|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Special Note Regarding Forward Looking Statements
In addition to
historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,”
“expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,”
“intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking
statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance
of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of
the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions
or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned
that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A “Risk Factors” in our annual report on Form 10-K for fiscal year ended March 31, 2016,
as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to
differ materially from those expressed or implied by such forward-looking statements. Forward looking statements made by penny
stock issuers are excluded from the safe harbors in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities
Exchange Act of 1934.
Readers are urged
to carefully review and consider the various disclosures made by us in this report and our other filings with the Security and
Exchange Commission (“SEC”). These reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this
report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions
or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Overview
WRIT Media Group,
Inc. (“we”, “us”, “our”, “WRIT”, or the “Company”) was incorporated
as Writers’ Group Film Corp. in Delaware on March 9, 2007 to produce films, television programs and similar entertainment
programs for various media formats.
Front Row Networks
(“FRN”) was incorporated on July 27, 2010 in the State of Nevada. The Company is a content creation company which
was launched to produce, acquire, license, and distribute music-related content in 3D and ultra-high definition (4K) for initial
worldwide digital broadcast into digitally-enabled movie theaters. Through the distribution of music-related “alternative
content,” the Company intends to present live concerts, music documentaries, and other music-related content at affordable
prices, to a massive fan base worldwide in a cost-effective manner. The Company intends to shift its focus from 3D to developing
ultra-high definition (4K) content for distribution in the Americas and Asia. In some cases, Front Row Networks will also sell
merchandising and other products, bolstered by both in-theater and in-App advertising, tailored around each Artist and/or event,
to maximize potential merchandising and sponsorship revenues.
In February 2011,
FRN completed a reverse acquisition transaction through a share exchange with WRIT, whereby WRIT acquired 100% of the issued and
outstanding capital stock of FRN in exchange for 100,000 shares of the Common Stock of WRIT. As a result of the reverse acquisition,
FRN became WRIT’s wholly-owned subsidiary and the former FRN’s shareholders became controlling stockholders of WRIT.
The share exchange transaction with WRIT was treated as a reverse acquisition, with FRN as the accounting acquirer and WRIT as
the acquired party.
Consequently, the
assets and liabilities and the historical operations were reflected in the consolidated financial statements for periods prior
to the Share Exchange Agreement were those of FRN and will be recorded at the historical cost basis. After the completion of the
Share Exchange Agreement, the Company’s consolidated financial statements included the assets and liabilities of both FRN
and WRIT, the historical operations of FRN and the operations of WRIT from the closing date of the Share Exchange Agreement.
On July 7, 2011,
we modified our February 2011 Share Exchange Agreement and agreed to assume $100,000 in new debt which is shown as a reduction
of our Paid-In Capital.
While the core
business of Front Row Networks remains the licensing, production, acquisition and distribution of music-related content and programming,
the core business is dependent upon negotiating and financing projects with schedules that are solely determined by third parties,
such as Artists and rights owners. In order to secure less cyclical entertainment product, the Company sought to license or purchase
entertainment content that could be easily secured and distributed through the multiple distribution arrangements already established
by the Company and via the rapidly growing marketplace represented by consumers of mobile, internet, and TV set-top devices. To
reach this goal during the fiscal year, the Company set out to acquire exclusive branded content and entertainment programming,
and achieved this goal through the acquisition of Amiga Games Inc.
On August 19, 2013,
the Company completed an acquisition transaction through a share exchange with Amiga Games Inc., whereby WRIT acquired 100% of
the issued and outstanding capital stock, assets, and trademarks of Amiga Games Inc. in exchange for 500,000 shares of the Common
Stock of WRIT. As a result of the acquisition, Amiga Games Inc. became WRIT’s wholly-owned subsidiary.
Amiga Games Inc.
licenses classic pre-Windows computer game libraries and adapts and republishes the most popular titles for smartphones, modern
game consoles, PCs, tablets, and other television streaming devices. WRIT also established a new company, Retro Infinity Inc.,
to publish and brand games that were not originally released for Amiga brand computers. The two companies tap into the growing
“retro gaming” marketplace, building on the "Amiga", “Atari”, and “MS-DOS” brands,
delivering retro-gaming titles adapted for modern devices as well as merchandise featuring brands and characters from the games.
