Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2014
OR
o | 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: 333-170016
First Level Entertainment Group, Inc.
(Exact name of registrant as specified in its charter)
Florida |
| 90-0599877 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
305 South Andrews Avenue. Suite 204 Fort Lauderdale, Florida |
| 33301 |
(Address of principal executive offices) |
| (Zip Code) |
(954) 599-3672
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at December 30, 2014 |
Common Stock, $0.001 |
| 37,000,000 shares |
FIRST LEVEL ENTERTAINMENT GROUP, INC.
TABLE OF CONTENTS
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Part I Financial Information | 4 |
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Item 1. Financial Statements | 4 |
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Consolidated Balance Sheets at November 30, 2014 (unaudited) and August 31, 2013 (audited) | 4 |
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Consolidated Statements of Operations for the three months ended November 30, 2014 and 2013 (unaudited) | 5 |
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Consolidated Statements of Cash Flows at November 30, 2014 and November 30, 2013 (unaudited) | 6 |
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Notes to Consolidated Financial Statements | 7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 10 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 15 |
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Item 4. Controls and Procedures. | 15 |
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Part II Other Information | 16 |
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Item 1. Legal Proceeding. | 16 |
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Item 1A. Risk Factors. | 16 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 17 |
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Item 3. Defaults Upon Senior Securities. | 17 |
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Item 4. Mine Safety Disclosures | 17 |
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Item 5. Other Information. | 17 |
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Item 6. Exhibits. | 17 |
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Signatures | 17 |
- 2 -
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed in this report, in our Annual Report on Form 10-K for the year ended August 31, 2014, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in that report, and in other documents which we file with the SEC. These forward-looking statements involve risks and uncertainties, and relate to future events or our future financial or operating performance and include, but are not limited to, statements concerning:
· | the anticipated benefits and risks of our business relationships; |
· | our ability to attract retail and business customers; |
· | the anticipated benefits and risks associated with our business strategy; |
· | our future operating results; |
· | the anticipated size or trends of the market segments in which we compete and the anticipated competition in those markets; |
· | potential government regulation; |
· | our future capital requirements and our ability to satisfy our capital needs; |
· | the potential for additional issuances of our securities; |
· | our plans to devote substantial resources to our sales and marketing teams; |
· | the possibility of future acquisitions of businesses, products or technologies; |
· | our belief that we can attract customers in a cost-efficient manner; |
· | our belief that current or future litigation will likely not have a material adverse effect on our business; |
· | the ability of our online marketing campaigns to be a cost-effective method of attracting customers; |
· | our belief that we can internally develop cost-effective branding campaigns; |
· | the results of upgrades to our infrastructure and the likelihood that additional future upgrades can be implemented without disruption of our business; |
· | our belief that we can maintain or improve upon customer service levels that we and our customers consider acceptable; |
· | our belief that our information technology infrastructure can and will support our operations and will not suffer significant downtime; |
· | statements about our community site business and its anticipated functionality; |
· | our belief that we can maintain inventory levels at appropriate levels despite the seasonal nature of our business; and, |
· | our belief that we can successfully offer and sell a constantly changing mix of products and services |
Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “First Level”, the “Company,” “we”, “us”, “our” and similar terms refer to First Level Entertainment Group, Inc., a Florida corporation.
