it was to pay cash for the goods or services
instead of paying with or using the equity instrument.
The Company accounts for employee stock-based
compensation in accordance with the guidance of FASB ASC Topic 718,
Compensation - Stock Compensation
which requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based
on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited
to additional paid-in capital over the period during which services are rendered. There has been no stock-based compensation issued
to employees.
Use of Estimates
The presentation of financial statements in
conformity with generally accepted accounting principles 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 financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The carrying amount of cash, notes
receivable, accounts payable, accrued liabilities and notes payable, as applicable, approximates fair value due to the short-term
nature of these items. The fair value of the related party notes payable cannot be determined because of the Company's affiliation
with the parties with whom the agreements exist. The use of different assumptions or methodologies may have a material effect on
the estimates of fair values.
ASC Topic 820, “Fair Value Measurements
and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial
Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement
that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables
and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the
short period of time between the origination of such instruments and their expected realization and their current market rate of
interest. The three levels of valuation hierarchy are defined as follows:
·
Level 1: Observable
inputs such as quoted prices in active markets;
·
Level 2: Inputs,
other than the quoted prices in active markets, that are observable either directly or indirectly; and
·
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its
own assumptions.
The following table presents assets and liabilities
that are measured and recognized at fair value as of March 31, 2014 and September 30, 2013 on a recurring basis:
March 31, 2014
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Gains and (Losses)
|
Derivative
|
|
|
-
|
|
|
-
|
|
|
(124,954)
|
|
|
179,931
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(124,954)
|
|
$
|
179,931
|
September 30, 2013
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Gains and (Losses)
|
Derivative
|
|
|
-
|
|
|
-
|
|
|
(755,167)
|
|
|
(303,280)
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(755,167)
|
|
$
|
(303,280)
|
Long Lived Assets
Long lived assets are carried at cost and amortized
over their estimated useful lives, generally on a straight-line basis. The Company reviews identifiable amortizable assets to be
held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not
be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows
resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the
carrying value of the asset over its fair value.
Income Taxes
Accounting Standards Codification Topic No.
740 “Income Taxes” (ASC 740) requires the asset and liability method of accounting be used for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
In June 2006, the FASB interpreted its
standard for accounting for uncertainty in income taxes, an interpretation of accounting for income taxes. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance the
minimum recognition threshold and measurement attributable to a tax position taken on a tax return is required to be met before
being recognized in the financial statements. The FASB’s interpretation had no material impact on the Company’s financial
statements for the period ended March 31, 2014.
Derivative Liabilities
The Company records the fair value of its derivative
financial instruments in accordance with ASC815,
Derivatives and Hedging
. The fair value of the derivatives was calculated
using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability
is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations
Derivative financial instruments should be
recorded as liabilities in the balance sheet and measured at fair value. For purposes of the Company’s financial statements
fair value was used as the basis for formulating an analysis which has been defined by the Financial Accounting Standards Board
(“FASB”) as “the amount for which an asset (or liability) could be exchanged in a current transaction between
knowledgeable, unrelated willing parties when neither party is acting under compulsion”. The FASB has provided guidance that
its definition of fair value is consistent with the definition of fair market value in IRS Rev. Rule 59-60. In determining the
fair value of the derivatives it was assumed that the Company’s business would be conducted as a going concern. These derivative
liabilities will need to be marked-to-market each quarter with the change in fair value recorded in the income statement.
The Company has notes payable in which the
holder has the right to convert all or a portion of the principal into shares of common stock at a conversion price equal to fifty
percent (50%) of the average of the closing bid price of common stock during the five trading days immediately preceding the conversion
date, or fifty percent (50%) of the closing bid price of the common stock on the date of issuance as quoted by Bloomberg, LP. Pursuant
to the terms of this debenture, the holder shall not be entitled to convert a number of shares that would exceed 4.99% of the outstanding
shares of the Company’s common stock. Because the terms of the debentures do not specifically state that there is a
minimum amount on which the price of the conversion can go and/or there is no maximum amount of shares that can be converted into,
a derivative liability is triggered and must accounted for as such (see Note 6).
Earnings (Loss) Per Share
Basic earnings (loss) per share are computed
by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily
outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding
stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented
or the date of issuance, whichever is later. At
March 31, 2014, the Company had no outstanding
options or warrants.
Recent Accounting
Pronouncements
In February 2013, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,
Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income
, to improve the transparency of reporting these reclassifications.
Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those
gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU
do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the
information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The
new amendments will require an organization to:
|
-
|
Present (either on the face of the statement where net income is presented or in the notes) the
effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but
only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting
period; and
|
|
-
|
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification
items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting
period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially
transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
|
The amendments apply to all public and private
companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all
reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for
public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our
financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, which clarifies
which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11.
