Firemans Contractors, Inc. (“The Company”) was incorporated under the laws of the State of Nevada on August 21, 2009. Firemans Contractors is a full service painting company, focusing on residential, commercial and industrial parking lot striping, and parking lot maintenance services. We have begun franchising our concept, and as of the date of these statements, two of our franchises were in operation in Dallas-Fort Worth area.
The Financial Statements are unaudited. As permitted under the Securities and Exchange Commission (“SEC”) requirements for interim reporting, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. We believe that these financial statements include all necessary and recurring adjustments for the fair presentation of the interim period results. These financial statements should be read in conjunction with the Financial Statements and related notes included in our annual report on Form 10-K for the fiscal year ended June 30, 2012. The results of operations for the nine months ended March 31, 2013 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2013.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Subsequent actual results may differ from those estimates.
Carrying amounts of certain of our financial instruments, including accounts receivable, accounts payable and other payables approximate fair value due to their short maturities. Carrying values of notes receivable, convertible notes payable, derivative liabilities and long-term debt approximate fair values as they approximate market rates of interest. None of our financial instruments are held for trading purposes.
Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. These two types of inputs are further prioritized into the following fair value input hierarchy:
The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
Derivative liabilities, described in Note 9, are classified as Level 2.
The Company recognizes franchise fee revenue from an individual franchise sale when all of the following conditions have been met:
The inventory consists primarily of paint and pre-fabricated items used in parking lot maintenance, and is valued at a lower of cost or market value.
As of March 31, 2013, the balance of prepaid expenses was $0. As of June 30, 2012, the balance of prepaid expenses was $13,533, representing $8,770 of consulting and $4,763 of contract labor, materials and equipment rentals.
Effective July 1, 2012, the Company sold its first franchise. Of the total $35,000 franchise fee, $28,000 was financed under a note, with a term of 38 months, and annual interest rate of 7%. As of March 31, 2013, balance under the Note was $21,838. Principal received for the nine months ended March 31, 2013 was $6,162. Interest income for the same period was $1,328.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 7. NOTES RECEIVABLE - continued
Effective December 15, 2012, the Company sold its second franchise. Of the total $35,000 franchise fee, $34,000 was financed. Under the agreement, franchisee will pay for the first nine months 10% of gross revenue toward the balance, which will not accrue any interest. If any balance will remain at the end of that term, it will be placed into an interest bearing note. As of March 31, 2013, balance under the Note was $32,504.
On January 1, 2013, the Company sold equipment to the second franchisee and financed the total amount of $5,000 under a note, with a term of 36 months, and annual interest rate of 7%. As of March 31, 2013, balance under the Note was $4,622. Principal received for the three months ended March 31, 2013 was $378. Interest income for the same period was $85.
NOTE 8. WARRANTIES
The Company warrants the work for one year after completion of a project. Reserve for warranty work is established in the amount of 1% of sales for the previous twelve months. As of March 31, 2013 and June 30, 2012, the balances of warranty liability were $9,365 and $7,034, respectively. Warranty expenses for the nine months ended March 31, 2013 and 2012, were $3,036 and $4,408, respectively, which are included in the Cost of revenues on the Statements of Operations.
NOTE 9. CONVERTIBLE NOTES PAYABLE
In January of 2011, the Company signed a Convertible Note agreement. Under the agreement, the Company can borrow up to $500,000, on an as needed basis. Interest on outstanding balance is due monthly, at a rate of 36% per year. The Holder of the Note has a right to convert part, or the entire outstanding balance into shares of Company’s common stock at 30% discount to market price. Unpaid principal and interest outstanding under the Note, is due on January 1, 2014 (extended term), unless the agreement is further extended, with consent of both parties.
On January 18, 2011, the Company received $60,000 as the first advance under the Note. The Company recorded $25,714 related to the deemed beneficial conversion feature of this advance, of which $13,416 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2012.
On April 12, 2011, the Company received $60,000 as the second advance under the Note. The Company recorded $25,714 related to the deemed beneficial conversion feature of this advance, of which $18,150 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2012.
On November 1, 2011, the Company received $100,000 as the third advance under the Note. The Company recorded $42,857 related to the deemed beneficial conversion feature of this advance, of which $17,143 has been amortized to interest expense in the accompanying statements of operations for each of the nine months ended March 31, 2013 and 2012.
