Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended December 31, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ______________
Commission File Number 000-52374
KRYPTIC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Nevada 83-0510954
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 208, 800 N. Rainbow Blvd. Las Vegas, NV, 89107
(Address of principal executive offices) (Zip Code)
702-948-5013
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Number of shares outstanding of the registrant's class of common stock as
January 31, 2011: 5,499,000
Authorized share capital of the registrant: 75,000,000 common shares, par value
of $0.001
The Company recorded $nil sales revenue for the three months ended December 31,
2010.
FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS PREDICTIONS, PROJECTIONS AND OTHER
STATEMENTS ABOUT THE FUTURE THAT ARE INTENDED TO BE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (COLLECTIVELY, "FORWARD-LOOKING STATEMENTS"). FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY
REPORT ON FORM 10-Q, READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY
STATEMENTS - INCLUDING THOSE CONTAINED IN OTHER SECTIONS OF THIS QUARTERLY
REPORT ON FORM 10-Q. AMONG SAID RISKS AND UNCERTAINTIES IS THE RISK THAT THE
COMPANY WILL NOT SUCCESSFULLY EXECUTE ITS BUSINESS PLAN, THAT ITS MANAGEMENT IS
ADEQUATE TO CARRY OUT ITS BUSINESS PLAN AND THAT THERE WILL BE ADEQUATE CAPITAL
OR THEY MAY BE UNSUCCESSUFL FOR TECHNICAL, ECONOMIC OR OTHER REASONS.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page
Number
------
Balance Sheets...............................................................3
Statements of Operations.....................................................4
Statements of Stockholders' Deficit..........................................5
Statements of Cash Flows.....................................................6
Notes to the Financial Statements............................................7
2
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, March 31,
2010 2010
-------- --------
(unaudited) (audited)
ASSETS
Current assets
Cash $ 3,644 $ 3,614
-------- --------
Total current assets 3,644 3,614
Website, net of accumulated amortization (Note 7) 250 1,375
-------- --------
Total assets $ 3,894 $ 4,989
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 3,750 $ 750
Due to director 27,500 18,500
-------- --------
Total current liabilities 31,250 19,250
-------- --------
Stockholders' deficit (Note 4,5)
Authorized:
75,000,000 common shares
Par value $0.001
Issued and outstanding:
5,499,000 common shares 5,499 5,499
Additional paid-in capital 53,451 53,451
Deficit accumulated during the development stage (86,306) (73,211)
-------- --------
Total stockholders' deficit (27,356) (14,261)
-------- --------
Total liabilities and stockholders' deficit $ 3,894 $ 4,989
======== ========
The accompanying notes are an integral part of these
financial statements.
3
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
Date of
Incorporation on
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended October 11, 2007 to
December 31, December 31, December 31, December 31, December 31,
2010 2009 2010 2009 2010
---------- ---------- ---------- ---------- ----------
REVENUE $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Amortization 375 375 1,125 1,125 4,250
Game development costs -- -- -- -- 29,300
General & administrative 3,247 6,419 11,970 16,076 52,136
Organization -- -- -- -- 620
---------- ---------- ---------- ---------- ----------
Loss before income taxes (3,622) (6,794) (13,095) (17,201) (86,306)
Provision for income taxes -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss $ (3,622) $ (6,794) $ (13,095) $ (17,201) $ (86,306)
========== ========== ========== ========== ==========
Basic and diluted loss per common
share (1) $ -- $ -- $ -- $ --
========== ========== ========== ==========
Weighted average number
of common shares outstanding (Note 4) 5,499,000 5,499,000 5,499,000 5,499,000
========== ========== ========== ==========
----------
(1) less than $0.01
The accompanying notes are an integral part of these
financial statements.
4
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(unaudited)
Deficit
Accumulated
Common Stock Additional During the Total
--------------------- Paid in Development Stockholders'
Shares Amount Capital Stage Deficit
------ ------ ------- ----- -------
Incorporation, October 11, 2007 -- $ -- $ -- $ -- $ --
Initial capitalization, sale of
common stock to Director on
October 11, 2007 3,000,000 3,000 3,000 6,000
Sale of common stock to Director
on November 24, 2007 1,500,000 1,500 1,500 3,000
Private placement closed
March 15, 2008 999,000 999 48,951 49,950
Net loss for the period -- -- -- (1,815) (1,815)
--------- --------- --------- --------- ---------
Balance March 31, 2008 5,499,000 5,499 53,451 (1,815) 57,135
Net loss for the year -- -- -- (52,521) (52,521)
--------- --------- --------- --------- ---------
Balance March 31, 2009 5,499,000 5,499 53,451 (54,336) 4,614
Net loss for the year -- -- -- (18,875) (18,875)
--------- --------- --------- --------- ---------
Balance March 31, 2010 5,499,000 5,499 53,451 (73,211) (14,261)
Net loss for the period -- -- -- (13,095) (13,095)
--------- --------- --------- --------- ---------
Balance December 31, 2010 5,499,000 $ 5,499 $ 53,451 $ (86,306) $ (27,356)
========= ========= ========= ========= =========
The accompanying notes are an integral part of these
financial statements.