During the 2014
fiscal year, Amiga Games Inc. and Retro Infinity Inc. entered several marketing and distribution agreements, including those with
Microsoft Corporation and Roku Inc. Both agreements include minimum guarantees, defined as advances against future sales. Additionally,
the Retro Infinity Inc. licensed dozens of classic games for distribution via the Windows 8, Roku player, iOS (Apple), and Android
platforms. Although it was the Company’s strategic goal to distribute a broad range of video game titles on the Windows
8 and iOS platforms during the 4
th
quarter of 2014, lack of operating capital caused the Company to temporarily halt
software development funding, which delayed the Company’s overall gaming product release schedule. This temporary reduction
in operating capital was due to mainly to regulatory delays encountered in structuring WRIT’s equity-line financing, and
the Company’s difficulty in raising alternative investment capital, due to its sub-penny share price at the time.
On January 22,
2014, the Company changed the name of the corporation to WRIT Media Group, Inc., and authorized a 1 for 1,000 reverse split of
the Company’s issued and outstanding shares of Common Stock. The name change was authorized to encompass the Company's broadened
activities, including additional business plans and models, and the acquisition and formation of new subsidiaries. The equity
restructuring was authorized to achieve the following: (a) price per share -- the rollback will increase the price per share to
above $0.01, sub-penny markets are getting harder to trade and next to impossible to finance; (b) funding -- with a sub penny
share price the Company was unable to fund because of dilution, post rollback the share price should be well above $0.01 and allow
management to close on numerous funding opportunities that have been presented; (c) larger potential audience -- with a higher
share price the Company will have access to investors who do not trade sub penny stocks such as institutions and Europeans; (d)
listing in Europe -- the Company will now be able to list its common shares for trading on a European Stock Exchange, as co-listings
in Europe are not accepted with a sub penny share price; and (e) acquisitions -- the Company will be able to use common shares
to acquire larger assets and other industry related companies.
On January 16,
2014 WRIT’s Equity Line Financing (“ELF”) agreement with Dutchess Opportunity Fund II, and its corresponding
S1 registration statement, was declared effective by the SEC. The ELF agreement, executed in September 2013, allows but does not
require WRIT to sell up to US$10,000,000 of common stock to Dutchess at a 5% discount to market price, during the 36 month term.
Compared to the Company’s convertible debt financing, ELFs provide a lower discount to market that minimize dilution while
increasing operating capital. This additional financing source allowed the company to reduce debt and reduce the balance of the
more expensive convertible notes that were outstanding during the last quarter of the fiscal year.
On February 4,
2014 the Company completed its administrative and legal work with the Depository Trust & Clearing Corporation ("DTCC")
and the DTCC's long-standing "Administrative Chill" on clearing WRIT stock certificates was removed. DTCC resumed accepting
deposits of the Company's common stock for book entry transfer services. As a result, shareholders with online brokerage accounts
at firms such as Scottrade, ETRADE, TD Ameritrade and other full service brokerage firms are allowed to deposit new shares of
WRIT's common stock in the electronic system that controls clearance and settlement. The reinstatement of the DTC depository services
is an instrumental and enormous accomplishment for WRIT, which greatly reduced the costs and expenses associated with private
equity investments in the Company.
In September 2014
the Company launched two online point of sale platforms; www.RetroInfinity.com and www.AmigaGamesInc.com to market its “retro”
gaming titles directly to consumers. Both sales platforms initially offer only downloads for windows based computers. The online
store launch was completed in conjunction with an initial marketing program which featured NASCAR, the RWR Retro Infinity NASCAR
race team, and the “Drive to Championship Weekend” branding program. In December 2014 the Company intended to launch
additional titles on additional mobile platforms, such as Windows phone, iOS, and Android platforms, so that the video game titles
can be downloaded as Apps on various mobile devices, the Company experienced additional financing delays which interrupted software
development and caused the Company to reschedule the anticipated release on mobile platforms into 2015. The online store launch
generated an increase in consumer traffic to the Company’s websites and created awareness in the Company’s product,
but generated minimal sales, most consumers were interested only in the mobile versions of the gaming titles, which were not yet
available.