The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed
unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope
of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while
still giving financial statement users sufficient information to analyze the most significant presentation differences between
financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in
this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected
to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise
disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might
have a material impact on its financial position or results of operations.
NOTE 3: CONVERTIBLE DEBENTURES
On February 7, 2014, the Company was
granted a default judgment by the Central District Court of California in the case Independent Film Dev. Corp vs Junior Capital,
Inc. The granting of the default judgment rescinds all debentures and releases the Company from all obligations due to Junior Capital,
Inc., Editor Newswire, Inc., and iBacking Corp, including any and all accrued interest and penalties. As a result of the release
of liabilities the Company has recognized a gain on the extinguishment of debt of $1,358,637 and written off $450,282 of the derivative
liability to additional paid in capital.
On July 1, 2011, the Company entered
into an exchange agreement with Junior Capital Inc. (“Junior”), pursuant to which Junior exchanged a $350,000
promissory note for a $350,000 convertible debenture (the “Junior Debenture”). The Junior Debenture accrues
interest of 10% and matures on July 1, 2012. Junior has the right to convert all or a portion of the principal into shares of
common stock at a conversion price equal to fifty percent (50%) of the average of the closing bid price of common stock
during the five trading days immediately preceding the conversion date, or fifty percent (50%) of the closing bid price of
the common stock on the date of issuance, or $0.05 per share of common stock on the date of conversion as quoted by
Bloomberg, LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a number of shares that
would exceed 4.99% of the outstanding shares of the Company’s common stock. Based on the initial valuation the Company
has recorded a debt discount of $50,514, $8,773 of which was amortized in the fiscal year ended September 30, 2011 with the
remaining $41,741 amortized in the fiscal year ended September 30, 2012. During fiscal year ending September 30, 2012,
$143,500 of the $350,000 debenture was converted into 4,100,000 shares of common stock. This conversion was converted within
the terms of the agreement. As a result of the conversions the remaining $4,359 of debt discount amortization was accelerated
and expensed, and the derivative liability decreased by $149,671. In addition, as a consequence of the triggering of the
default provisions of the debenture, as a result of nonpayment as of the due date and failure to convert a portion of the
debenture upon request, the interest on the debenture has been instated at a rate of 18%, effective as of the date of
issuance, and a per business day penalty of $500 has been accrued from the date of default of $230,000. As a result of the
before mentioned default judgment this debt has been written off in full to gain on extinguishment of debt and the
derivative liability to additional paid in capital.
On October 25, 2011 the Company issued a convertible
debenture/note payable to Junior Capital, Inc. for $20,000, $15,000 of this amount was advanced to the Company prior to signing
the debenture and prior to the year ended September 30, 2011. The remaining $5,000 was received in October 2011. The Debenture
accrues interest of 10% beginning on October 25, 2011 and matures on October 25, 2012. Junior has the right to convert all or a
portion of the principal into shares of common stock at a conversion price equal to fifty percent (50%) of the average of the closing
bid price of common stock during the five trading days immediately preceding the conversion date, or fifty percent (50%) of the
closing bid price of the common stock on the date of issuance as quoted by Bloomberg, LP. Pursuant to the terms of this debenture,
the holder shall not be entitled to convert a number of shares that would exceed 4.99% of the outstanding shares of the Company’s
common stock. Based on the initial valuation the Company has recorded a debt discount of $20,000, $743 of which was amortized in
the fiscal year ended September 30, 2011, $17,051 was amortized in the fiscal year ended September 30, 2012 and $2,206 was amortized
in the fiscal year ended September 30, 2013. In addition, as a consequence of the triggering of the default provision of the debenture
the interest on the debenture has been instated at a rate of 18% effective as of the date of issuance. As a result of the before
mentioned default judgment this debt has been written off in full to gain on extinguishment of debt and the derivative liability
to additional paid in capital.
On October 28, 2011, the Company entered into
an exchange agreement with Editor Newswire Inc. (“Editor”), pursuant to which Editor exchanged a $20,000 promissory
note for a $20,000 convertible debenture (the “Editor Debenture”). The Editor Debenture accrues interest of 10% and
matures on October 28, 2012. Editor has the right to convert all or a portion of the principal into shares of common stock at a
conversion price equal to fifty percent (50%) of the average of the closing bid price of common stock during the five trading days
immediately preceding the conversion date, or fifty percent (50%) of the closing bid price of the common stock on the date of issuance
as quoted by Bloomberg, LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a number of shares
that would exceed 4.99% of the outstanding shares of the Company’s common stock. Based on the initial valuation the Company
has recorded a debt discount of $20,000, $10,017 of which was amortized in the fiscal year ended September 30, 2012 with the remaining
$9,983 amortized in fiscal year ended September 30, 2013. In addition, as a consequence of the triggering of the default provision
of the debenture the interest on the debenture has been instated at a rate of 18% effective as of the date of issuance. As a result
of the before mentioned default judgment this debt has been written off in full to gain on extinguishment of debt and the derivative
liability to additional paid in capital.
