UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
WRITERS’ GROUP FILM CORP.
a Delaware corporation
8200 Wilshire Boulevard,
Suite 200
Beverly Hills, CA 90211
310.461.3737
Commission file number: 333-156832
I.R.S. Employer I.D. #: 56-2646829
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 x Yes o No
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 o 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.
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
| (Do not check if a smaller reporting company) | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No
The number of shares outstanding of our Common Stock is 2,334,430,636 as of August 16, 2013
The number of shares outstanding of our Series A Preferred Stock is 10,000 as of August 16, 2013.
There are no other classes of stock.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| Writers' Group Film Corp. |
| Consolidated Balance Sheets |
| (Unaudited) |
| | | June 30, | | | March 31, | |
| | | 2013 | | | 2013 | |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 2,090 | | | $ | 1,143 | |
| Accounts receivables, net | | | 200 | | | | 200 | |
| Prepaid expense and other assets | | | 3,750 | | | | 1,710 | |
| Deferred financing costs | | | 8,500 | | | | 3,500 | |
| Total current assets | | | 14,540 | | | | 6,553 | |
| Total Assets | | $ | 14,540 | | | $ | 6,553 | |
| | | | | | | | | |
| Liabilities and Shareholders' Deficit | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 36,173 | | | $ | 31,520 | |
| Accrued liability | | | 57,754 | | | | 39,433 | |
| Convertible debts, net of unamortized discount of 32,261 and $0, respectively | | | 28,383 | | | | 20,727 | |
| Convertible debts - related party, net of unamortized discount of $0 and $0, respectively | | | 1,550 | | | | 1,550 | |
| Notes payable, net of unamortized discount of $0 and $7,362, respectively | | | 100,000 | | | | 101,700 | |
| Due to related parties - short term | | | 4,085 | | | | 2,572 | |
| Derivative liabilities | | | - | | | | 23,550 | |
| Total current liabilities | | | 227,945 | | | | 221,052 | |
| Total Liabilities | | | 227,945 | | | | 221,052 | |
| | | | | | | | | |
| Shareholders' Deficit | | | | | | | | |
| Preferred Stock: | | | | | | | | |
| Series A convertible preferred stock, $.00001 par, 130,000,000 shares authorized, 10,000 shares issued and outstanding | | | - | | | | - | |
| Series B convertible preferred stock, $.00001 par, 70,000,000 shares authorized, 0 and 10,000 shares issued and outstanding, respectively | | | - | | | | - | |
| Series C convertible preferred stock, $.00001 par, 20,000,000 shares authorized, none issued and outstanding | | | - | | | | - | |
| Common stock, $0.00001 par, 20,000,000,000 shares authorized, 2,165,945,787 and 1,573,982,182 shares issued and outstanding, respectively | | | 21,661 | | | | 15,741 | |
| Additional paid in capital | | | 1,731,867 | | | | 394,021 | |
| Retained deficit | | | (1,966,933 | ) | | | (624,261 | ) |
| Total shareholders' deficit | | | (213,405 | ) | | | (214,499 | ) |
| Total Liabilities and Shareholders' Deficit | | $ | 14,540 | | | $ | 6,553 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| Writers' Group Film Corp. |
| Consolidated Statement of Operations |
| (Unaudited) |
| | | For The Three Months Ended June 30, | |
| | | 2013 | | | 2012 | |
| Operating Costs and Expenses | | | | | | |
| Wages and benefits | | | 45,578 | | | | 38,010 | |
| Audit and accounting | | | 14,891 | | | | 20,400 | |
| Legal fee | | | 7,933 | | | | 4,377 | |
| Other general and administrative | | | 21,853 | | | | 10,611 | |
| Total operating expenses | | | 90,255 | | | | 73,398 | |
| | | | | | | | | |
| Loss from operations | | | (90,255 | ) | | | (73,398 | ) |
| | | | | | | | | |
| Other income (expense) | | | | | | | | |
| Gain (loss) from derivative liabilities | | | (1,199,371 | ) | | | 258,017 | |
| Interest expense | | | (53,046 | ) | | | (16,331 | ) |
| Net income (loss) | | | (1,342,672 | ) | | | 168,288 | |
| | | | | | | | | |
| Net income (loss) per share | | | | | | | | |
| Basic | | | (0.00 | ) | | | 0.00 | |
| Diluted | | | (0.00 | ) | | | (0.00 | ) |
| | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | |
| Basic | | | 1,876,000,763 | | | | 542,780,633 | |
| Diluted | | | 1,876,000,763 | | | | 3,048,980,633 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| Writers' Group Film Corp. |
| Consolidated Statement of Cash Flows |
| (Unaudited) |
| | | For The Three Months Ended June 30, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Cash Flows From Operating Activities | | | | | | |