5
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Date of
Nine Months Nine Months Incorporation on
Ended Ended October 11, 2007 to
December 31, December 31, December 31,
2010 2009 2010
-------- -------- --------
OPERATING ACTIVITIES
Net loss for the period $(13,095) $(17,201) $(86,306)
Adjustments to Reconcile Net Loss to Net Cash
Used forOperating Activities
Amortization expense 1,125 1,125 4,250
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 3,000 750 3,750
-------- -------- --------
Net cash used for operating activities (8,970) (15,326) (78,306)
-------- -------- --------
INVESTING ACTIVITIES
Website -- -- (4,500)
-------- -------- --------
Net cash used for investing activities -- -- (4,500)
-------- -------- --------
FINANCING ACTIVITIES
Due to director 9,000 18,500 27,500
Proceeds from issuance of common stock -- -- 58,950
-------- -------- --------
Net cash provided by financing activities 9,000 18,500 86,450
-------- -------- --------
Increase (decrease) in cash during the period 30 3,174 3,644
Cash, beginning of the period 3,614 2,489 --
-------- -------- --------
Cash, end of the period $ 3,644 $ 5,663 $ 3,644
======== ======== ========
Supplemental disclosure with respect to cash flows:
Cash paid for income taxes $ -- $ -- $ --
Cash paid for interest $ -- $ -- $ --
The accompanying notes are an integral part of these
financial statements.
6
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
(unaudited)
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
The Company was originally incorporated under the laws of the state of Nevada on
October 11, 2007. The Company has limited operations and is considered a
development stage company, and has had no revenues from operations to date.
Initial operations have included organization, capital formation, target market
identification, and marketing plans. Management is planning to develop and then
market an internet based online video game to prospective users.
These unaudited interim financial statements have been prepared in accordance
with United States generally accepted accounting principles for interim
reporting, and in accordance with the requirements of this Quarterly Report on
Form 10-Q. The balance sheet as of March 31, 2010 presented in these financial
statements, has been derived from the Company's audited balance sheet for the
fiscal year ended March 31, 2010. In the opinion of management, all known
adjustments have been made (which consist primarily of normal, recurring
accruals and estimates, and assumptions that impact the financial statements)
for fair presentation. These unaudited interim financial statements should be
read in conjunction with the audited financial statements and related footnotes
included within the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2010. Operating results for the three and nine months ended
December 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2011.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The relevant accounting policies and procedures are listed below. The company
has adopted a March 31 year end.
ACCOUNTING BASIS
The basis is generally accepted accounting principles.
EARNINGS PER SHARE
The basic earnings (loss) per share is calculated by dividing the Company's net
income available to common shareholders by the weighted average number of common
shares during the year. The diluted earnings (loss) per share is calculated by
dividing the Company's net income (loss) available to common shareholders by the
diluted weighted average number of shares outstanding during the year. The
diluted weighted average number of shares outstanding is the basic weighted
number of shares adjusted as of the first of the year for any potentially
7
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
(unaudited)
NOTE 2. (CONTINUED)
dilutive debt or equity. The Company has not issued any options or warrants or
similar securities since inception.
DIVIDENDS
The Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid during the periods shown.
CASH AND BANK ACCOUNTS
The Company's bank account is not FDIC insured.
FOREIGN CURRENCY TRANSLATION
The Company has adopted the US dollar as its functional and reporting currency
because all of its transactions are denominated in US currency.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2010, the carrying value of accrued liabilities and
amounts due to a director approximated fair value due to the short-term nature
and maturity of these instruments.
INCOME TAXES
A deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss carryforwards.
Deferred tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
8
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
(unaudited)
NOTE 2. (CONTINUED)
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
WEBSITE COSTS
Website costs consist of software development costs, which represent capitalized
costs of design, configuration, coding, installation and testing of the
Company's website up to its initial implementation. Upon implementation in March
2008, the asset is being amortized to expense over its estimated useful life of
three years using the straight-line method. Ongoing website post-implementation
costs of operation, including training and application maintenance, will be
charged to expense as incurred. See Note 7.