On November 18, 2011, the Company entered into
an exchange agreement with Editor Newswire Inc. (“Editor”), pursuant to which Editor exchanged a $25,000 promissory
note dated November 18, 2011 for a $25,000 convertible debenture (the “Editor Debenture”). The Editor Debenture accrues
interest of 10% and matures on November 18, 2012. Editor has the right to convert all or a portion of the principal into shares
of common stock at a conversion price equal to fifty percent (50%) of the average of the closing bid price of common stock during
the five trading days immediately preceding the conversion date, or fifty percent (50%) of the closing bid price of the Common
Stock on the date of issuance as quoted by Bloomberg, LP. Pursuant to the terms of this debenture, the holder shall not be entitled
to convert a number of shares that would exceed 4.99% of the outstanding shares of the Company’s common stock. Based on the
initial valuation the Company has recorded a debt discount of $25,000, $9,632 of which was amortized in the fiscal year ended September
30, 2012 with the remaining $15,368 amortized in the fiscal year ended September 30, 2013. In addition, as a consequence of the
triggering of the default provision of the debenture the interest on the debenture has been instated at a rate of 18% effective
as of the date of issuance. As a result of the before mentioned default judgment this debt has been written off in full to gain
on extinguishment of debt and the derivative liability to additional paid in capital.
On January 11, 2012, the Company entered
into a $33,000 convertible debenture with Junior Capital Inc. (“Junior”). The Junior Debenture accrues interest
of 10% and matures on January 11, 2013. Junior has the right to convert all or a portion of the principal into shares of
common stock at a conversion price equal to fifty percent (50%) of the average of the closing bid price of common stock
during the five trading days immediately preceding the conversion date, or fifty percent (50%) of the closing bid price of
the Common Stock on the date of issuance as quoted by Bloomberg, LP. Pursuant to the terms of this debenture, the holder
shall not be entitled to convert a number of shares that would exceed 4.99% of the outstanding shares of the Company’s
common stock. Based on the initial valuation the Company has recorded a debt discount of $33,000, $8,425 of which was
amortized to interest expense before conversion during the fiscal year ending September 30, 2012. This conversion was
converted within the terms of the agreement. As a result of the conversions, $24,575 of debt discount amortization was
accelerated and expensed and the derivative liability decreased by $37,159. During the fiscal year ending September 30, 2012,
the entire $33,000 debenture was converted into 1,015,384 shares of common stock.
On March 15, 2012, the Company entered into
a $40,000 convertible debenture with Junior Capital Inc. (“Junior”). The Junior Debenture accrues interest of 12% and
matures on March 15, 2013. Junior has the right to convert all or a portion of the principal into shares of common stock at a conversion
price equal to fifty percent (50%) of the average of the closing bid price of common stock during the five trading days immediately
preceding the conversion date, or fifty percent (50%) of the closing bid price of the Common Stock on the date of issuance as quoted
by Bloomberg, LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a number of shares that
would exceed 4.99% of the outstanding shares of the Company’s common stock. Based on the initial valuation the Company has
recorded a debt discount of $40,000, $9,760 of which was amortized in the fiscal year ended September 30, 2012 with the remaining
$30,240 amortized in the fiscal year ended September 30, 2013. In addition, as a consequence of the triggering of the default provision
of the debenture the interest on the debenture has been instated at a rate of 18% effective as of the date of issuance. As a result
of the before mentioned default judgment this debt has been written off in full to gain on extinguishment of debt and the derivative
liability to additional paid in capital.