The websites are
currently being modified to accept payment for crowdfunding transactions, and we launched the Retro Infinity/Amiga Games crowdfunding
platform, supported by a social marketing campaign, in the 3rd quarter of 2015. The initial crowdfunding campaign was not successful,
so the Company is seeking additional financing from strategic partners that will allow the Company to resume and complete software
development, and commence product marketing activities.
On June 25, 2015,
the Company authorized a 1 for 200 reverse split of the Company’s issued and outstanding shares of Common Stock. The equity
restructuring was authorized to achieve the following: (a) price per share -- the rollback will increase the price per share to
above $0.01, sub-penny markets are getting harder to trade and next to impossible to finance; (b) funding -- with a sub penny
share price the Company was unable to fund because of dilution, post rollback the share price should be well above $0.01 and allow
management to close on numerous funding opportunities that have been presented; (c) larger potential audience -- with a higher
share price the Company will have access to investors who do not trade sub penny stocks such as institutions and Europeans; (d)
listing in Europe -- the Company will now be able to list its common shares for trading on a European Stock Exchange, as co-listings
in Europe are not accepted with a sub penny share price; and (e) acquisitions -- the Company will be able to use common shares
to acquire larger assets and other industry related companies.
On June 20, 2016
WRIT Media Group, Inc. acquired all assets, trademarks and common stock of Pandora Venture Capital Corp, a Florida based company
through a share exchange agreement. The Company acquired Pandora Venture Capital Corp through the issuance of 14,000,000 restricted
shares of its Common Stock to the shareholders of Pandora, in exchange for all outstanding shares of Pandora, making Pandora a
wholly-owned subsidiary of WRIT Media Group, Inc.
We believe WRIT
is well positioned to benefit from the developing market and growth in digital currency trading platforms and products, and block
chain technology applications, and intend to continue to look for opportunities to explore business relationships with entities
that have the resources to offer financing, licensing, distribution and marketing of WRIT’s product.
Results of Operations
Three Months Ended
December 31, 2016 and 2015
Revenues
.
No revenues were recognized for the three months ended December 31, 2016 and 2015.
Wages
and benefits
.
Wages and benefits expense of $90,000 increased by $15,000 and 20% for the three months ended
December 31, 2016 as compared to the same period in 2015. The increase is mainly due to an increase in compensation policy.
Audit
and accounting
.
Audit and accounting expense of $7,000 increased by $7,000 and 100% for the three months
ended December 31, 2016 as compared to the same period in 2015. The increase in the audit and accounting expense is mainly related
to the timing of services invoiced.
Legal
Fee
.
Legal fee expense of $401 decreased by $15,369 and 97% for the three months ended December 31,
2016 as compared to the same period in 2015. The decrease in the legal fee is related to a decrease in services required for certain
corporate actions and related to the timing of services invoiced.
Other
general and administrative expenses
. Other general and administrative expense of $56,371 increased by $38,485 for the
three months ended December 31, 2016 as compared to the same period in 2015. Those expenses consist primarily of company’s
business development including advertising and promotion programs, consulting fees and other expenses incurred in connection with
general operations and the business acquisition.
Loss from operations
. Our loss from operations was $156,740 for the three
months ended December 31, 2016 and a loss of $96,689 for the same period in 2015.
Interest
expense
.
We incurred $14,630 of interest expense for the three months ended December 31, 2016 and $23,375 for the same
period in 2015. The decrease in interest expense is mainly related to the decrease in amortization of debt discount.
Net
income or loss
.
As a result of the foregoing factors, we generated a net loss of $171,370 for the three months ended December
31, 2016, and we generated a net loss of $120,064 for the same period in 2015.
Nine
Months Ended December 31, 2016 and 2015
Revenues.