| Net Income (loss) | | $ | (1,342,672 | ) | | $ | 168,288 | |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | |
| Gain (loss) on derivative liability | | | 1,199,371 | | | | (258,017 | ) |
| Amortization of debt discount | | | 49,163 | | | | 15,120 | |
| Imputed interest on related party loan | | | - | | | | 1,211 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Account receivable, related party | | | - | | | | 42,850 | |
| Prepaid expenses and other current assets | | | (2,040 | ) | | | (2,414 | ) |
| Accounts payable | | | 4,651 | | | | (23,564 | ) |
| Accrued liabilities | | | 18,961 | | | | 8,510 | |
| Net cash used in operating activities | | | (72,566 | ) | | | (48,016 | ) |
| | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | |
| Loan repayment by related parties | | | - | | | | 75 | |
| Net cash provided by investing activities | | | - | | | | 75 | |
| | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | |
| Borrowing on short term notes payable | | | 77,000 | | | | 32,500 | |
| Proceeds from related party advances | | | 1,513 | | | | - | |
| Deferred financing costs | | | (5,000 | ) | | | - | |
| Net cash provided by financing activities | | | 73,513 | | | | 32,500 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 947 | | | | (15,441 | ) |
| Cash and cash equivalents, beginning of period | | | 1,143 | | | | 15,599 | |
| Cash and cash equivalents, end of period | | $ | 2,090 | | | $ | 158 | |
| | | | | | | | | |
| | | | | | | | | |
| Supplemental disclosure information: | | | | | | | | |
| Income taxes paid | | $ | - | | | $ | - | |
| Interest paid | | $ | - | | | $ | - | |
| Non-cash financing activities: | | | | | | | | |
| Common shares issued for convertible debt and accrued interests | | $ | 48,785 | | | $ | 15,120 | |
| Cashless warrant exercise | | $ | 264 | | | $ | | |
| Preferred Series B conversion to common stock | | $ | 1,000 | | | $ | - | |
| Deb discount resulting from recognition of derivative | | $ | 72,062 | | | $ | - | |
| Reclassification of derivative liabilities to additional paid in capital | | $ | 1,294,981 | | | $ | 271,566 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTE 1 – ORGANIZATION, BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Operations
Writers’ Group Film Corp. (“we”, “our”, “WRIT” or the “Company”) was incorporated in Delaware on March 9, 2007 to produce films, television programs and similar entertainment programs for various media formats.
Front Row Networks, Inc. (“Front Row”) was incorporated on July 27, 2010 in Nevada. The Company is a content creation company which produces, acquires and distributes live concerts in 3D for initial worldwide digital broadcast into digitally-enabled movie theaters, TV and mobile streaming providers.
On February 25, 2011, the Company acquired Front Row in exchange for 100,000,000 common shares in a transaction accounted for as a reverse merger. As a result of this transaction, Front Row’s shareholders became the Company’s majority shareholders. The accompanying unaudited interim financial statements of Writers’ Group Film Corp. have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the initial period ended March 31, 2013 as filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the annual report on Form 10-K have been omitted.
A reclassification has been made to the balance sheet as of March 31, 2013. There was no change to previously reported statement of operations or cash flow for the year ended March 31, 2013.
Correction of Prior Period
In accordance with the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company recorded a non-cash adjustment for the year ended March 31, 2012 which served to reduce additional paid in capital by $566,072 and increase debt discount and retained earnings by $9,942 and $556,130, respectively. See more discussion in Note 1 in Form 10-K filed on July 16, 2013.
To carry forward this non-cash adjustment to the quarter ended June 30, 2012 financials, the Company reduced additional paid in capital and debt discount by $566,072 and $19,062, respectively, and increased interest expense and retained deficit by $9,120 and $547,010, respectively. Consequently, the balance sheet as of June 30, 2012 and the statements of operations, cash flows for the three months ended June 30, 2012 were adjusted to reflect the correction of this error. In evaluating materiality and determining the appropriateness of applying SAB 108 to this error, the Company considered materiality both qualitatively and quantitatively as prescribed by the SEC’s Staff Accounting Bulletin No. 99.