On April 9, 2012, the Company entered into
a $100,000 convertible debenture with Neil Linder. The debenture accrues interest of 12% and matures on April 9, 2013. Mr. Linder
has the right to convert all or a portion of the principal into shares of common stock at a conversion price equal to the lesser
of fifty percent (50%) of the average of the closing bid price of common stock during the five trading days immediately preceding
the conversion date, or fifty percent (50%) of the closing bid price of the Common Stock on the date of issuance as quoted by Bloomberg,
LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a number of shares that would exceed 4.99%
of the outstanding shares of the Company’s common stock. Based on the initial valuation the Company has recorded a debt discount
of $49,532, $15,994 of which was amortized in the fiscal year ended September 30, 2012 with the remaining $33,538 amortized the
fiscal year ended September 30, 2013. During the fiscal year ending September 30, 2013, $13,950 of the $100,000 debenture was converted
into 2,052,795 shares of common stock. This conversion was converted within the terms of the agreement. As of March 31, 2014 $86,050
of the principal face value of the Debenture remains outstanding. In addition, as a consequence of the triggering of the default
provision of the debenture the interest on the debenture has been instated at a rate of 18% effective as of the date of issuance,
a $1,000 per business day penalty was being imposed for failure to execute a conversion in a timely manner, and an additional accrual
of $112,509 was accounted for as a result of a provision requiring additional funds due in the event that a “default payment”
is made by the Company.
On May 29, 2012, the Company entered into a
$500,000 convertible debenture with iBacking Corp. The iBacking Debenture accrues interest of 12% and matures on May 29, 2013.
iBacking has the right to convert all or a portion of the principal into shares of common stock at a conversion price equal to
the lesser of fifty percent (50%) of the lowest closing bid price of common stock during the ten trading days immediately preceding
the conversion date, or fifty percent (50%) of the closing bid price of the Common Stock on the date of issuance as quoted by Bloomberg,
LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a number of shares that would exceed 4.99%
of the outstanding shares of the Company’s common stock. Based on the initial valuation the Company has recorded a debt discount
of $84,651, $21,997 of which was amortized in the fiscal year ended September 30, 2012 with the remaining $62,654 amortized in
the fiscal year ended September 30, 2013. In addition, as a consequence of the triggering of the default provision of the debenture
the interest on the debenture has been instated at a rate of 18% effective as of the date of issuance. As a result of the before
mentioned default judgment this debt has been written off in full to gain on extinguishment of debt and the derivative liability
to additional paid in capital.
On June 5, 2012, the Company entered into
an $18,000 convertible debenture with Junior Capital Inc. (“Junior”). The Junior Debenture accrues interest of 12%
and matures on June 5, 2013. Junior has the right to convert all or a portion of the principal into shares of common stock at
a conversion price equal to fifty percent (50%) of the average of the closing bid price of common stock during the five trading
days immediately preceding the conversion date, or fifty percent (50%) of the closing bid price of the Common Stock on the date
of issuance as quoted by Bloomberg, LP. Pursuant to the terms of this debenture, the holder shall not be entitled to convert a
number of shares that would exceed 4.99% of the outstanding shares of the Company’s common stock. Based on the initial valuation
the Company has recorded a debt discount of $18,000, $1,512 of which was amortized in the fiscal year ended September 30, 2012
with the remaining $16,488 amortized in the fiscal year ended September 30, 2013. In addition, as a consequence of the triggering
of the default provision of the debenture the interest on the debenture has been instated at a rate of 18% effective as of the
date of issuance. As a result of the before mentioned default judgment this has been written off in full to gain on extinguishment
of debt and the derivative liability to additional paid in capital.
The fair values of the derivatives for the
above liabilities are calculated using a multi-nominal lattice model. The model values the derivative liability in each debenture
based on a probability weighted discounted cash flow model. These models are based on future projections of the various potential
outcomes. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses
recorded in the statement of operations.
The following inputs and assumptions were used
to value the secured convertible notes at March 31, 2014 and September 30, 2013:
-
The convertible promissory notes have a conversion price of the lesser of 50% of the
average of the lowest closing bid stock prices (lowest closing bid price for the 5/29/12 note) over the last 5-10 days or 50% of
the closing bid price at issuance (or $0.05 for the 7/1/11 note) and contains no dilutive reset feature.
-
The stock price would fluctuate with an annual volatility. The projected volatility
curve was based on historical volatilities of the 18 comparable companies in the entertainment industry.
-
The Holder would redeem based on availability of alternative financing, increasing 1.0%
monthly to a maximum of 10%.
-
The Holder will automatically convert the note at maturity if the registration was effective
and the company was not in default. The following conversions were completed during the fiscal year.
The following are the conversions that have
been completed as of March 31, 2014:
-
On March 7, 2012, the Company authorized the issuance
of 450,000 common shares in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were issued at
$0.05 pursuant to the conversion terms of the debenture.
-
On March 28, 2012, the Company authorized the issuance of 450,000 common shares
in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were issued at $0.05 pursuant to the conversion
terms of the debenture.
-
On April 20, 2012, the Company authorized the issuance
of 450,000 common shares in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were issued at
$0.05 pursuant to the conversion terms of the debenture.
