(2) Summary of Significant Accounting Policies | 12 Months Ended |
Mar. 31, 2014 |
Notes | ' |
(2) Summary of Significant Accounting Policies: | ' |
(2) Summary of Significant Accounting Policies: |
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Basis of Presentation: |
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The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). |
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Effective on December 2, 2013, the Company executed a one-for-twenty reverse split of the Company’s issued and outstanding shares of common stock. All references to number of shares and per share amounts included in this report give effect to the reverse stock split. |
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Going Concern: |
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has net losses of $13,052,020 and $6,766,091 for the years ended March 31, 2014 and 2013, respectively. The Company also has an accumulated deficit of $31,627,643 and a negative working capital of $2,736,886 as of March 31, 2014, as well as outstanding convertible notes payable of $2,023,000, of which $1,750,000 is due on June 30, 2014. Management believes that it will need additional equity or debt financing to be able to implement the business plan. Given the lack of revenue, capital deficiency and negative working capital, there is substantial doubt about the Company’s ability to continue as a going concern. |
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Management is attempting to raise additional equity and debt to sustain operations until it can market its services and achieves profitability. The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results. |
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The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
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Risks and Uncertainties: |
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The Company generates no revenues. The Company operates in an industry that is subject to intense competition and potential government regulations. Significant changes in regulations and the inability of the Company to establish contracts with rail services providers could have a materially adverse impact on the Company’s operations. |
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Use of Estimates: |
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The preparation of financial statements in conformity with GAAP requires management to make 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 revenues and expenses during the reported periods. Amounts could materially change in the future. |
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Cash and Cash Equivalents: |
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The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. |
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Property and Equipment: |
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Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately five years once the individual assets are placed in service. The Company expenses all purchases of equipment with individual costs of under $500, and these amounts are not material to the financial statements. |
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Intangible Assets: |
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Goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from the acquisition of Las Vegas Railway Express on January 21, 2010. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. As required by the “Intangibles – Goodwill and Other” topic of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company conducted an analysis of the goodwill on March 31, 2014. Due to the Company’s changes in the business model during the year ended March 31, 2014, management has determined the goodwill has been fully impaired as of March 31, 2014. As a result, for the fiscal year ending March 31, 2014, the Company recorded an impairment loss of $843,697 in the accompanying statement of operations. |
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Long-Lived Assets: |
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In accordance with FASB ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. During the year ended March 31, 2014, the Company determined that $98,172 of capitalized costs relating to the construction of a proposed train station in North Las Vegas were impaired a result in the change in the Company’s business plan. These amounts have been expensed and included as a component of professional fees during the year ended March 31, 2014. |
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Deposit with Union Pacific: |
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On November 8, 2012, the Company entered into an agreement with Union Pacific Railroad Company whereby the Company was granted a nonexclusive operating right to use Union Pacific railroad track between Daggett, California and Las Vegas, Nevada, subject to certain terms and conditions. In connection with this agreement, the Company made an earnest money deposit of $600,000 and was required to meet certain financial conditions, including the provision of a letter of credit in favor of Union Pacific in the amount of $27,444,145 on or before October 31, 2013. The Company elected to terminate this agreement on October 31, 2013 as it no longer planned to operate on the Union Pacific Railroad Company tracks as a regularly scheduled passenger train. As a result, the Company determined the $600,000 deposit was impaired and expensed the amount during the year ended March 31, 2014 as a component of selling, general and administrative expenses. |
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Basic and Diluted Loss Per Share: |
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In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per common share is computed by dividing the net loss available to common stockholders after preferred stock dividends, by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Common stock equivalents have not been included in the diluted earnings per share computation for the years ended March 31, 2014 and 2013 as the amounts are anti-dilutive. As of March 31, 2014 and 2013, the Company had 100,000 outstanding options which were excluded from the computation of net loss per share because they are anti-dilutive. As of March 31, 2014 and 2013, the Company also had convertible debt that is convertible into 5,339,132 and 1,795,000 shares, respectively, of common stock which was excluded from the computation. As of March 31, 2014 and 2013, the Company had 1,569,842 and 2,924,842 outstanding warrants, respectively, which were also excluded from the computation because they were anti-dilutive. |