- 3 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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| November 30, |
| August 31, |
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| 2014 |
| 2014 |
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| (unaudited) |
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ASSETS | |||||||
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CURRENT ASSETS: |
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Cash and equivalents |
| $ | 39,158 |
| $ | 319 |
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Total Current Assets |
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| 39,158 |
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| 319 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
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CURRENT LIABILITIES: |
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Accounts payable |
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| 162,500 |
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| 222,989 |
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Accrued expenses |
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| 235,083 |
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| 202,263 |
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Advance from related parties |
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| 99,738 |
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| — |
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Notes payable |
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| 22,000 |
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| 70,000 |
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Total Current Liabilities |
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| 519,321 |
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| 495,252 |
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STOCKHOLDERS’ DEFICIT: |
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Preferred Stock, par value $.001; 10,000,000 shares authorized; |
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| — |
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| — |
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Common stock , par value $.001; 500,000,000 shares authorized; |
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| 37,000 |
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| 36,000 |
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Additional paid in capital |
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| 1,923,000 |
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| 1,744,000 |
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Accumulated deficit |
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| (2,440,163 | ) |
| (2,274,933 | ) |
Total Stockholders’ Deficit |
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| (480,163 | ) |
| (494,933 | ) |
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Total Liabilities and Stockholders’ Deficit |
| $ | 39,158 |
| $ | 319 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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| For the three months ended |
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| November 30, |
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| 2014 |
| 2013 |
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Revenue |
| $ | — |
| $ | — |
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Operating Expenses: |
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Advertising and Marketing |
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| 29,697 |
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| — |
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Legal and Accounting |
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| 37,971 |
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| 6,550 |
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Consulting and Software Development |
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| 68,760 |
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| 132,500 |
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General and Administrative |
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| 28,232 |
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| 2,225 |
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Total Operating Expenses |
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| 164,660 |
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| 141,275 |
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Operating Loss |
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| (164,660 | ) |
| (141,275 | ) |
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Other Income(expense) |
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Interest Expense |
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| (570 | ) |
| — |
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Total Other Income(Expense) |
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| (570 | ) |
| — |
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Net loss before Income Taxes |
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| (165,230 | ) |
| (141,275 | ) |
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Provision for Income Taxes |
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| — |
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| — |
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Net loss |
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| (165,230 | ) |
| (141,275 | ) |
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Basic and diluted net loss per common share |
| $ | (0.00 | ) | $ | (0.00 | ) |
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Basic and diluted weighted average number of common shares outstanding |
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| 36,536,481 |
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| 30,013,187 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the three months ended |
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| November 30, |
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| 2014 |
| 2013 |
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OPERATING ACTIVITIES: |
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Net loss |
| $ | (165,230 | ) | $ | (141,275 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Expenses paid on behalf of the company |
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| 34,042 |
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| 34,825 |
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Stock issued for services |
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| 18,000 |
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| 30,000 |
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Changes in operating assets and liabilities: |
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Accounts payable and accrued expenses |
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| (27,669 | ) |
| 76,450 |
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Net cash used in operating activities |
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| (140,857 | ) |
| — |
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INVESTING ACTIVITIES: |
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| — |
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| — |
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FINANCING ACTIVITIES: |
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Payments on notes payable |
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| (48,000 | ) |
| — |
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Cash increase due to related party notes payable |
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| 115,500 |
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| — |
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Payments on related party debt |
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| (15,004 | ) |
| — |
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Issuance of common stock for cash |
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| 127,200 |
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| — |
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Net cash provided by financing activities |
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| 179,696 |
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| — |
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NET INCREASE IN CASH |
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| 38,839 |
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| — |
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CASH BEGINNING BALANCE |
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| 319 |
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| 253 |
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CASH ENDING BALANCE |
| $ | 39,158 |
| $ | 253 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Taxes paid |
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| — |
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| — |
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Interest paid |
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| — |
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| — |
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NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: |
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Stock issued for debt |
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| 34,800 |
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| — |
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The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
FIREST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
November 30, 2014
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
First Level Entertainment Group, Inc. (“the Company”), formerly known as Sound Kitchen Entertainment Group, Inc., commenced operations in February 1, 2012 and has incurred losses totaling $2,440,163. The Company was incorporated on June 2, 2008 in the State of Florida and established a fiscal year end of August 31. The Company is in the entertainment business presently focusing on mobile applications. The Company has the following wholly-owned subsidiaries: i) Mobile Sonars Inc.; ii) Am I There Inc.; iii) Message Attic Corp; VIP Wink Corp.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The August 31, 2014 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto that are included in the Company’s Annual Report on form 10-K for the year ended August 31, 2014 filed with the SEC on December 12, 2014.
The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended August 31, 2014. The quarterly information presented should be read in conjunction with the annual report filed on Form 10-K with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment.
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FIREST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
November 30, 2014
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition
The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification (“ASC”) 605 “Revenue Recognition” which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale. Cost of sales includes any labor cost and the amortization of intellectual property.
Basic and Diluted Net Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of November 30, 2014 or 2013 which were excluded from the calculation of diluted loss per common share as their effect would have been anti-dilutive.
Recently Issued Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development or exploration stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of August 31, 2014.