-
On June 13, 2012, the Company authorized the issuance
of 250,000 common shares in conversion of $12,500 of the Junior Capital debenture dated July 1, 2011. The shares were issued at
$0.05 pursuant to the conversion terms of the debenture.
-
On June 28, 2012, the Company authorized the issuance
of 400,000 common shares in conversion of $20,000 of the Junior Capital debenture dated July 1, 2011. The shares were issued at
$0.05 pursuant to the conversion terms of the debenture.
-
On July 24, 2012, the Company authorized the issuance
of 1,000,000 common shares in conversion of $32,500 of the Junior Capital debenture dated July 1, 2011. The shares were issued
at $0.0325 pursuant to the conversion terms of the debenture.
-
On July 27, 2012, the Company authorized the issuance
of 1,015,384 common shares in conversion of $33,000 of the Junior Capital debenture dated January 11, 2012. The shares were issued
at $0.0325 pursuant to the conversion terms of the debenture.
-
On August 21, 2012, the Company authorized the issuance
of 1,100,000 common shares in conversion of $11,000 of the Junior Capital debenture dated July 1, 2011. The shares were issued
at $0.01 pursuant to the conversion terms of the debenture.
-
On October 16, 2012, the Company authorized the issuance
of 1,552,795 common shares in conversion of $10,000 of the Neil Linder debenture dated April 9, 2012. The shares were issued at
$0.00644 pursuant to the conversion
terms of the debenture.
-
On June 19, 2013, the Company authorized the issuance
of 500,000 common shares in conversion of $3,950 of the Neil Linder debenture dated April 9, 2012. The shares were issued at $0.0079
pursuant to the conversion terms of the debenture.
A summary of the activity of the derivative liability is shown below:
Balance at September 30, 2012
|
|
$
|
468,884
|
|
Decrease in derivative due to settlement of debt
|
|
|
(16,997
|
)
|
Derivative loss due to mark to market adjustment
|
|
|
303,280
|
|
Balance at September 30, 2013
|
|
|
755,167
|
|
Decrease in derivative due to extinguishment of debt
|
|
|
(450,282
|
)
|
Derivative (gain) due to mark to market adjustment
|
|
|
(179,931
|
)
|
Balance at March 31, 2014
|
|
$
|
124,954
|
|
NOTE 4: CONVERTIBLE NOTES PAYABLE
On January 29, 2014, the Company issued a Convertible
Promissory Note to Asher Enterprises, Inc. in the amount of $37,500. The note bears interest at a rate of 8% per annum, is unsecured
and matures on October 31, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable
conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to
the conversion date. As a result of the conversion feature the Company has recorded a debt discount of $21,326, $4,808 of which
has been amortized to interest expense. The discount was determined by calculating the intrinsic value of the loan based on the
stock price on the date of the loan of $0.0065 and the conversion price of $0.0039. The intrinsic value was $21,326. As of March
31, 2014, there is $399 of accrued interest on this note.
On March 11, 2014, the Company issued a Convertible
Promissory Note to Asher Enterprises, Inc. in the amount of $42,500. The note bears interest at a rate of 8% per annum, is unsecured
and matures on December 17, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable
conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to
the conversion date. As a result of the conversion feature the Company has recorded a debt discount of $42,500, $3,176 of which
has been amortized to interest expense. The discount was determined by calculating the intrinsic value of the loan based on the
stock price on the date of the loan of $0.0123 and the conversion price of $0.0030. The intrinsic value was $130,826; however the
discount is limited to the amount of the loan. As of March 31, 2014, there is $168 of accrued interest on this note.
NOTE 5: COMMON STOCK TRANSACTIONS
During the period from September 14, 2007 (inception)
through September 30, 2007 the Company issued 125 common shares for $500 cash.
During the year ended September 30, 2008 the
Company issued 18,492 common shares for $35,942 cash.
During the year ended September 30, 2009 the
Company issued 34,803 common shares for $25,000 cash and a subscription receivable in the amount of $85,000. During the year ended
September 30, 2010 the Company received $22,660 on its subscription receivable.
On September 30, 2009 the Company’s Board
of Directors authorized the issuance of 200,000 common shares to Directors Robert Searcy and Patrick Peach, as compensation for
two years’ services rendered, pursuant to Section 4(2) of the Securities Act of 1933. Due to the volatility of the market
and the limited trading of the Company’s stock, shares were valued at $0.10 by the Board of Directors.