As defined in ASC 820 “Fair Value Measurements”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of June 30, 2013 and March 31, 2013. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
| As of June 30, 2013 | | Total | | Quoted Prices in Active Markets for Identical Instruments Level 1 | | Significant Other Observable Inputs Level 2 | | Significant Unobservable Inputs Level 3 | |
| Derivative Liabilities | | $ | - | | | | | | $ | - | |
As of March 31, 2013 | | Total | | Quoted Prices in Active Markets for Identical Instruments Level 1 | | Significant Other Observable Inputs Level 2 | | Significant Unobservable Inputs Level 3 | |
| Derivative Liabilities | | $ | 23,550 | | | | | | $ | 23,550 | |
NOTE 2 – GOING CONCERN
As reflected in the accompanying consolidated unaudited financial statements, the Company has an accumulated deficit of $1,966,933 at June 30, 2013 that includes loss of $1,342,672 for the three months ended June 30, 2013. The Company also had a working capital deficiency of $213,405 at June 30, 2013. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from outcome of this uncertainty.
Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.
NOTE 3 – NOTES PAYABLE
Notes payable consists of the following:
| | | June 30, 2013 | | | March 31, 2013 | |
| | | | | | | |
| Note payable, net of debt discount of $0 and $7,362, respectively | | $ | 100,000 | | | $ | 101,700 | |
Asher Enterprises Notes Payable
On January 30, 2013, the Company borrowed $32,500 from Asher Enterprises. The maturity date of this note is November 1, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading price for the Common Stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. As of June 30, 2013, the note is not convertible yet.
On April 10, 2013, the Company borrowed $28,000 from Asher Enterprises. The maturity date of this note is January 15, 2014. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. As of June 30, 2013, the note is not convertible yet.
On May 13, 2013 the Company borrowed $27,500 from Asher Enterprises. The maturity date of this note is February 17, 2014. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. As of June 30, 2013, the note is not convertible yet.
Mrs. Nancy Louise Jones
On November 26, 2010, the Company borrowed $60,562 from Mrs. Nancy Louise Jones, wife of Mr. John Diaz, the former CEO and major shareholder. The note carried zero interest and is due on September 8, 2013. On May 2, 2013, Nancy Louise Jones assigned her $60,562 note to Magna Group LLC (see Note 4). The maturity date of this amended note is January 2, 2014. This loan bears an interest rate of 12% per annum. The note is convertible into common stock at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. The Company evaluated the application of ASC 470-50 and ASC 470-60 and concluded the addition of a conversion feature constituted a debt extinguishment rather than a troubled debt restructuring or debt modification. See more discussion about the new debt in Note 4.
On June 12, 2013, the Company borrowed $12,000 from Mrs. Nancy Louise Jones. Out of the $12,000 debt proceeds $2,000 was paid to Mrs. Nancy Louise Jones for legal and administrative fees. The maturity date of this note is August 31, 2013. This loan bears an interest rate of 12% per annum.
NOTE 4 – CONVERTIBLE DEBT
| Convertible debt outstanding, net of debt discount of $0 on March 31, 2013 | | $ | 20,727 | |
| Add: issuance of convertible debts, net of debt discount of $11,500 | | | - | |
| Assignment from Nancy Louise Jones, net of debt discount of $60,562 | | | - | |
| Reclassification from nonconvertible debt to convertible debt, net of debt discount of $7,362 | | | 8,638 | |
| Amortization of debt discount | | | 47,163 | |
| Less: principal converted into common stock | | | (48,145 | ) |
| Convertible debt outstanding, net of debt discount of $32,261 | | $ | 28,383 | |
During the three months ended June 30, 2013, $48,145 of convertible debts and $640 of accrued interest was converted into 465,589,979 shares of common stock.
Asher Enterprises, Inc.