No
revenues were recognized for the nine months ended December 31, 2016 and 2015.
Wages
and benefits
.
Wages and benefits expense of $270,000 increased by $45,000 and 20% for the nine
months ended December 31, 2016 as compared to the same period in 2015. The increase is mainly due to an increase in compensation
policy.
Audit
and accounting
.
Audit and accounting expense of $21,000 increased by $7,000 and 50% for the nine
months ended December 31, 2016 as compared to the same period in 2015. The increase in the audit and accounting expense is related
to an increase in corporate finance activities and the timing of services invoiced.
Legal
fee.
Legal fee of $12,651 decreased by $18,599 and 60% for the nine months ended December 31, 2016 as
compared to the same period in 2015. The decrease in the legal fee is related to a decrease in services required for certain corporate
actions.
Other
general and administrative expenses
.
Other general and administrative expense of $168,355 decreased by $73,883
and 30% for the nine months ended December 31, 2016 as compared to the same period in 2015. Those expenses consist primarily
of company’s business development including a new advertising and promotion program, consulting fees and other expenses
incurred in connection with general operations. The decrease is mainly related to the decrease in software development activities
from the prior year.
Loss
from operations
.
Our loss from operations was $472,006 for the nine months ended December 31, 2016 and $512,488 for the
same period in 2015. The decrease is mainly related to the net effect of a decrease in the company’s business development
expenses including advertising and promotion programs.
Interest
expense
.
We incurred $42,725 in interest expense for the nine months ended December 31, 2016 and $152,297 for the same
period in 2015. The decrease in interest expense is mainly related to the decrease amortization of debt discount.
Net
income or loss
.
As a result of the foregoing factors, we generated a net loss of $514,731 for the nine months ended December
31, 2016, and a net loss of $664,785 for the same period in 2015. The decrease is mainly related to the decrease in interest expense
and operating expenses from the same period in 2015.
Liquidity
and Capital Resources
As
reflected in the accompanying consolidated financial statements, the Company has suffered recurring net losses and had a working
capital deficiency of $942,500. These factors raise substantial doubt about the ability of the Company to continue as a going
concern. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity
or debt financing, there is no assurance these activities will be successful.
As
of December 31, 2016 and March 31, 2016, we have $14,163 and $264 in cash and cash equivalents, respectively. To date, we have
financed our operations primarily through cash flows from borrowings from third and related parties.
Operating
activities
Net
Cash used in operating activities of $201,566 for the nine months ended December 31, 2016 reflected our net loss of $514,731,
adjusted for $4,475 of amortization of debt discount, depreciation of $560, and $71,500 in stock based compensation. Additional
sources of cash include a decrease in accounts payable of $59,620. Uses of cash included an increase in accrued liabilities of
$296,250.
Net
Cash used in operating activities of $24,997 for the nine months ended December 31, 2015 reflected our net loss of $664,785, adjusted
for $104,136 of amortization of debt discount, and $249,185 stock based compensation. Additional sources of cash include an increase
in accrued liabilities of $273,160 and an increase in accounts payable of $13,452. Uses of cash included an increase in prepaid
expenses and other current assets of $145.
Investing
activities
Net
cash used in investing activities is $0 for the nine months ended December 31, 2016. Net cash used in investing activities is
$0 for the nine months ended December 31, 2015.
Financing
activities
Net
cash provided by financing activities of $215,465 for the nine months ended December 31, 2016 includes cash received from subscriptions
of $110,917, net advances from related parties of $49,548, borrowing on short term notes payable of $5,000, and borrowing on related
party short term notes payable of $50,000.
Net
cash provided by financing activities of $25,006 for the nine months ended December 31, 2015 includes cash received from subscriptions
of $9,500 into notes payable, advances from related parties of $12,506, and borrowing on short term notes payable of $3,000.