On March 27, 2012, the Company received $20,000 as the fourth advance under the Note. The Company recorded $3,148 related to the deemed beneficial conversion feature of this advance, of which $2,099 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 9. CONVERTIBLE NOTES PAYABLE - continued
On May 4, 2012, the Company received $20,000 as the fifth advance under the Note. The Company recorded $1,584 related to the deemed beneficial conversion feature of this advance, of which $1,188 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013.
On August 22, 2012, the Company received $46,000 as the sixth advance under the Note. The Company recorded $36,853 related to the deemed beneficial conversion feature of this advance, all of which has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013.
During April and May of 2012, $60,000 outstanding under the Note was converted into 9,076,480 shares of common stock of the company, representing $30,348 of principal and $29,652 of interest.
During August and September of 2012, $161,922 outstanding under the Note was converted into 136,509,392 shares of common stock of the company, representing $131,607 of principal and $30,315 of interest.
During October and November of 2012, $58,657 outstanding under the Note was converted into 110,766,970 shares of common stock of the company, representing $55,016 of principal and $3,641 of interest.
During February and March of 2013, the Company issued 241,414,413 shares of common stock for the total amount of $18,662, representing $6,367 of principal and $6,340 of interest outstanding under the note; and $5,955 of fees related to conversions.
As of March 31, 2013 and June 30, 2012, combined principal balances outstanding under the Note were $82,662 and $209,223, respectively; net of unamortized beneficial conversion features of $0 and $20,429, respectively. Balances of interest accrued under the Note as of March 31, 2013 and June 30, 2012, were $2,820 and $14,501, respectively.
On April 8, 2012, the Company issued a convertible promissory note in the amount of $25,000, bearing interest at a rate of 20% per annum. The note is unsecured and matured on December 1, 2012. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 30% discount to the market price, at the point of conversion. The Company recorded $24,770 related to the deemed beneficial conversion feature of this note, all of which has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013. During January and February of 2013, $22,559 of principal outstanding under the note was converted into 150,293,000 shares of common stock of the company. As of March 31, 2013 and June 30, 2012, the principal balances were $2,441 and $25,000, respectively, and accrued interest balances were $3,747 and $1,109, respectively.
On May 25, 2012, the Company issued a convertible promissory note in the amount of $40,000, bearing interest at a rate of 8% per annum. The note is unsecured and matured on February 21, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 45% discount to the market price, at the point of conversion. The Company determined that the conversion feature of the Note should be accounted for as a convertible note derivative liability, and recorded at its fair value of $32,727. During November and December of 2012, $23,000 of principal balance was converted into 55,523,267 shares of common stock of the company. During January and February of 2013, remaining $17,000 of principal balance was converted into 83,578,877 shares of common stock of the company. As of March 31, 2013 and June 30, 2012, principal balances of the note were $0 and $40,000, respectively. As of March 31, 2013 and June 30, 2012, balances of the debt discount were $0 and $29,091, respectively. For the nine months ended March 31, 2013, amortization of the debt discount was $29,091, reflected on the accompanying statements of operations as interest expense. As of March 31, 2013, accrued interest balance was $1,600.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 9. CONVERTIBLE NOTES PAYABLE - continued
On July 13, 2012, the Company issued a convertible promissory note in the amount of $32,500, bearing interest at a rate of 8% per annum. The note is unsecured and matured on March 29, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 45% discount to the market price, at the point of conversion. The Company determined that the conversion feature of the note should be accounted for as a convertible note derivative liability, and recorded at its fair value of $26,591. During March of 2013, $3,000 of principal balance was converted into 50,000,000 share of common stock of the company. As of March 31, 2013, principal balance of the note was $29,500. As of March 31, 2013, balance of the debt discount was $0. For the nine months ended March 31, 2013, amortization of the debt discount was $26,591, reflected on the accompanying statements of operations as interest expense.
On October 2, 2012, the Company issued a convertible promissory note in the amount of $42,500, bearing interest at a rate of 8% per annum. The note is unsecured and matures on June 13, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 45% discount to the market price, at the point of conversion. The Company determined that the conversion feature of the note should be accounted for as a convertible note derivative liability, and recorded at its fair value of $34,772. As of March 31, 2013, balance of the debt discount was $11,591. For the nine months ended March 31, 2013, amortization of the debt discount was $23,181, reflected on the accompanying statements of operations as interest expense.