On November 2, 2012, the Company borrowed $16,000 from Asher Enterprises. The maturity date of this note is August 5, 2013. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. On May 1, 2013, after 180 days following the date of the note, the note became convertible. Asher Enterprises had the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price was 25% multiplied by the lowest trading price for the Common Stock during the 120 trading day period ending on the latest complete trading day prior to the conversion date. Along with the note payable, the Company issued warrants to purchase 49,230,769 shares of common stock. The warrants expire 5 years after issuance and have an exercise price of $0.0000325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price. Asher Enterprise converted principal of $16,000 and interest of 640 into 135,938,462 common shares, bringing the note balance to $0. Debt discount of $7,362 was amortized during the three months ended June 30, 2013.
The Company analyzed the conversion option of the Asher note for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at the date of inception and at the termination of the instrument with the change in fair value recorded to earnings.
The Company analyzed the warrants for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the warrants should be classified as a liability due to their not being indexed to the Company’s common stock. The warrants were measured at fair value at the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. See discussion related to the derivative liabilities in Note 5 and warrants in Note 6.
Magna Group, LLC
On May 2, 2013 Magna Group LLC purchased the note payable of $60,562 from Mrs. Nancy Louise Jones and entered into an amended debt agreement with the Company. See Note 3. On May 9, 2013, Magna issued another convertible note of $11,500 to the Company. The note bears interest of 12% per annum, is due on January 9, 2014 and is convertible into common shares at a price of 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. Magna converted debt principal of $30,000 into 115,151,517 common shares during the three months ended June 30, 2013.
As the Asher debt became convertible on May 1, 2013, the conversion option of Magna convertible notes became tainted, that is, under ASC 815-15 “Derivatives and Hedging”, it should be recorded as derivative liability. The derivative treatment resulted in a full debt discount on the Magna notes. During the three months ended June 30, 2013, debt discount of $39,801 was amortized and the unamortized discount is $32,261 as of June 30, 2013. As a result of the full conversion of Asher convertible debt on May 29, 2013, the derivative treatment on Magna debts ended and the derivative liabilities were reclassified back to equity. See discussion in Note 5.
Other Third Party Convertible Notes
The convertible debts were issued in September 2009, bear an interest rate at 8% per annum, due in one year, and are convertible at $0.00001 per share.
During the three months ended June 30, 2013, debt principal of $2,145 has been converted into 214,500,000 common shares.
As the Asher debt became convertible on May 1, 2013, the conversion option of all other third party convertible notes became tainted. Under ASC 815-15 “Derivatives and Hedging”, it should be recorded as derivative liability. As a result of the full conversion of Asher convertible debt on May 29, 2013, the derivative treatment on these convertible debts ended and the derivative liabilities were reclassified back to equity. See discussion in Note 5.
NOTE 5 – DERIVATIVE LIABILITIES
Convertible Notes
The Company valued the embedded derivatives (see discussion below) using Black-Scholes Option Pricing Model based on the following assumptions:
- Dividend yield: 0%
- Volatility: 216.68%-290.85%
- Risk free rate: 0.03%-0.10%
Asher Enterprises
As discussed in Note 4, Asher note of $16,000 became convertible on May 1, 2013. The conversion feature should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature was determined to be $132,409 on May 1, 2013 and was recognized as derivative loss. As a result of full conversion on May 29, 2013, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion dates was $96,892 and this value was reclassified out of liabilities to equity.
Magna Group LLC
As discussed in Note 4, the conversion feature of Magna notes were tainted by Asher note on May 1, 2013 and should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature of the two Magna notes was determined to be $139,524, out of which $72,062 was recorded as debt discount and $67,462 was recorded as derivative loss. As a result of conversion of $10,000 debt principal on May 10, 2013 and the termination of derivative treatment on May 29, 2013, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion and termination dates was $130,120 and this value was reclassified out of liabilities to equity.
Other Third Party and Related Party Convertible Notes
As discussed in Note 4, the conversion feature of other third party notes was tainted by Asher note on May 1, 2013. In addition, the conversion feature of related party convertible debt of $1,550 was also tainted for the same reason. The conversion features should be classified as derivative liabilities and recorded at fair value. The fair value of the conversion feature of these debts was determined to be $2,485,220 and was recorded as derivative loss. As a result of conversion of $250 debt principal on May 2, 2013 and the termination of derivative treatment on May 29, 2013, under ASC 815-15 “Derivative and Hedging”, the instrument should be measured at fair value at the date of the termination with the change in fair value recorded earnings. Total fair value of the conversion feature on conversion and termination dates was $1,043,357 and this value was reclassified out of liabilities to equity.