NOTE 3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. The Company has net losses for the period from inception to
December 31, 2010 of $86,306. The Company intends to fund operations through
sales and equity financing arrangements, which may be insufficient to fund its
capital expenditures, working capital and other cash requirements through the
fiscal year ending March 31, 2011.
The ability of the Company to emerge from the development stage is dependent
upon the Company's successful efforts to raise sufficient capital and then
attaining profitable operations. In response to these problems, management has
planned the following actions:
* The Company has cleared a Registration Statement with the SEC and
obtained a trading symbol to trade its common shares on the OTCBB.
* Management intends to raise additional funds through public or private
placement offerings.
* Management is currently formulating plans to develop an internet based
online video game to generate sales. There can be no assurances,
however, that management's expectations of future sales will be
realized.
9
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
(unaudited)
NOTE 3. (CONTINUED)
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 4. STOCKHOLDERS' EQUITY
AUTHORIZED
The Company is authorized to issue 75,000,000 shares of $0.001 par value common
stock. All common stock shares have equal voting rights, are non-assessable and
have one vote per share. Voting rights are not cumulative and, therefore, the
holders of more than 50% of the common stock could, if they choose to do so,
elect all of the directors of the Company.
ISSUED AND OUTSTANDING
On October 11, 2007 (inception) and November 24, 2007, the Company issued
3,000,000 and 1,500,000 shares of its common stock respectively to its Directors
for cash of $9,000. See Note 5.
On March 15, 2008, the Company closed a private placement for 999,000 common
shares at a price of $0.05 per share, or an aggregate of $49,950. The Company
accepted subscriptions from 38 offshore non-affiliated investors.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company's neither owns nor leases any real or personal property. The
Company's Director provides office space free of charge. The officer and
director of the Company are involved in other business activities and may, in
the future, become involved in other business opportunities. If a specific
business opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The Company
has not formulated a policy for the resolution of such conflicts.
The amount due to a director of $27,500 has no repayment terms, is unsecured
without interest and is for reimbursement of company incorporation and general
10
KRYPTIC ENTERTAINMENT INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
(unaudited)
NOTE 5. (CONTINUED)
operating expenses. The company plans to pay the amount within the next 12
months, if it has sufficient cash to do so.
On October 11, 2007 and November 24, 2007, the Company issued 3,000,000 and
1,500,000 shares of its common stock respectively to its Directors for cash of
$9,000. See Note 4.
NOTE 6. INCOME TAXES
Net deferred tax assets are $nil. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carry-forwards are expected to be available
to reduce taxable income. As the achievement of required future taxable income
is uncertain, the Company recorded a 100% valuation allowance. Management
believes it is likely that any deferred tax assets will not be realized.
As of its last fiscal year end, the Company has a net operating loss carry
forward of approximately $73,211 of which $1,815 will expire by March 31, 2028,
$52,521 by March 31, 2029 and the balance of $18,875 by March 31, 2030.
NOTE 7. WEBSITE
Accumulated
Cost amortization Net book value
---- ------------ --------------
Website costs $4,500 $4,250 $250
Website costs are amortized on a straight line basis over 3 years, its estimated
useful life.
NOTE 8. OPERATING LEASES AND OTHER COMMITMENTS
The Company currently has no operating lease commitments or any other
commitments.
11
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
GENERAL OVERVIEW
Kryptic Entertainment Inc. (referred to as "Kryptic", "us", "we" and "our") was
incorporated on October 11, 2007, in the State of Nevada. Our principal
executive offices are located Suite 208, 800 N. Rainbow Blvd, Las Vegas NV,
89107. Our telephone number is (702) 948-5013. We are a development stage
company with no revenue and limited operations to date. Since incorporation, we
have not made any significant purchases or sale of assets, nor have we been
involved in any mergers, acquisitions or consolidations. Kryptic Entertainment
has never declared bankruptcy, has never been in receivership, and has never
been involved in any legal action or proceedings.
Our company's business is focused on the development and sale of internet based
interactive entertainment games for use by the general public. We are in the
early stages of developing our first game that we have named "Krypton Jam". We
currently have no revenues and no user subscriptions for our game. We anticipate
that we will not have a commercial product for at least 24 months, dependent on
the successful raise of approximately $2.5-3 million in additional financing to
complete development of a demonstration model and then commercially launch our
game.