On February 25, 2013, the Company issued a convertible promissory note in the amount of $16,500, bearing interest at a rate of 8% per annum. The note is unsecured and matures on November 22, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 45% discount to the market price, at the point of conversion. The Company determined that the conversion feature of the note should be accounted for as a convertible note derivative liability, and recorded at its fair value of $7,425. As of March 31, 2013, balance of the debt discount was $6,575. For the nine months ended March 31, 2013, amortization of the debt discount was $850, reflected on the accompanying statements of operations as interest expense.
As of March 31, 2013 and June 30, 2012, derivative liabilities for the convertible promissory notes totalled $66,333 and $32,727, respectively, including a reduction of $35,182 due to conversions noted earlier. For the nine months ended March 31, 2013, loss on derivative liabilities was $17,901, calculated as the difference between relief of derivative liability and excess of fair market value of shares received for conversion over principal amount of conversion (due to discount).
On December 5, 2012, the Company issued a convertible promissory note to Kristy D. O’Neal, who resigned from her position of Secretary and from the Board of Directors on the previous day. Principal of the Note - $105,897, represents amount owed to her as of that date, primarily for accrued compensation. This debt was previously included in the Loans payable to shareholders. Note is payable on demand and bears interest at a rate of 5% per annum. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 50% discount to the market price, at the point of conversion. The Company recorded $52,949 related to the deemed beneficial conversion feature of this note, all of which has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013. As of March 31, 2013, the principal balance remained unchanged, and accrued interest balance was $1,711.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 9. CONVERTIBLE NOTES PAYABLE - continued
On December 5, 2012, the Company issued a convertible promissory note to Scott O’Neal, who resigned from the Board of Directors on the previous day. Principal of the Note - $210,200, represents amount owed to him as of that date, primarily for accrued compensation. This debt was previously included in the Loans payable to shareholders. Note is payable on demand and bears interest at a rate of 5% per annum. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 50% discount to the market price, at the point of conversion. The Company recorded $105,100 related to the deemed beneficial conversion feature of this note, all of which has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013. As of March 31, 2013, the principal balance remained unchanged, and accrued interest balance was $3,397.
On December 27, 2012, the Company issued a convertible promissory note in the amount of $5,000, bearing interest at a rate of 20% per annum. The note is unsecured and matures on June 19, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 30% discount to the market price, at the point of conversion. The Company recorded $2,143 related to the deemed beneficial conversion feature of this note, of which $1,158 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013.
On February 28, 2013, the Company issued a convertible promissory note in the amount of $12,500, bearing interest at a rate of 20% per annum. The note is unsecured and matures on November 27, 2013. The entire principal and accrued interest on the note are convertible into common stock of the Company at a variable conversion price, with 50% discount to the market price, at the point of conversion. The Company recorded $12,500 related to the deemed beneficial conversion feature of this note, of which $1,390 has been amortized to interest expense in the accompanying statements of operations for the nine months ended March 31, 2013.
NOTE 10. LONG-TERM DEBT
In September of 2009 the Company borrowed $20,326 in order to purchase a truck. The note is secured by the truck, and bears 4.9% interest, with a 60 months repayment term. On July 1, 2012, the truck and a trailer, with the carrying value of $13,393, were sold to our franchisee, and the $9,185 balance of liability assigned to them. In the same transaction, three painting machines, with the carrying value of $5,922, were sold for $4,000. $2,000, the remainder of the $6,000 cash deposit received from the franchisee prior to June 30, 2012, was used for inventory.
NOTE 11. RELATED PARTY TRANSACTIONS
For the nine months ended March 31, 2013 and 2012, the Company accrued $117,000 and $99,000, respectively, in salaries payable to its officers and major shareholders, which are reflected in Loans payable to shareholders. For the same periods, the Company accrued $50,000 and $90,000, respectively, to the officers and directors who resigned in December of 2012. As of March 31, 2013, these individuals are no longer considered insiders, and balances of their shareholder notes were transferred to convertible notes payable.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 11. RELATED PARTY TRANSACTIONS - continued
As of March 31, 2013 and June 30, 2012, the balances of shareholder notes were $403,922 and $552,466, respectively. The balance included accrued salaries, along with various advances to and from the Company. The notes are unsecured, due upon demand and accrue interest at the end of each month on the then outstanding balance at the rate of 5.00% per annum. As of March 31, 2013 and June 30, 2012, accrued interest payable on the notes was $9,366 and $14,962, respectively. Interest paid during the nine months ended March 31, 2013 and 2012, was $8,283 and $7,334, respectively. These notes payable do not approximate fair value, as they are with related parties, and do not bear market rates of interest.