Loan Commitments
Borrowings from Related Parties
During the nine months ended December
31, 2016, an aggregate amount of $69,636 was advanced by EAM Delaware LLC and aggregate amount of $20,088 in advances was repaid
to EAM Delaware LLC, the advance is due on demand with 0% interest. On December 31, 2016 the Company converted advances by EAM
Delaware LLC in the amount of $75,000 into a note payable with 12% interest rate and maturity date of October 1, 2017. As of December
31, 2016 in total $0 in advances were owed to EAM Delaware LLC.
On August 4, 2016, the Company borrowed
$50,000 from related party EAM Delaware LLC. The maturity date of this note is August 5, 2017 and this loan bears an interest
rate of 12% per annum from the issuance date. The note is still outstanding as of December 31, 2016.
On September 30, 2016 the Company converted
related party advances by EAM Delaware LLC of $75,000 into a note payable. The maturity date of this note is October 1, 2017 and
this loan bears an interest rate of 12% per annum from the issuance date. The note is still outstanding as of December 31, 2016.
Borrowings from Third Parties
Falmouth Street Holdings, LLC
On March 2, 2015, the Company borrowed
$7,500 from Falmouth Street Holdings, LLC. The maturity date of this note is August 29, 2015 and this loan bears an interest rate
of 12% per annum from the issuance date. The note is still outstanding as of December 31, 2016. As of today the debt is still
outstanding and therefore is in default.
KBM Worldwide Inc.
On June 3, 2014, the Company borrowed
$53,000 from KBM Worldwide Inc. The maturity date of this note is March 5, 2015. This loan bears an interest rate of 8% per annum.
Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, KBM
Worldwide Inc. has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares
of the Company’s Common Stock. The conversion price will be 55% multiplied by the lowest three trading prices for the Common
Stock during the 10 trading day period ending on the latest complete trading day prior to the conversion date. The conversion
price has a floor price of $.008 per share. As of December 31, 2016, KBM Worldwide Inc. converted debt principal of $5,735 into
8,193 common shares, bringing the note balance to $47,265. As of today the debt is still outstanding and therefore is in default.
On July 29, 2014, the Company borrowed
a convertible promissory note of $32,500 from KBM Worldwide, Inc. The maturity date of this note is May 1, 2015. This loan bears
an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days
following the date of the note, KBM Worldwide Inc. has the right to convert all or a portion of the remaining outstanding principal
amount of this note into shares of the Company’s Common Stock. The conversion price is 55% multiplied by the average of
the lowest 3 trading day prices for the Common Stock during the 10 trading day period ending on the latest complete trading day
prior to the conversion date. On July 30, 2014, an amendment to the note defined a floor to the conversion price to be $.008 per
share. As of December 31, 2016, the note is not converted yet and is still outstanding. As of today the debt is still outstanding
and therefore is in default.
On September 15, 2014, the Company
borrowed a convertible promissory note of $63,000 from KBM Worldwide, Inc. The maturity date of this note is June 17, 2015. This
loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After
180 days following the date of the note, KBM Worldwide Inc. has the right to convert all or a portion of the remaining outstanding
principal amount of this note into shares of the Company’s Common Stock. The conversion price is 55% multiplied by the average
of the lowest 3 trading day prices for the Common Stock during the 10 trading day period ending on the latest complete trading
day prior to the conversion date. The conversion price has a floor price of $.008 per share. As of December 31, 2016, the note
is not converted yet and is still outstanding. As of today the debt is still outstanding and therefore is in default.
Magna Group LLC
On July 10, 2014, the Company borrowed
a convertible promissory note of $22,000 from Hanover Holdings I, LLC. The maturity date of this note is July 10, 2015. This loan
bears an interest rate of 12% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The conversion
price is 55% multiplied by the lowest value weighted average price (VWAP) for the Common Stock during the 5 trading day period
ending on the latest complete trading day prior to the conversion date. The conversion price has a floor price of $.008 per share.
An amount equal to $2,500 of the principal balance of the note was converted into 4,545 common shares on February 4, 2015. An
amount equal to $3,000 of the principal balance of the note was converted into 8,021 common shares on April 1, 2015. An amount
equal to $2,750 of the principal balance of the note was converted into 17,857 common shares on April 27, 2015, leaving a principal
balance of $13,750 as of December 31, 2016. As of today the debt is still outstanding and therefore is in default.