On September 30, 2009 the Company’s
Board of Directors authorized the issuance of 200,000 shares and 500,000 shares to Jeff Ritchie, the Company’s President
and Director for compensation for two years’ services rendered, and 10,000,000 in exchange for business opportunities assigned
to the company, pursuant to Section 4(2) of the Securities Act of 1933. Due to the volatility of the market and the limited trading
of the Company’s stock, shares were valued at $0.10 by the Board of Directors.
On September 30, 2009 the Company’s Board
of Directors authorized the issuance of 200,000 shares and 500,000 shares to Kenneth Eade, a former Officer and Director for compensation
for two years’ services rendered, 500,000 for two years’ legal services rendered, and 10,000,000 shares in exchange
for business opportunities assigned to the company, pursuant to Section 4(2) of the Securities Act of 1933. Due to the volatility
of the market and the limited trading of the Company’s stock, shares were valued at $0.10 by the Board of Directors.
During the three month period ended December
31, 2009 the Company issued 90,000 common stock shares for total consideration of $45,000.
During the three months ended June 30, 2010
the Company issued 406,571 common shares for total consideration of $119,595.
During the three months ended June 30, 2010,
the Company issued 4,000 common shares for services totaling $2,000. Due to the volatility of the market and the limited trading
of the Company’s stock, shares were valued at $0.10 by the Board of Directors.
During the three months ended September 30,
2010, the Company issued 130,000 common shares for total consideration of $32,500.
On March 31, 2011 the Company’s Board
of Directors authorized the issuance of 100,000 common shares for Director’s fees totaling $38,000, based on the market value
of the common stock on the date of authorization. As of March 31, 2014 these shares had not yet been issued and therefore have
been recorded as a stock payable.
On March 31, 2011 the Company’s Board
of Directors authorized the issuance of 750,000 shares each to Jeff Ritchie, the Company’s COO and Kenneth Eade the Company’s
former CFO for compensation for services rendered in 2010, and an additional 200,000 shares to Kenneth Eade for legal services
rendered, for total consideration of $646,000, based on the market value of the common stock on the date of authorization. The
shares were issued by the transfer agent on March 5, 2014.
During the three month period ended March 31,
2011, the Company authorized the issuance of 250,000 common shares for services valued at $95,000, based on the market value of
the common stock on the date of authorization. The payable was subsequently written off to forgiveness of stock payable.
On May 10, 2011 the Company issued 300,000
common shares for cash proceeds of $6,975 and a subscription receivable in the amount of $8,025. As of December 31, 2011 it was
determined that the remaining receivable would not be collected; as a result the company credited the stock subscription receivable
account and debited bad debt expense for $8,025.
On May 9, 2011 the Company issued 6,000 common
shares for a lock up agreement in which the stockholder agreed not to transfer any of his shares for an agreed upon time. The Company
recorded an expense of $2,280 based on the market value of the common stock on the date of issuance.
On May 10, 2011 the Company issued 6,000 common
shares to a stockholder for shares authorized in a prior period. The Company recorded an expense of $2,280 based on the market
value of the common stock on the date of issuance.
On June 24, 2011, the Company authorized the
issuance of 550,000 common shares for services valued at $209,000, based on the market value of the common stock on the date of
authorization.
During the year ended September 30, 2011, the
Company issued 275,000 common shares for total consideration of $24,975.
On February 7, 2012, the Company authorized
the issuance of 50,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.51 based on the market value of the common stock on the date of authorization for total compensation expense of $25,500.
On March 7, 2012, the Company authorized the
issuance of 450,000 common shares in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.05 pursuant to the conversion terms of the debenture.
On March 28, 2012, the Company authorized the
issuance of 450,000 common shares in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.05 pursuant to the conversion terms of the debenture.
On April 20, 2012, the Company authorized the
issuance of 450,000 common shares in conversion of $22,500 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.05 pursuant to the conversion terms of the debenture
On June 13, 2012, the Company authorized the
issuance of 250,000 common shares in conversion of $12,500 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.05 pursuant to the conversion terms of the debenture
On June 28, 2012, the Company authorized the
issuance of 400,000 common shares in conversion of $20,000 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.05 pursuant to the conversion terms of the debenture
On July 24, 2012, the Company authorized the
issuance of 1,000,000 common shares in conversion of $32,500 of the Junior Capital debenture dated July 1, 2011. The shares were
issued at $0.0325 pursuant to the conversion terms of the debenture.
On July 27, 2012, the Company authorized the
issuance of 1,015,384 common shares in conversion of $33,000 of the Junior Capital debenture dated January 11, 2012. The shares
were issued at $0.0325 pursuant to the conversion terms of the debenture.
On August 21, 2012, the Company authorized
the issuance of 1,100,000 common shares in conversion of $11,000 of the Junior Capital debenture dated July 1, 2011. The shares
were issued at $0.01 pursuant to the conversion terms of the debenture.