On December 4, 2012, Ms. Kristy D. O’Neal resigned from her position of Secretary, and from the Board of Directors of the Company. On the following day, the Company issued to her a convertible note payable in the amount of $105,897, for the balance of shareholder note as of the date of resignation. The note is described above, in Note 9.
On December 4, 2012, Mr. Scott O’Neal resigned from the Board of Directors of the Company. On the following day, the Company issued to him a convertible note payable in the amount of $210,200, for the balance of shareholder note as of the date of resignation. The note is described above, in Note 9.
NOTE 12. COMMITMENTS AND CONTINGENCIES
On December 14, 2012, the Company re-negotiated its office lease and moved to a smaller location. Current lease is for $1,625 a month, and will expire on September 30, 2014. For the fiscal years following March 31, 2013, future rents under this agreement are as follows:
| 2013 | | $ | 4,875 | |
| 2014 | | | 19,500 | |
| 2015 | | | 4,875 | |
| | | | | |
| Total | | $ | 29,250 | |
| | | | | |
Rent expenses for the nine months ended March 31, 2013 and 2012, were $22,711 and $34,034, respectively.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 13. OPERATING SEGMENTS
During the period from inception through June 30, 2012, the Company operated as a single business segment. Starting July 1, 2012 the franchise segment was added. Table below reflects segment information for the three and nine months ended March 31, 2013:
| | | Operations | | | Franchise | | | Total | |
| Three Months Ended March 31, 2013 | | | | | | | | | |
| Revenues | | $ | 320,474 | | | $ | - | | | $ | 320,474 | |
| Franchise fees | | | - | | | | 3,037 | | | | 3,037 | |
| Royalties | | | - | | | | 4,265 | | | | 4,265 | |
| Total Revenues | | $ | 320,474 | | | $ | 7,302 | | | $ | 327,776 | |
| | | | | | | | | | | | | |
| Cost of revenues | | $ | 229,059 | | | $ | - | | | $ | 229,059 | |
| Sales and marketing expenses | | | 19,207 | | | | 500 | | | | 19,707 | |
| General and administrative expenses | | | 87,678 | | | | 19,860 | | | | 107,538 | |
| Depreciation and amortization | | | 2,540 | | | | - | | | | 2,540 | |
| Interest income | | | - | | | | 491 | | | | 491 | |
| Net income/(loss) | | | (83,485 | ) | | | (12,566 | ) | | | (96,051 | ) |
| | | | | | | | | | | | | |
| Nine Months Ended March 31, 2013 | | | | | | | | | | | | |
| Revenues | | $ | 778,160 | | | $ | - | | | $ | 778,160 | |
| Franchise fees | | | | | | | 73,037 | | | | 73,037 | |
| Royalties | | | | | | | 11,197 | | | | 11,197 | |
| Total Revenues | | $ | 778,160 | | | $ | 84,234 | | | $ | 862,394 | |
| | | | | | | | | | | | | |
| Cost of revenues | | $ | 591,154 | | | $ | - | | | $ | 591,154 | |
| Sales and marketing expenses | | | 56,382 | | | | 500 | | | | 56,882 | |
| General and administrative expenses | | | 391,812 | | | | 55,892 | | | | 447,704 | |
| Depreciation and amortization | | | 8,906 | | | | - | | | | 8,906 | |
| Interest income | | | - | | | | 1,413 | | | | 1,413 | |
| Net income/(loss) | | | (676,069 | ) | | | 29,255 | | | | (646,814 | ) |
| | | | | | | | | | | | | |
| As of March 31, 2013 | | | | | | | | | | | | |
| Property and equipment, net | | $ | 27,210 | | | $ | - | | | $ | 27,210 | |
| Total assets | | | 209,236 | | | | 58,964 | | | | 268,200 | |
| | | | | | | | | | | | | |
NOTE 14. PREFERRED STOCK
Effective July 6, 2012, the Company filed an amendment with the Nevada Secretary of State to authorize Class B convertible preferred stock in the amount of 5,000,000 shares at $0.001 par value. Class B shares have no dividend rights, except as may be declared by the Board of Directors in its sole discretion. Class B stock is ranked junior and subsequent to Class A convertible preferred stock, but senior and prior to the Corporation’s common stock as to dividends and upon liquidation. Class B shares have liquidation rights of $0.10 per share, and are entitled to 100 votes each, on any matters requiring shareholders’ vote. One share of Class B stock can be converted into 10 shares of common stock at any time, upon demand from the holder.