On September 10, 2014, the Company
borrowed a convertible promissory note of $33,000 from Magna Equities II, LLC. The maturity date of this note is September 10,
2015. This loan bears an interest rate of 12% per annum. Interest on overdue principal after default accrues at an annual rate
of 22%. The conversion price is 55% multiplied by the lowest value weighted average price (VWAP) for the Common Stock during the
5 trading day period ending on the latest complete trading day prior to the conversion date. The conversion price has a floor
price of $.008 per share. As of December 31, 2016, the note is not converted yet and is still outstanding. As of today the debt
is still outstanding and therefore is in default.
On October 28, 2014, the Company borrowed
a convertible promissory note of $25,000 from Magna Equities II, LLC. The maturity date of this note is October 28, 2015. This
loan bears an interest rate of 12% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The
conversion price is 55% multiplied by the lowest value weighted average price (VWAP) for the Common Stock during the 5 trading
day period ending on the latest complete trading day prior to the conversion date. The conversion price has a floor price of $.008
per share. As of December 31, 2016, the note is not converted yet and is still outstanding. As of today the debt is still outstanding
and therefore is in default.
On December 17, 2014, the Company borrowed
a convertible promissory note of $14,000 from Magna Equities II, LLC. The maturity date of this note is December 17, 2015. This
loan bears an interest rate of 12% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. The
conversion price is 55% multiplied by the lowest value weighted average price (VWAP) for the Common Stock during the 5 trading
day period ending on the latest complete trading day prior to the conversion date. The conversion price has a floor price of $.008
per share. As of December 31, 2016, the note is not converted yet and is still outstanding. As of today the debt is still outstanding
and therefore is in default.
S. Karban
On June 9, 2015, the Company borrowed
$3,300 from S.Karban and $3,000 was received with the remaining $300 recorded as debt discount. The maturity date of this note
is June 22, 2015, and this loan bears an interest rate of 10% per annum from the issuance date. On June 22, 2015, the note was
still outstanding and therefore in default. During the year ended March 31, 2016, $300 was recorded as amortization of debt discount.
On April 4, 2016, the Company and S Karban amended the note along with accrued default interest of $1,175. The maturity date of
this amended note is October 4, 2016. This loan bears an interest rate of 8% per annum. The note is convertible into common stock
at a price of $0.10. On April 5, 2016, S Karban converted $4,475 of principal into 44,750 common shares. This note has been converted
in its entirety and has been surrendered to the Company.
JL Shaw
On June 22, 2016, the Company borrowed
$5,000 from JL Shaw. The maturity date of this note is June 22, 2017 and this loan bears an interest rate of 8% per annum from
the issuance date. The note is still outstanding as of December 31, 2016.
Other Notes
Convertible debts were issued September
2009, bearing interest at a rate of 8% per annum, due in one year, and are convertible at $2.00 per share, and the total balance
outstanding as of March 31, 2014 was $3,130. The note is in default. During the year ended March 31, 2015, debt principal of $2,470
and interest of $104 reclassified into note principal were converted into 6,427 common shares. As of December 31, 2016 other convertible
notes have a principal balance of $660.
Obligations under Material Contracts
Except with respect
to the loan obligations disclosed above, we have no obligations to pay cash or deliver cash to any other party.
Inflation
Inflation and changing
prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect
our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually
maintain effective cost controls in operations.
Off Balance Sheet Arrangements
We do not have
any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources
that is material to an investor in our securities.
Seasonality
Our operating results
and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result
of new market opportunities or new product introduction.
Critical Accounting Policies
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires our management
to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures
of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation
of our financial statements. These accounting policies are important for an understanding of our financial condition and results
of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and
results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial statements and because of the possibility that
future events affecting the estimate may differ significantly from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
Long Lived Assets
In accordance with ASC 360 "Property
Plant and Equipment," the Company reviews the carrying value of intangibles subject to amortization and long-lived assets
for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted
cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
Recent Accounting Pronouncements
We do not expect the adoption of
recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash
flow.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of
the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this
evaluation, the CEO and CFO concluded that, because of the material weaknesses in our internal control over financial reporting
described below, our disclosure controls and procedures were not effective as of December 31, 2016. See our discussion at “Item
9A Controls and Procedures” on Form 10-K for the year ended March 31, 2016.