NOTE 3 – GOING CONCERN
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has a deficit accumulated since inception (June 2, 2008) through November 30, 2014 of $2,440,163. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations, from inception to November 30, 2014, by way of issuing common shares and advances from related parties. As of November 30, 2014, the Company had issued 37,000,000 (post stock-split) common shares. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
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FIREST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
November 30, 2014
NOTE 4 – RELATED PARTY TRANSACTIONS
As of August 31, 2013 the Company owed $50,000 to related parties for operating expenses paid on the Company’s behalf. During the year ended August 31, 2014 this related party advanced $38,250 to the company and paid for $148,234 of additional operating expenses on the Company’s behalf. The Company paid $36,250 in cash against the outstanding payable and paid 320,000 shares of common stock at $0.025 per share in settlement of $8,000 of the outstanding payable and 580,000 shares of common stock at $0.18 per share in settlement of $104,400 leaving an ending balance due of $-0-. All related party balances bear no interest and are due on demand.
During the three months ended November 30, 2014, this related party advanced $115,500 to the company and paid $34,042 of additional operating expenses on the Company’s behalf. The Company paid $15,004 in cash against the outstanding payable and paid 193,336 shares of common stock at $0.18 per share in settlement of $34,800 of the outstanding payable. At the end of the period the balance owed to this related party was $99,738.
NOTE 5 – STOCKHOLDERS’ DEFICIT
On May 31, 2013 the Company authorized a 3:1 Reverse Stock Split the financial statements have been retroactively adjusted to reflect the stock split. From inception (June 2, 2008) through November 30, 2014, the Company has not granted any stock options and warrants.
During the three months ended November 30, 2014, the Company issued 1,000,000 shares of common stock valued at $0.18 per share. The company received $127,200 of cash, $18,000 in services, and issued stock of $34,800 for settlement of advances from a related party.
NOTE 6 – NOTES PAYABLE
On April 10, 2014, the Company entered into a note agreement with an unrelated third party to borrow a maximum amount of $150,000 (determined from time to time as advances are made) having a stated interest rate of six (6) percent and is convertible into common shares at fair market value at the discretion of the note holder both principal and interest are due April 10, 2015 and can be prepaid without penalty. At November 2014, the principal balance of the note outstanding was $22,000 with accrued interest of $570.
NOTE 7 – SUBSEQUENT EVENTS
We have evaluated events and transactions that occurred subsequent to November 30, 2014 through the date of this report, the date the consolidated financial statements were issued, for potential recognition or disclosure in the accompanying consolidated financial statements.
- 9 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
Overview
We are a development stage company incorporated in the state of Florida in June, 2008. The current focus of our company has the primary focus of developing mobile applications as follows:
1) VIPwink
VIPwink is a patent pending mobile application which is available for beta testing for iTunes and Android phones in the fourth quarter of 2014. The VIPwink mobile application will empower individuals, brands and any others (VIP’s) with a significant Twitter following to monetize their fans, and differentiate the casual from the most passionate follower. The VIPwink app seamlessly integrates into the “VIP’s” existing Twitter account and gives them control over their original content.
Through the VIPwink mobile application, any “VIP” will be able to delay their Tweets to their existing Twitter network and reward their most passionate “followers” with immediate access to exclusive content or offers. Through the VIPwink platform, these “VIP’s” of the social world can offer premium content via a paid subscription based model. The premium content will be locked out to all non-subscribers and available on a time delay set by the “VIP” via admin functionality. VIPwink will finally enable all of Twitter’s most followed individuals and brands to monetize, identify, and capture direct contact data from their true fans. This application is currently being beta tested.
VIPwink has executed agreements with a selective roster of VIP celebrities, athletes, branded products and others for our beta testing of our functioning prototype. The preliminary roster of VIPwink has approximately 20,000,000 followers on Twitter as of October 31, 2014. We continuously are in negotiations to execute further agreements to coincide with our development of this application.
2) MobileSonars
Mobile Sonars is a white label mobile application, that through questionnaire for any location that is “pushed” to the user when they arrive matching is then determined. If activated and at the geo-location a user is then matched with others who have answered the questions in a similar manner based on a pre-determined or user selected threshold. Mobile Sonars will allow a partner site to monetize a growing database of users that are on property or at the event in real time. Which will allow them to offer deals, discounts, and coupons while users are both their and not there. Allow users to connect to others at a specific location and only that location or event, who match specific criteria.