Warrants
As discussed in Note 4, 49,230,769 warrants issued with the Asher debt should be classified as derivative liability and recorded at fair value at the termination date. Asher settled all the warrants on June 5, 2013. The fair value of the warrants on June 5, 2013 was determined to be $24,614 using Black-Scholes Option Pricing Model based on the following assumptions and was reclassified out of liabilities to equity:
- Dividend yield: 0%
- Volatility: 353.50%
The following table summarizes the derivative liabilities included in the consolidated balance sheet:
| Balance at March 31, 2013 | | $ | 23,550 | |
| ASC 815-15 additions | | | | |
| Asher Enterprise note | | | 132,409 | |
| Magna Group LLC notes | | | 139,524 | |
| Other convertible notes | | | 2,485,220 | |
| ASC 815-15 deletions | | | | |
| Asher Enterprise note | | | (96,892 | ) |
| Magna Group LLC notes | | | (130,120 | ) |
| Other convertible notes | | | (1,043,357 | ) |
| Asher Enterprise warrants | | | (24,614 | ) |
| Change in fair value | | | (1,485,720 | ) |
| Balance at June 30, 2013 | | $ | 0 | |
The following table summarizes the derivative (gain) or loss recorded as a result of the derivative liabilities above:
| For the Three Months Ended June 30, 2013 | | | | |
| Excess of fair value of liabilities over note payable | | $ | 2,685,091 | |
| Change in fair value | | | (1,485,720 | ) |
| Total Derivative (Gain) Loss | | $ | 1,199,371 | |
NOTE 6 – EQUITY
For the Three Months Ended June 30, 2013:
Warrants
As discussed in Note 4, along with the note payable, the Company issued warrants to purchase 49,230,769 shares of common stock to Asher Enterprise Inc. The warrants expire 5 years after issuance and have an exercise price of $0.0000325. The exercise price can adjust downward if the Company issues common stock at a price per share lower than the current exercise price.
On June 5, 2013, Asher Enterprises exercised 26,373,626 warrants for common stock. Instead of paying cash to the Company, Asher Enterprises forfeited the remaining 22,857,143 warrants as consideration given to exercise the warrants. The following table summarizes the Company’s warrant activity for the three months ended June 30, 2013:
| | | Number of Units | | | Weighted-Average Exercise Price | | | Weighted-Average Remaining Contractual Term (in years) | | | Intrinsic value | |
| Outstanding at March 31, 2013 | | | 49,230,769 | | | $ | 0.00 | | | | 4.59 | | | $ | 52,554 | |
| Exercises | | | (26,373,626 | ) | | | 0.00 | | | | - | | | | - | |
| Forfeitures | | | (22,857,143 | ) | | | 0.00 | | | | - | | | | - | |
| Outstanding at June 30, 2013 | | | - | | | $ | - | | | | - | | | $ | - | |
Common Shares issued for convertible notes:
During the three months ended June 30, 2013, convertible debts of $48,145 along with accrued interest of $640 were converted into 465,589,979 common shares. See Note 4.
Conversion of Preferred Stock into Common Stock
On May 1, 2103, Tal L Kapelner converted 10,000 shares of preferred stock series B into 100,000,000 common shares.
NOTE 7 – SUBSEQUENT EVENTS
In July 2013, the Company issued 40,000,000 common shares for cash of $20,000.
In July 2013, the Company issued a promissory note of $10,000. The note carries zero interest and was due on August 9, 2013.
In July, 2013 and August, 2013, Magna Group LLC converted debt principal of $21,200 into 128,484,849 common shares.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A “Risk Factors” in our annual report on Form 10-K for fiscal year ended March 31, 2013, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Forward looking statements made by penny stock issuers are excluded from the safe harbors in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the Security and Exchange Commission (“SEC”). These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Overview
Writers’ Group Film Corp. (“we”, “us”, “our”, “WRIT”, or the “Company”) was incorporated in Delaware on March 9, 2007 to produce films, television programs and similar entertainment programs for various media formats.