On September 1, 2012, the Company authorized
the issuance of 25,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.0085 based on the market value of the common stock on the date of authorization for total compensation expense of $203. The
shares were issued in October 2012.
During September 2012, the Company authorized
the issuance of 8,166,500 common shares for various services. Shares were issued at $0.0075 - $0.095 for total expense of $66,459.
The shares were issued in October 2012.
During September 2012, the Company authorized
the issuance of 115,000 common shares for related party debt of $440. The shares were issued at $0.0085 based on the market value
of the common stock on the date of authorization, resulting in a loss on the conversion of debt of $538. The shares were issued
in October 2012.
On October 16, 2012, the Company issued 1,552,795
common shares in conversion of $10,000 of the Neil Linder debenture dated April 9, 2012. The shares were issued at $0.00644 pursuant
to the conversion terms of the debenture.
On October 16, 2012, the Company issued 38,000
common shares in conversion of $380 advanced to the Company by a related party. The shares were issued at $0.01 based on the market
value of the common stock on the date of authorization.
During the quarter ended December 31, 2012,
the Company issued 8,191,500 common shares for services and 115,000 common shares for debt. All issuances were previously recorded
as a stock payable.
On February 4, 2013, the Company authorized
the issuance of 75,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.0369 based on the market value of the common stock on the date of authorization for total compensation expense of $2,767.
On June 19, 2013, the Company authorized the
issuance of 200,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.013 based on the market value of the common stock on the date of authorization for total compensation expense of $2,600.
On June 19, 2013, the Company issued 505,000
common shares for services valued at $6,565 based on the market value of the common stock on the date of authorization.
On June 19, 2013, the Company issued 500,000
common shares for accrued compensation. The shares were valued at $0.013 based on the market value of the common stock on the date
of authorization for a total of $6,500.
On June 19, 2013, the Company authorized the
issuance of 500,000 common shares in conversion of $3,950 of the Neil Linder debenture dated April 9, 2012. The shares were issued
at $0.0079 pursuant to the conversion terms of the debenture.
On June 19, 2013, the Company issued 6,000,000
common shares in conversion of $60,000 debt. The shares were valued at $0.013 based on the market value of the common stock on
the date of authorization for a total value of $78,000. Because the value of the stock issued for the debt was more than the debt
that was extinguished the Company recorded a loss on conversion of debt of $18,000.
On June 19, 2013, the Company authorized the
issuance of 7,000,000 common shares to George Ivakhnik, the Company’s Interim CEO, for compensation of services. The shares
were issued at $0.013 based on the market value of the common stock on the date of authorization for total compensation expense
of $91,000.
In August 2013, the Company authorized the
issuance of 3,850,000 common shares for investor relation services to various persons. These shares were valued using the closing
share price of the Common Stock on the day of issuance for a total non-cash expense of $85,375.
On August 22, 2013, the Company received $2,500
from the sale of 1,000,000 shares of Common Stock.
On September 23, 2013, the Company received
$15,500 from the sale of 3,500,000 shares of Common Stock.
During October 2013, the Company issued 6,000,000
common shares for services valued at $120,500 based on the market value of the common stock on the date of authorization.
During October 2013, the Company received $10,000
from the sale of 1,400,000 shares of common stock.
On December 18, 2013, the Company received
$4,000 from the sale of 3,200,000 shares of common stock.
On January 14, 2014, the Company received $10,000
from the sale of 3,750,000 shares of common stock.
On February 19, 2014, the Company authorized
the issuance of 7,000,000 common shares to David Garland, the Company’s CEO, for compensation of services. The shares were
issued at $0.006 based on the market value of the common stock on the date of authorization for total compensation expense of $44,100.
On March 5, 2014, the Company authorized the
issuance of 1,000,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.005 based on the market value of the common stock on the date of authorization for total compensation expense of $5,200.
On March 5, 2014, the Company authorized the
issuance of 875,000 common shares to C. David Pugh, the Company’s Chief Communications Officer, for conversion of accrued
salary of $70,000. Shares were valued at $0.08 per the terms of the employment agreement.
On March 5, 2014, the Company issued 1,700,000
shares of common stock valued at $646,010, previously recorded as common stock payable.
On March 19, 2014, the Company authorized the
issuance of 1,200,000 common shares for investor relation services. These shares were valued using the closing share price of the
Common Stock on the day of issuance for a total non-cash expense of $12,000.
NOTE 6: RELATED PARTY TRANSACTION
During September 2012, the Company authorized
the issuance of 115,000 common shares for related party debt of $440. The shares were valued at $0.085, the stock price on the
date of authorization. As a result of the transaction the Company recorded a loss on settlement of debt of $538.