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Income Taxes: |
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The Company accounts for income taxes under FASB ASC 740 "Income Taxes." Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods. |
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Prior to the impairment of the goodwill as of March 31, 2014, the Company’s goodwill was deductible for tax purposes. This difference created a deferred tax liability, which could not be matched with the Company’s deferred tax asset. As a result, the Company was not able to net the deferred tax liability with its net operating loss carryforward, and therefore recorded a deferred tax liability to reflect the future non-deductibility of its goodwill asset. The deferred tax liability at March 31, 2013 was $55,914. Upon the impairment of the goodwill as of March 31, 2014, the deferred tax liability no longer existed and amounted to $0 as of March 31, 2014. |
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The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of March 31, 2014 and 2013, the Company has not established a liability for uncertain tax positions. |
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Share Based Payment: |
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The Company issues stock, options and warrants as share-based compensation to employees and non-employees. |
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The Company accounts for its share-based compensation to employees in accordance FASB ASC 718. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. |
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The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the cumulative expense recorded. |
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The Company values stock compensation based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of performance completion. |
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The Company values stock options and warrants that do not qualify as derivative instruments using the Black-Scholes option pricing model. There were no options issued during the years ended March 31, 2014 or 2013. There were no warrants valued using the Black-Scholes model during the year ended March 31, 2014. |
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Certain warrants qualify as derivative instruments and are valued using the binomial lattice method. See discussion below regarding accounting for derivative liabilities. |
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Derivative Liabilities: |
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In connection with the private placement of Convertible Notes beginning in February 2013, the Company became contingently obligated to issue shares of common stock in excess of the 200 million authorized under the Company’s certificate of incorporation. Consequently, the ability to settle these obligations with shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability. |
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The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. |
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Using this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued on and subsequent to November 30, 2012 had been accounted for as derivative liabilities. |
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On December 2, 2013, the Company effected a one-for-twenty reverse stock split of the Company’s issued and outstanding common stock shares. As a result, the Company’s outstanding shares of common stock and common stock equivalents no longer exceeded the number of authorized shares. As a result, as of December 2, 2013, these instruments that were accounted for as derivative liabilities were reclassified as equity. |
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The Company also has certain warrants and embedded conversion options in notes payable with elements that qualify as derivatives. The warrants have anti-dilution clauses that prevent calculation of the ultimate number of shares that may be issued upon exercise, and four outstanding notes payable that had a variable conversion feature that similarly prevented the calculation of the number of shares into which they were convertible. |
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The Company values these warrants and embedded conversion options in notes payable using the binomial lattice method. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations (see Note 7). |
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Fair Value of Financial Instruments: |
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The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, notes payable and derivative liabilities. Derivative liabilities are recorded at fair value. The principal balance of notes payable approximates fair value because current interest rates and terms offered to the Company for similar debt are substantially the same. |
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FASB ASC 820 defines fair value, establishes a framework for measuring fair value, in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: |
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Level 1. Observable inputs such as quoted prices in active markets; |
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Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
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Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
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The Company used Level 3 measurements in computing the fair value of goodwill, which was fully impaired on March 31, 2014. |
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Fair value hierarchy for recurring fair value measurements is as follows: |
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| | | Fair Value | | | Fair Value Measurements at March 31, 2014 |
| | | as of | | | Using Fair Value Heirarchy |
| | | 31-Mar-14 | | | Level 1 | | | Level 2 | | | Level 3 |
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Liabilities: | | | | | | | | | | | | |
Derivative liability | | $ | 1,138,477 | | $ | - | | $ | 1,138,477 | | $ | - |