On July 6, 2012, Renee Gilmore, our President, CEO and Director, and Danielle O’Neal, our Secretary and Director, each, exchanged 10,000,000 shares of common stock for 1,000,000 shares of Class B convertible preferred stock, based on the conversion ratio designated for Class B shares.
On October 9, 2012, Renee Gilmore, our President, CEO and Director, exchanged 9,455,000 shares of common stock for 945,500 shares of Class B convertible preferred stock, based on the conversion ratio designated for Class B shares.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
NOTE 14. PREFERRED STOCK - continued
On October 9, 2012, Danielle O’Neal, our Secretary and Director, exchanged 8,890,000 shares of common stock for 889,000 shares of Class B convertible preferred stock, based on the conversion ratio designated for Class B shares.
On March 12, 2013, Renee Gilmore, our President, CEO and Director, acquired 50,000 shares of Class A convertible preferred stock, and 1,165,500 shares of Class B convertible preferred stock in exchange for $1,216 owed to her, based on the market price of equivalent number of shares of common stock of the company.
NOTE 15. COMMON STOCK
Effective August 3, 2012, the Company filed an amendment with the Nevada Secretary of State to increase the number of authorized Common Stock from 200,000,000 to 400,000,000 shares.
During July and August of 2012, the Company issued 6,000,000 shares of common stock for consulting services, valued at $34,200.
During August and September of 2012, the Company issued 136,509,392 shares of common stock in partial satisfaction of principal and accrued interest balance outstanding under the convertible note payable, originated on January 1, 2011, in the amount of $161,922.
Effective November 19, 2012, the Company filed an amendment with the Nevada Secretary of State to increase the number of authorized Common Stock from 400,000,000 to 950,000,000 shares.
During October and November of 2012, the Company issued 110,766,970 shares of common stock in partial satisfaction of principal and accrued interest balance outstanding under the convertible note payable, originated on January 1, 2011, in the amount of $58,657.
During November and December of 2012, the Company issued 55,523,267 shares of common stock in partial satisfaction of principal balance outstanding under the convertible note payable, originated on May 25, 2012, in the amount of $23,000.
During January and February of 2013, the Company issued 83,578,877 shares of common stock in complete satisfaction of principal balance outstanding under the convertible note payable, originated on May 25, 2012, in the amount of $17,000.
During January and February of 2013, the Company issued 150,293,000 shares of common stock in partial satisfaction of principal balance outstanding under the convertible note payable, originated on April 8, 2012, in the amount of $22,559.
During February and March of 2013, the Company issued 241,414,413 shares of common stock in partial satisfaction of principal balance outstanding under the convertible note payable, originated on January 1, 2011, in the amount of $12,707, and fees of $5,955.
During March of 2013, the Company issued 50,000,000 shares of common stock in partial satisfaction of principal balance outstanding under the convertible note payable, originated on July 13, 2012, in the amount of $3,000.
Firemans Contractors, Inc.
Condensed Notes to Financial Statements
March 31, 2013 and June 30, 2012
The financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had negative working capital of $1,098,767 and an accumulated deficit of $2,281,646 at March 31, 2013, and a net loss of $646,814 and negative operating cash flows of $140,213 for the nine months ended March 31, 2013. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
The Company has primarily funded its operations through the net proceeds received from the Company's issuance of stock to investors. Based on the Company’s current liquidity position, the Company plans to raise additional capital through debt or equity funding within the next twelve months. There is no assurance that any such financing will be available on acceptable terms or at all. Should continuing funding requirements not be met, the Company’s operations may cease to exist.
NOTE 17. SUBSEQUENT EVENTS
During April of 2013, the Company issued 26,666,667 shares of common stock in satisfaction of accrued interest balance outstanding under the convertible note payable, originated on May 25, 2012, in the amount of $1,600.
During April of 2013, the Company issued 36,666,667 shares of common stock in partial satisfaction of principal balance outstanding under the convertible note payable, originated on July 13, 2012, in the amount of $2,200.