Krypton Jam is planned to provide an engaging online game experience not
currently available in the interactive video gaming industry. It is being
designed to be a massive multiplayer online game ("MMOG") that will blend the
characteristics of fantasy and sports in an engaging and intense environment. We
are also designing our game for multiplayer online action to capitalize on the
interactive and social elements of gaming. MMOG games involve role playing and
multiple players participating simultaneously. We believe Krypton Jam will
provide the user with an experience of true team play, combining fast-paced
fantasy quest style adventure and sports action, without the extreme violence
and death typical of most currently available games.
We must complete 2 remaining major development milestones prior to having our
game available for commercial sale. Our DVD trailer, the first development
milestone, was completed and uploaded to our website. The trailer contains
summary representations of our proposed game, characters and realm development.
We believe the trailer provides a visually engaging and dynamic representation
through motion graphics and special effects to illustrate the key components and
processes of the Krypton Jam game. We are using it for presentations to the
industry and financial community to attract financing and gain feedback on our
concept.
As of the date hereof, we have not been successful in raising the additional
funding necessary to complete the remaining milestones. Historically, we have
been able to raise a limited amount of capital through private placements of our
common stock, but we are uncertain about our continued ability to raise funds
privately. The recent credit crisis has only made our situation more difficult,
because investors who were historically receptive to startup situations have
become reluctant to invest in this environment. Our current cash balances are
limited. Our President and Director has indicated that he will provide unsecured
loans to meet only our basic operating and regulatory obligations for the next
fiscal year.
He is continuing to seek additional financing, and analyzing the various
alternatives available to our company, to ensure our survival and to preserve
our shareholder's investment in our common shares. This analysis has included
sourcing additional forms of financing to continue our business as is, or
mergers and/or acquisitions which would likely involve a change of business. At
this stage in our operations, we believe either course is acceptable, as our
operations have not been profitable and our future prospects for our business
are not good without further significant financing.
PLAN OF OPERATION
The following discussion of the plan of operation, financial condition, results
of operations, cash flows and changes in financial position of our Company
should be read in conjunction with our most recent financial statements and
notes appearing elsewhere in this Form 10-Q, and our 10K for March 31, 2010.
12
Our immediate priority is to secure suitable financing to continue with our
existing business and the development of our playable demo for the game. This is
critical to ensure our survival and to preserve our shareholder's investment in
our common shares. If we are not successful in the short run, our director has
indicated that he is willing to lend our company minimum funds to enable us meet
our statutory corporate and reporting obligations for the next 12 months through
unsecured, no interest loans.
We believe we require a minimum of $940,000 in additional financing to continue
with our business and develop our playable demo over a successive 12 month
period from receipt, which would be expended as follows:
General and administrative $ 70,000
Legal and accounting 40,000
Identify/research/purchase game engine 350,000
Purchase computer hardware and peripherals 100,000
Purchase software for game engine creation, developers to identify
pending game engine selected (Licensed Software Packages) 30,000
Third party developers required to modify game engine to meet
standards for online & console based demo for Krypton Jam
(Specified Software will enable developers to create a specified
playable demo illustrating 3 dimensional game play ie: reduced
version of game play to include 3 characters/players, game design
sports action, 3 realms, in-game elements and design to include levels,
character abilities, obstacles/quests, graphics/interface, physical
impacts, environment impacts, scoring/victory. (Human Resources -
5 developers budgeted for 60,000/year) 300,000
Render & output for online version for testing purposes 50,000
--------
$940,000
Concurrent with our search for additional financing for our existing business,
we are also actively seeking business opportunities with established business
entities for the merger of a target business with our company. In certain
instances, a target business may wish to become a subsidiary of our company or
may wish to contribute assets to our company rather than merge. We anticipate
that any new acquisition or business opportunities by our company will require
additional financing and that we will close our existing business. There can be
no assurance, however, that we will be able to acquire the financing necessary
to enable us to pursue this new plan. If our company requires additional
financing and we are unable to acquire such funds, our business may fail.
We may seek a business opportunity with entities who have recently commenced
operations, or entities who wish to utilize the public marketplace in order to
raise additional capital in order to expand business development activities, to
develop a new product or service, or for other corporate purposes. We may
acquire assets and establish wholly-owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.
At this stage, we cannot quantify what additional financing we will require to
complete a combination or merger with another business opportunity, or whether
the opportunity's operations will be profitable.