Going Concern
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations from inception by way of issuing common shares and through advances made by related parties. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses and the valuation of our assets and contingencies. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or conditions. Our financial statements are based on the assumption that we will continue as a going concern. If we are unable to continue as a going concern we would experience additional losses from the write-down of assets.
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Stock-Based Compensation - Employees
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
· | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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· | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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· | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.
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Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
· | The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: |
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· | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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· | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic . entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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· | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.
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Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
Revenue Recognition (included in ASC 605 “Revenue Recognition”)
The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales taxes. Amounts received in advance for subscription services, are deferred and recognized as revenue over the subscription term.
Outlook
The most important metric by which we judge the Company’s performance now and in the near term is generating revenues on the top line and sales growth. Our current commitment to develop and deliver quality products means that, for the near future, bottom line profitability will be a poor indicator of our success.
Since investors are certain to be the primary, near term source of liquidity to support our development and marketing efforts, our liquidity will be driven by our ability to attract repeat investments from current shareholders and to find new ones. All investors must fully understand that an investment in our company is of high risk and they can lose their total invested capital.
Our primary marketing challenge for the coming twelve (12) months is to implement and “go live” with our initial networking applications to achieve market awareness and acceptance. Additionally, management is seeking new acquisitions to complement existing products.
Revenues
These forward-looking statements, pertaining to revenues, are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. As our revenues commence, we plan to invest in marketing and sales by increasing the number of direct sales throughout our web portal to build brand awareness. We expect that in the future, marketing and sales expenses will increase in absolute dollars commencing in the first quarter of 2015. We do not expect our revenues to increase significantly until second quarter of 2015.
General and Administrative Expenses
We expect that general and administrative expenses associated with executive compensation will substantially increase in the future as our products commence their marketing potential. In addition, we believe in the last part of the 2015 fiscal year that the compensation packages required to attract the senior executives of the Company will require management to execute against its business plan which will increase our total expenses, including, but not limited to, general and administrative, legal, accounting, marketing and compensation.
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Summary of Condensed Results of Operations
Any measurement and comparison of revenues and expenses from continuing operations should not be considered necessarily indicative or interpolated as the trend to forecast our future revenues and results of operations.
Results for the Three Months Ended November 30, 2014
Revenues. The Company’s revenues for the three months ended November 30, 2014 were $0. Additionally, the Company has not had any revenues from inception (June 2, 2008) to November 30, 2014.
Legal and Accounting Expenses. Legal and Accounting expenses for the three months ended November 30, 2014 were $37,971 as compared to $6,550 for the three months ended November 30, 2013. These increase costs of legal and accounting expenses were a direct result of product development commencing an activity phase whereby additional expenses are required.
General and Administrative Expenses. General and administrative expenses for the three months ended November 30, 2014 were $28,232 as compared to $2,225 for the three months ended November 30, 2013. These expenses are normal and reoccurring for our Company as a development stage entity.
Consulting and Software Development. The expense for the three (3) months ended November 30, 2014 was $68,760 as compared to $132,500 for the three (3) months ended November 30, 2013. These decrease costs of $63,740 were a direct result of the decreased software development activity.
Net Loss. Net loss for the three months ended November 30, 2014 was ($165,230) as compared to ($141,275) for the three months ended November 30, 2013. The increase of net loss of $23,955 was a result of the entering into the company’s development stage of internet and mobile applications.
Impact of Inflation
We believe that the rate of inflation has had negligible effect on our operations. We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.
Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by advances from related parties, conversion of debt to common shares and the sale of common shares to related parties and others.
As of November 30, 2014, total current assets were $ 39,158.
As of November 30, 2014, total current liabilities were $519,321, which consisted of 162,500 for accounts payable, $235,083 for accrued expenses and $99,738 of advances from related parties and short-term debt of 22,000. As of August 31, 2014, total current liabilities were $495,252, which consisted of $202,263 of accrued expenses and $222,989 of accounts payable and short-term debt of $70,000. We had net working capital deficit of ($480,163) as of November 30, 2014, compared to net working deficit capital of ($494,933) at August 31, 2014.