We have noted the
following material weaknesses in our control environment:
1.
Material
weaknesses in Our Control Environment.
Our control environment did not sufficiently promote effective internal control over
financial reporting throughout the organization. This material weakness exists because of the aggregate effect of multiple deficiencies
in internal control which affect our control environment, including: a) the lack of an effective risk assessment process for the
identification of fraud risks; b) the lack of an internal audit function or other effective mechanism for ongoing monitoring of
the effectiveness of internal controls; c) and insufficient documentation and communication of our accounting policies and procedures
as of December 31, 2016.
2.
Material
weaknesses in the staffing of our financial accounting department.
Management had engaged an outside consultant to assist
in the financial reporting. However, the number of qualified accounting personnel with experience in public company SEC reporting
and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting
processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement
of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.
3.
Material
weaknesses in Segregation of Duties.
The limited number of qualified accounting personnel results in an inability to have
independent review and approval of financial accounting entries. Furthermore, management and financial accounting personnel have
wide-spread access to create and post entries in our financial accounting system. There is a risk that a material misstatement
of the financial statements could be caused, or at least not be detected in a timely manner, due to insufficient segregation of
duties. Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management
is still determining additional measures to remediate deficiencies related to staffing.
Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control
over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk. Management is responsible
for establishing and maintaining adequate internal control over our financial reporting.
Changes in Internal Controls
There have been
no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
LEGAL PROCEEDINGS
On July 21, 2016, Magna Equities II,
LLC and Hanover Holdings I, LLC (collectively as “Magna”) filed a Summons with Notice of Appearance against the Company,
and its former and current transfer agents (collectively as the “Parties”), in the Supreme Court of the State of New
York, County of New York. The litigation is in its preliminary stages and discovery has commenced. Magna’s allegations against
the Parties, which are briefly outlined in the summons, are to recover monetary damages related to Magna’s loan to the Company
which has a principal balance equal to $85,750. Magna alleges breach of contract, breach of implied covenant of good faith and
fair dealing, conversion and negligence against the Parties and seeks relief in excess of $1,500,000. Although the company has
reason to believe that it will prevail on the merits of a summary judgment, the litigation could have a lengthy duration, and
the ultimate outcome cannot be predicted at this time.
On August 17, 2016, KBM Worldwide Inc.
(“KBM”) filed a Summons in a Civil Action against the Company in the United States District Court for the Eastern
District of New York. The litigation is in its preliminary stages, the Company has filed an answer to the complaint and a first
counterclaim against the plaintiffs on November 1, 2016. KBM’s allegations which are briefly outlined in the summons, are
to recover monetary damages related to KBM’s loans to the Company which have a principal balance equal to $142,765. KBM
seeks equitable and injunctive relief against the Parties in excess of $142,765. Although the Company has reason to believe that
it will prevail on the merits of its case against the plaintiff, the litigation could have a lengthy duration, and the ultimate
outcome cannot be predicted at this time.
On July 27, 2016, Mr. George Sharp
filed suit against the company in the Superior Court of California, County of San Diego. Sharp had previously filed a similar
lawsuit in 2011 which was dismissed on February 16, 2012, and included a settlement agreement signed by Sharp which was filed
with the Superior Court of California, County of Los Angeles (Case Number: BC461550) Sharp alleges misrepresentation and violation
of the Unfair Business Practices Act, and seeks unspecified damages. The litigation is in its preliminary stages and discovery
has commenced. Although the Company has reason to believe that it will prevail on the merits of a summary judgment, the litigation
could have a lengthy duration, and the ultimate outcome cannot be predicted at this time.
Exhibits.
Consolidated Financial statements are included in the body of this report.