Front Row Networks (“FRN”) was incorporated on July 27, 2010 in the State of Nevada. The Company is a content creation company which intends to produce, acquire and distribute live concerts in 3D for initial worldwide digital broadcast into digitally-enabled movie theaters. This new concept is intended to present live concerts in 3D, at lower ticket prices, to a massive fan base worldwide in a cost-effective manner. Following the initial 3D theatrical run, the distribution rights to the concerts will be licensed, in both 2D and 3D format, to DVD and Blu-Ray retailers, Free TV broadcasters, cable and emerging 3D cable channels, and mobile streaming providers. Front Row Networks will also sell merchandising, such as clothing, household goods, and other products, tailored to each Artist and to each Sponsor, in movie theaters where the live concert is exhibited
In February 2011, FRN completed a reverse acquisition transaction through a share exchange with WRIT, whereby WRIT acquired 100% of the issued and outstanding capital stock of FRN in exchange for 100,000,000 shares of the Common Stock of WRIT. As a result of the reverse acquisition, FRN became WRIT’s wholly-owned subsidiary and the former FRN’s shareholders became controlling stockholders of WRIT. The share exchange transaction with WRIT was treated as a reverse acquisition, with FRN as the accounting acquirer and WRIT as the acquired party.
Consequently, the assets and liabilities and the historical operations that will be reflected in the consolidated financial statements for periods prior to the Share Exchange Agreement will be those of FRN and will be recorded at the historical cost basis. After the completion of the Share Exchange Agreement, the Company’s consolidated financial statements will include the assets and liabilities of both FRN and WRIT, the historical operations of FRN and the operations of WRIT from the closing date of the Share Exchange Agreement.
On July 7, 2011, we modified our February 2011 Share Exchange Agreement and agreed to assume $100,000 in new debt which is shown as a reduction of our Paid-In Capital.
While the core business of Front Row Networks remains the production, acquisition and distribution of 2D and 3D theatrical event programming, the Company seeks to secure and distribute non-concert alternative theatrical programming, such as animated family content, music-related documentaries, and other gaming content that can be distributed via mobile and internet platforms. It is the Company’s strategic goal to acquire the broadest range of rights for exclusive programming, we may finance all or part of the production of our entertainment programs, acquire rights to completed projects, acquire content catalogues, or acquire companies which own or control content catalogues. We believe that we are positioned to benefit from the market growth and increased demand for alternative theatrical content and mobile content, and we intend to continue expansion of our exclusive library content throughout the coming year.
Results of Operations
Three Months Ended June 30, 2013 and 2012
Revenues. No revenues were recognized for the three months ended June 30, 2013 and 2012.
Wages and benefits. Wages and benefits expenses increased by $7,568 and 19.91% for the three months ended June 30, 2013 as compared to the same period in 2012. The increase is mainly due to the increase in salary rate.
Audit and accounting. Audit and accounting expenses decreased $5,509 and 27% for the three months ended June 30, 2013 as compared to the same period in 2012. The decrease in the audit and accounting expense is mainly related to cost management of the expenses.
Other general and administrative expenses. Other general and administrative expenses increased by $11,242 and 105.95% for the three months ended June 30, 2013 as compared to the same period in 2012. Those expenses consist primarily of company’s business development, consulting fees and other expenses incurred in connection with general operations. The increase is mainly related to the consulting fees related to the fund raising projects.
Loss from operations. Our loss from operations was $90,255 for the three months ended June 30, 2013 and $73,398 for the same period in 2012.
Gain or loss from derivative liability. We recorded a loss from derivative liability of $1,199,371 for the three months ended June 30, 2013, which is discussed in more detail in Note 5 “Derivative Liabilities” to our consolidated financial statements. There was a gain of $258,017 from derivative liability for the three months ended June 30, 2012.
Interest expense. We incurred $53,046 interest expense for the three months ended June 30, 2013 and $16,331 for the same period in 2012. The increase in interest expense is mainly related to the amortization of debt discount.
Net income or loss. As a result of the foregoing factors, we generated a net loss of $1,342,672 for the three months ended June 30, 2013, and we generated a net income of $168,288 for the same period in 2012.
Liquidity and Capital Resources
As reflected in the accompanying consolidated financial statements, the Company has accumulated deficit of $1,966,933 at June 30, 2013 that includes loss of $1,342,672 for the three months ended June 30, 2013. The Company also had a working capital deficiency of $213,405 as of June 30, 2013. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.