RESULTS OF OPERATIONS
Our company posted losses of $13,095 for nine months ended December 31, 2010
compared to $17,201 for the comparable period. From inception to December 31,
2010 we have incurred losses of $86,306. The principal components of our losses
for the nine months ended December 31, 2010 included general and administrative
costs of $11,970 and amortization of our website of $1,125. This compares to
$16,076 in general and admin expenses and $1,125 for website amortization during
the nine months ended December 31, 2009.
13
LIQUIDITY AND CASH RESOURCES
At December 31, 2010 we had a working capital deficit of $27,606 compared to
$15,636 at March 31, 2010. This deficit includes $27,500 owing to our director,
which we intend to repay within the next 12 months if we are successful in
raising additional financing. At December 31, 2010 we had only $3,644 in cash.
Because we have not generated any revenue from our business, and we are at least
36 months away from being in a position to generate revenues, we will need to
raise significant, additional funding for the future development of our business
and to respond to unanticipated requirements or expenses. Given that we have no
operating history, no revenues and only losses to date, we may not be able to
achieve this goal, and if this occurs we will not be able to pay our development
and marketing costs and we may go out of business. We may need to issue
additional equity securities in the future to raise the necessary funds. We do
not currently have any arrangements for additional financing and we can provide
no assurance to investors we will be able to find such financing if further
funding is required. Obtaining additional financing would be subject to a number
of factors, including investor acceptance of our planned video game and our
business model. The issuance of additional equity securities by us would result
in a significant dilution in the equity interests of our current stockholders.
Obtaining loans will increase our liabilities and future cash commitments, and
there can be no assurance that we will even have sufficient funds to repay our
future indebtedness or that we will not default on our future debts if we were
able to even obtain loans. Obtaining suitable financing has also become
particularly challenging with the current credit and monetary crisis. In this
environment, it is highly unlikely that we will be successful in obtaining the
necessary financing on a timely basis to continue with the development of our
game.
There can be no assurance that capital will continue to be available if
necessary to meet future funding needs or, if the capital is available, that it
will be on terms acceptable to us. If we are unable to obtain financing in the
amounts and on terms deemed acceptable to us, we may be forced to scale back or
cease operations, which might result in the loss of some or all of your
investment in our common stock.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We are required to maintain disclosure controls and procedures, as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC rules and forms, and that such information is accumulated and
communicated to our management, to allow timely decisions regarding required
disclosure. As of December 31, 2010 we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our Officer concluded that our disclosure
controls and procedures were not effective as described below under "Identified
Weaknesses".
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934
as a process designed by, or under the supervision of, the company's CEO and CFO
and effected by the company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.
As of December 31, 2010 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
14
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this report,
such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below. This
was due to deficiencies that existed in the design or operation of our internal
controls over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.
IDENTIFIED WEAKNESSES
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board was the lack of a functioning audit committee due to
a lack of a majority of independent members and a lack of a majority of outside
directors on our board of directors, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures. This
material weakness was identified by our management in connection with the review
of our financial statements as of December 31, 2010.
Management also believes that the lack of a functioning audit committee and the
lack of a majority of outside directors on our board of directors results in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our
financial statements in future periods.
MANAGEMENT'S REMEDIATION INITIATIVES
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated a plan to
appoint one or more outside directors to our board of directors who shall be
appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required
internal controls and procedures such as reviewing and approving estimates and
assumptions made by management.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the lack
of a functioning audit committee and a lack of a majority of outside directors
on our Board. While we are actively seeking outside members, including
candidates with accounting experience, we cannot provide any assurance that we
will be successful. Given the size of our company, lack of revenues and current
lack of financing to continue with our business, it is unlikely that anyone will
agree to join our Board until general economic conditions and our own business
prospects improve significantly.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, which has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
This quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to SEC rules that permit the Company
to provide only the management's report in this quarterly report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Pursuant to Rule 601 of Regulation SK, the following exhibits are included
herein or incorporated by reference.
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation*
3.2 By-laws*
31.1 Certification Pursuant to 18 U.S.C. ss. 1350, Section 302
32.1 Certification Pursuant to 18 U.S.C. ss.1350, Section 906
----------
* Incorporated by reference to our S-1 Registration Statement, File Number
333-151141
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 31st day of
January, 2011.
KRYPTIC ENTERTAINMENT INC.
Date: January 31, 2011 By: /s/ Shan Qiang
----------------------------------------
Name: Shan Qiang
Title: President, CEO, Secretary Treasurer
Principal executive, financial and
accounting officer
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