First Level Entertainment 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMay 31, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number  333-170016

First Level Entertainment Group, Inc.

(Exact name of registrant as specified in its charter)

Florida	90-0599877
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7076 Spyglass Avenue, Parkland, Florida	33076
(Address of principal executive offices)	(Zip Code)

(954) 599-3672

(Issuer’s telephone number, including area code)

Not Applicable

 (Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

(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 Exchange Act).  Yes o     No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at June 10, 2012
Common Stock, $0.001	46,800,000 shares
Preferred Stock, $0.001	0 shares

FIRST LEVEL ENTERTAINMENT GROUP, INC.

TABLE OF CONTENTS

	PAGE
Part I Financial Information	3
Item 1. Financial Statements	3
Condensed Balance Sheets at May 31, 2012 (unaudited) and August 31, 2011 (audited)	3
Condensed Statements of Operations for the three and nine months ended May 31, 2012 and 2011 and      the cumulative period from June 2, 2008 (inception) through May 31, 2012	4
Statement of Stockholders’ Equity/(Deficit) from June 2, 2008 (inception) through May 31, 2012	5
Condensed Statements of Cash Flows at May 31, 2012	6
Notes to Condensed Financial Statements	7-12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	13-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	17
Item 4. Controls and Procedures.	17
Part II Other Information	17
Item 1. Legal Proceeding.	17
Item 1A. Risk Factors.	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 3. Defaults Upon Senior Securities.	17
Item 4. Mine Safety Disclosures	17
Item 5. Other Information.	17
Item 6. Exhibits.	18
Signatures	18

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PART I FINANCIAL INFORMATION

Item 1.  Financial Statements

FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEET

	Unaudited			Audited
	May 31, 2012			August 31, 2011
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	100		$	100
Total Current Assets		100			100
OTHER ASSETS:
Intellectual assets,  net		105,000			262,500
Total Assets	$	105,100		$	262,600
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable	$	2,500		$	—
Accrued Expenses		26,821			10,000
Loans from related parties		34			400
Total Current Liabilities		29,355			10,400
LONG TERM LIABILITIES
Note Payable		32,500			—
Total Long Term Liabilities		32,500			—
Total Liabilities		61,855			10,400
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred Stock, par value $.001; 10,000,000 shares authorized; 0 issued  and outstanding at May 31, 2012 and August 31, 2011		—			—
Common stock , par value $.001;  500,000,000 shares authorized; 46,800,000 shares issued  and outstanding as of May 31, 2012 and 31,500,000 shares issued at August 31, 2011	$	46,800		$	31,500
Additional paid in capital		1,013,200			646,000
Deficit accumulated during the development stage		(1,016,755	)		(425,300	)
Total Stockholders’ Equity		43,245			252,200
Total Liabilities and Stockholders’ Equity	$	105,100		$	262,600

The accompanying notes are an integral part of these statements.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

FOR THE PERIOD JUNE 2, 2008 (INCEPTION) THROUGH MAY 31, 2012

(UNAUDITED)

													Cumulative from
													June 2, 2008
	For the three			For the three			For the nine			For the nine			(inception)
	months ended			months ended			months ended			months ended			through
	May 31, 2012			May 31, 2011			May 31, 2012			May 31, 2011			May 31, 2012
Net Sales	$	—		$	—		$	—		$	—		$	—
Cost of Sales		—			—			—			—			—
Gross Profit		—			—			—			—			—
Operating Expenses:
Compensation		124,500			—			124,500			—			124,500
Legal and Accounting		3,300			1,600			12,300			5,800			31,700
Amortization/Impairment		57,500			—			157,500			—			157,500
General and Administrative		6,305			816			12,055			3,816			20,455
Office Lease Expense		—			—			14,100			—			14,100
Consulting and Development		190,000			2,000			271,000			2,000			668,500
Total Operating Expenses		381,605			4,416			591,455			11,616			1,016,755
Operating Loss		(381,605	)		(4,416	)		(591,455	)		(11,616	)		(1,016,755	)
Net (loss) before Income Taxes		(381,605	)		(4,416	)		(591,455	)		(11,616	)		(1,016,755	)
Provision for Income Taxes		—			—			—			—			—
Net (loss)	$	(381,605	)	$	(4,416	)	$	(591,455	)	$	(11,616	)	$	(1,016,755	)
Basic and diluted net loss per common share	$	(0.010	)	$	(0.001	)	$	(0.018	)		**
Weighted average number of common shares outstanding		37,989,565			5,668,478			33,476,715			5,556,777

** - Less than $0.001 per share

The accompanying notes are an integral part of these statements.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)

FROM JUNE 2, 2008 (INCEPTION) THROUGH MAY 31, 2012

(UNAUDITED)