As of June 30, 2013 and March 31, 2013, we have $2,090 and $1,143 cash and cash equivalents, respectively. To date, we have financed our operations primarily through cash flows from borrowings from third and related parties.
Operating activities
Net Cash used in operating activities of $72,566 for the three months ended June 30, 2013 reflected our net loss of $1,342,672, adjusted for $49,163 of amortization of debt discount and a $1,199,371 loss on derivative liability. Additional sources of cash include increase in accrued liability of $18,961 and increase in accounts payable of $4,651. Uses of cash included an increase in prepaid expenses of $2,040.
Net cash used in operating activities was $48,016 for the three month ended June 30, 2012. The net cash used in operating activities is primarily due to the net loss and partially offset by shares issued for services, increase in accounts payable, and the decrease in accounts receivable during the quarter.
Investing activities
During the three months ended June 30, 2013 and 2012, the net cash provided by investing activities is primarily due to repayment of $0 and $75, respectively, by a related party of the Company.
Financing activities
Net cash provided by financing activities of $73,513 for the three months ended June 30, 2013 includes funds of $77,000 borrowed from third party, payment of $5,000 for deferred financing costs and proceeds from related party advances of $1,513.
Net cash provided by financing activities was $32,500 for the three months ended June 30, 2012. The net cash provided by financing activities is primarily due to short term borrowings during the quarter.
Loan Commitments
Borrowings from Third Parties
On April 10, 2013, the Company borrowed $28,000 from Asher Enterprises. The maturity date of this note is January 15, 2014. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
On May 2, 2013, Magna Group, LLC purchased the Nancy Louise Jones Note for $60,562. The Company entered into a loan agreement with Mrs. Nancy Louise Jones on November 26, 2010, to borrow $60,562 with maturity date of September 8, 2013. This loan bears no interest. On May 2, 2013 The Company and Magna Group LLC entered into a Securities Purchase Agreement providing for the issuance of a convertible note. The maturity date of this note is January 2, 2014. This loan bears an interest rate of 12% per annum from the issuance. The note has a conversion price equal to 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date. The note has an embedded conversion feature that limits the number of shares to be delivered upon settlement of the above conversion options, based upon a Conversion price floor of no less than $0.00004.
On May 9, 2013, the Company borrowed $11,500 from Hanover Holdings I, LLC (the controlling owner of Magna Group LLC). The maturity date of this note is January 9, 2014. This loan bears an interest rate of 12% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. Magna has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 55% multiplied by the lowest volume weighted average price for the Common Stock during the five trading day period ending on the latest complete trading day prior to the conversion date.
On May 13, 2013, the Company borrowed $27,500 from Asher Enterprises. The maturity date of this note is February 17, 2014. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 50% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
Obligations under Material Contracts
Except with respect to the loan obligations disclosed above, we have no obligations to pay cash or deliver cash to any other party.
Inflation
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost controls in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introduction.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
| · | Accounts Receivable: Accounts receivable are recorded at the net invoice value and are not interest bearing. We consider receivables past due based on the contractual payment terms. We perform ongoing credit evaluations of our customers, and generally we do not require collateral on our accounts receivable. We estimate the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and we record a provision for uncollectible accounts when collection is uncertain. To date, we have not experienced significant credit related losses. |
| · | Revenue Recognition: We recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. |
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the CEO and CFO concluded that, because of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2013 See our discussion at “Item 9A Controls and Procedures” on Form 10-K for the year ended March 31, 2013.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against the Company.
Exhibits.
Consolidated Financial statements are included in the body of this report.
Exhibit Index:
* Rule 15d-14(a) Certifications | Exhibit (31)(i)and(ii) |
* Section 1350 Certification | Exhibit (32) |
| 101.INS ** | | XBRL Instance Document |
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| 101.SCH ** | | XBRL Taxonomy Extension Schema Document |
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| 101.CAL ** | | XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF ** | | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB ** | | XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE ** | | XBRL Taxonomy Extension Presentation Linkbase Document |
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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.
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| | WRITERS’ GROUP FILM CORP | |
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| August 16, 2013 | By: | /s/ Eric Mitchell | |
| | | Eric Mitchell, President and Sole Director | |
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| | By: | /s/ Eric Mitchell | |
| | | Chief Financial Officer and Chief Accounting Officer/Controller | |
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