During the year ended September 30, 2012, the
Company authorized the issuance of 75,000 common shares to Rachel Boulds, the Company’s CFO for compensation of services.
The shares were issued based on the market value of the common stock on the date of authorization for total compensation expense
of $25,713.
On or about February 4, 2013, the Company authorized
the issuance of 75,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.0369 based on the market value of the common stock on the date of authorization for total compensation expense of $2,767.
On June 19, 2013, the Company authorized
the issuance of 200,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares
were issued at $0.013 based on the market value of the common stock on the date of authorization for total compensation
expense of $2,600.
On June 19, 2013, the Company authorized the
issuance of 7,000,000 common shares to George Ivakhnik, the Company’s Interim CEO, for compensation of services. The shares
were issued at $0.013 based on the market value of the common stock on the date of authorization for total compensation expense
of $91,000.
During the period ended June 30, 2013, a former
officer of the Company assigned $60,000 of his accrued salary to an unrelated third party.
As of March 31, 2014, the Company was indebted
to a related party for legal services in the amount of $69,957.
On February 19, 2014, the Company authorized
the issuance of 7,000,000 common shares to David Garland, the Company’s CEO, for compensation of services. The shares were
issued at $0.006 based on the market value of the common stock on the date of authorization for total compensation expense of $44,100.
On March 5, 2014, the Company authorized the
issuance of 1,000,000 common shares to Rachel Boulds, the Company’s CFO, for compensation of services. The shares were issued
at $0.005 based on the market value of the common stock on the date of authorization for total compensation expense of $5,200.
On March 5, 2014, the Company authorized the
issuance of 875,000 common shares to C. David Pugh, the Company’s Chief Communications Officer, for conversion of accrued
salary of $70,000.
On March 5, 2014, the Company issued 1,700,000
shares of common stock valued at $646,010, previously recorded as common stock payable.
As of March 31, 2014, the Company had total
accrued compensation due to its officers of $535,650.
NOTE 7: LEGAL PROCEEDINGS
On or about September
1, 2011, the Company and its Chief Operating Officer and counsel filed a complaint in federal court, Central District of California,
Case No. CV-11-07233 DMG (MRWx), to recover 6,500,000 shares of common stock transferred to Consultants Marc Cifelli and Arriva
Capital, LLC on the grounds of fraud and failure of consideration. The Company received a judgment in its favor on July 30, 2012,
to return 6,000,000 shares and a money judgment for the value of 500,000 shares, which is in the process of being executed. The
shares have not yet been returned.
On or about August
31, 2012, the company served notices of rescission on Junior Capital, rescinding that certain $350,000 convertible debenture dated
July 1, 2011, in exchange for promissory note in the amount of $350,000, that certain $20,000 convertible debenture dated October
25, 2011, that certain $40,000 convertible debenture dated March 15, 2012 and that certain $18,000 convertible debenture dated
June 5, 2012, on the grounds of fraud and failure of consideration.
On or about August
31, 2012, the Company has served notices of rescission on ibacking Corp. that certain $500,000 convertible debenture dated May
29, 2012, on the grounds of fraud and failure of consideration. The Company filed a lawsuit in federal district court against Junior
Capital and ibacking Corp. on February 13, 2013 in case number CV13-00259 BRO. A default against both Junior Capital and ibacking
Corp. was entered on July 22, 2013, and the matter is now pending before the Court for default judgment proceedings.
On February 7, 2014, the Default Judgment in
favor of the Company was granted by the court. The Judgment grants the rescission of all debentures entered into with Junior Capital,
Inc., ibacking and Editor Newswire, Inc.
NOTE 8: GOING CONCERN
The accompanying 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 has generated minimal revenue during the period September 14, 2007
(inception) through March 31, 2014, has an accumulated deficit of $6,426,314 and has funded its operations primarily through the
issuance short term debt and equity. This matter raises substantial doubt about the Company's ability to continue as a going concern.
These 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.
Accordingly, the Company’s ability to accomplish its business strategy and to ultimately achieve profitable operations
is dependent upon its ability to obtain additional debt or equity financing. Management plans to take the following steps
that it believes will be sufficient to provide the Company with the ability to continue in existence.
Management intends to raise financing through
private equity financing or other means and interests that it deems necessary. There can be no assurance that the Company will
be successful in its endeavor.
NOTE 9: SUBSEQUENT EVENTS
The Company has performed an evaluation of
subsequent events in accordance with ASC Topic 855. The Company is not aware of any subsequent events which would require recognition
or disclosure in the financial statements.