During the three months ended November 30, 2014, our operating activities used cash of $140,857. We sold stock for cash proceeds of $127,200. An officer provided $115,500 of cash loans and paid expenses of $34,042. We paid $15,004 of our related party loans and paid $48,000 of our short-term debt.
Material Commitments
The Company does not have any material commitments as of November 30, 2014.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any anticipate entering into any off-balance 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, capital expenditures or capital resources that are material to investors.
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Recent Accounting Pronouncements
The company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Company management maintains controls and procedures designed to ensure that information required to be disclosed in the reports that is filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of November 30, 2014, the date of this report, the Company’s chief executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective subject to the limitations set forth below.
(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and principal financial officer.
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers 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 generally accepted accounting principles and includes those policies and procedures that:
· | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; |
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· | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and the Company’s directors; and |
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· | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
As part of the Company’s compliance efforts relative to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of November 30, 2014. In making this assessment, management used the criteria set forth in the Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Company management evaluated control deficiencies identified through the Company’s test of the design and operating effectiveness of controls over financial reporting to determine whether the deficiencies, individually or in combination, are significant deficiencies or material weaknesses. In performing the assessment, the Company’s management has identified material weaknesses in internal control over financial reporting existing as of November 30, 2014. The Company’s evaluation of the significance of each deficiency included both quantitative and qualitative factors. Based on that evaluation, the Company’s management concluded that as of November 30, 2014, and as of the date that the evaluation of the effectiveness of the Company’s internal controls and procedures was completed, the Company’s internal controls are not effective, for the reason discussed below:
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1. | Company management does not yet have written documentation of the Company’s internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement Section 404 of the Sarbanes-Oxley Act and may be applicable to the Company in future years. |
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2. | Company management does not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to the Company’s extremely small size and the fact that the Company has only had one management employee, whom is also an executive officer and director, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. |
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3. | The Company currently does not employ any full-time accounting personnel, which means the Company lacks the requisite expertise in the key functional areas of finance and accounting. In addition, this means that the Company does not have available personnel to properly implement control procedures. |
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4. | The Company does not have a functioning audit committee or outside independent directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. |
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5. | Company management has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are no employees and only one officer and director with management functions and therefore there the Company lacks segregation of duties. |
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6. | There is a strong reliance on the external auditors and contract accountants to review and adjust the annual and quarterly financial statements, to monitor new accounting principles, and to ensure compliance with GAAP and SEC disclosure requirements. |
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7. | There is a strong reliance on the external attorneys to review and edit the annual and quarterly filings and to ensure compliance with SEC disclosure requirements. |
In light of the material weaknesses described above, Company management performed additional analysis and other procedures to ensure the Company’s financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, Company management believes that the financial statements included in this Current Report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
In addition, although the Company’s controls are not effective, these significant weaknesses did not result in any material misstatements in the Company’s financial statements. The Company’s management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which is intended to mitigate the lack of segregation of duties until there are sufficient personnel and (3) has, subsequent to the evaluation period, appointed outside directors and will establish an audit committee in the future.
(b) Changes in Internal Control and Financial Reporting. Other than the weaknesses identified above, there were no other changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceeding.
None.
Item 1A. Risk Factors.
Not required.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In September 2014 the Company issued 706,664 shares of the common stock in the Company at $0.18 per share for cash the total value of shares issued was $$127,200.
On November 30, 2014 the Company issued 100,000 shares of the common stock in the Company at $0.18 per share for compensation to consultants the total value of shares issued was $18,000.
On November 30, 2014, the Company issued 193,336 shares of the common stock in the company at $0.18 per share for forgiveness of related party debt the total value of shares issued was $34,800.
Management believes the above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933 as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits
Exhibit No. | Description |
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31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.1 | Section 1350 Certification of Chief Executive Officer |
32.2 | Section 1350 Certification of Chief Financial Officer |
101 * | XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q. |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
SIGNATURES
Pursuant to the requirements 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.
| FIRST LEVEL ENTERTAINMENT GROUP, INC. | |
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Date: January 9, 2015 | By: | /s/ Steve Adelstein |
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| Steve Adelstein |
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| Chief Executive Officer |
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