						Accumulated
				Additional		(Deficit) During			Total
Par Value of $0.001	Common Stock			Paid in		Development			Stockholders’
	Shares	Amount		Capital		Stage			Equity (Deficit)
Balance at June 2, 2008 (date of inception)	—		—		—		—			—
Common Stock issued July 30, 2010	1,000,000	$	1,000	$	4,000	$	—		$	5,000
Common stock issued July 31, 2010	4,500,000		4,500		18,000		—			22,500
Net loss for the Period from June 2, 2008 to August 31, 2010	—		—		—		(6,384	)		(6,384	)
Balance August 31, 2010	5,500,000		5,500		22,000		(6,384	)		21,116
Common Stock issued April 30, 2011 for debt	500,000		500		12,000		—			12,500
Common Stock issued July 31, 2011 for services	1,200,000		1,200		28,800		—			30,000
Common Stock issued August 26, 2011 for services	14,700,000		14,700		352,800		—			367,500
Common Stock issued August 26, 2011 for conversion of debt	9,600,000		9,600		230,400		—			240,000
Net loss for the twelve month period ending August 31, 2011	—		—		—		(418,916	)		(418,916	)
Balance August 31, 2011	31,500,000	$	31,500	$	646,000	$	(425,300	)	$	252,200
Common Stock issued February 29, 2012 for debt	1,300,000		1,300		31,200		—			32,500
Common Stock issued February 29, 2012 for services	3,000,000		3,000		72,000		—			75,000
Common Stock issued February 29, 2012	120,000		120		2,880		—			3,000
Common Stock issued April 17, 2012 for services	4,080,000		4,080		97,920		—			102,000
Common Stock issued May 31, 2012 for services	6,800,000		6,800		163,200		—			170,000
Net loss for the  nine month period ending May 31, 2012	—		—		—		(591,455	)		(591,455	)
Balance May 31, 2012	46,800,000	$	46,800	$	1,013,200	$	(1,016,755	)	$	43,245

The accompanying notes are an integral part of these statements.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE PERIOD JUNE 2, 2008 (INCEPTION) THROUGH MAY 31, 2012

							Cumulative from
							June 2, 2008
	For the nine			For the nine			(Inception)
	months ended			months ended			through
	May 31, 2012			May 31, 2011			May 31, 2012
OPERATING ACTIVITIES:
Net loss	$	(591,455	)	$	(11,616	)	$	(1,016,755	)
Adjustments to reconcile net loss to net cash used in operating activities:
Increase in Amortization		157,500			—			157,500
Issuance of common stock for services		347,000			—			744,500
Issuance of common stock - shareholder note payable		32,500			12,500			285,000
Changes in operating assets and liabilities:
Increase/(Decrease) in accounts payable and accrued expenses		19,321			(5,100	)		29,321
Net cash provided by (used) in operating activities		(35,134	)		(4,216	)		199,566
FINANCING ACTIVITIES:
Increase in due to related parties		(366	)		(684	)		34
Increase (decrease) in notes payable		32,500			—			(207,500	)
Proceeds from issuance of common stock		3,000			—			8,000
Net cash provided by (used in) financing activities		35,134			(684	)		(199,466	)
NET INCREASE (DECREASE) IN CASH		—			(4,900	)		100
CASH BEGINNING BALANCE		100			5,000			—
CASH ENDING BALANCE		100			100			100
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Taxes paid	$	—		$	—		$	—
Interest paid	$	—		$	—		$	—
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock - shareholder note payable	$	32,500		$	—		$	285,000
Issuance of common stock for services	$	347,000		$	—		$	744,500
Issuance of common stock for acquisition of intellectual property	$	—		$	—		$	22,500
Issuance of notes payable for acquisition of intellectual property	$	—		$	—		$	240,000

The accompanying notes are an integral part of these statements.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

First Level Entertainment Group, Inc. (“Company”) is a development stage company commencing development operations in April, 2010 and has incurred losses since inception totaling ($1,016,755) through May 31, 2012.  The Company was incorporated on June 2, 2008 in the State of Florida and established a fiscal year end of August 31st.  The Company is a development stage company focusing on social networking applications including mobile and children’s original music.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements present the balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.

Development Stage Company

The Company has not earned any revenue from operations.  Accordingly, the Company’s activities have been accounted for as those of a “Development Stage Enterprise” as set forth in ASC Topic 915.  Among the disclosures required by ASC 915 are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity/(deficit) and cash flows disclose activity since the date of the Company’s inception.

Use of Estimates and Assumptions

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Intellectual Property

The Company, on July 31, 2010, acquired intellectual property consisting of thirty-five (35) children’s songs. The intellectual property acquired included all rights, title and interest and therefore the Company has title of one hundred percent (100%) ownership to the thirty-five (35) children’s songs.

The Company has capitalized costs of the acquired intellectual properties consisting of $105,000 including thirty-five (35) individual children’s songs at May 31, 2012 and $262,500 at August 31, 2011. The Company begins amortizing intellectual property costs, using the straight-line method over the estimated useful life of 3 years, once it is put into service. At May 31, 2012, the intellectual properties have not been put into service.

Impairment of Long-Lived Assets

In accordance with ASC 360-10-05-4 “Property, Plant, and Equipment-Impairment or Disposal of Long-Lived Assets”, which was previously Financial Accounting SFAS No.144, “Accounting for the Impairment or Disposal of Long-lived Assets”, the Company assesses long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. Recoverability of asset groups to be held and used in measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds the fair value of the asset group. The Company evaluates its long-lived assets from time to time and impairment charges of $57,500 were recorded for the three (3) month period ended May 31, 2012.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

Fair Value

In accordance with the requirements of ASC Topic 820, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies.  The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.

Income Taxes

The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.

Revenue and Cost Recognition

The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification(“ASC”) 605 “Revenue Recognition”which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale.

The Cost of Sales includes any labor cost and the amortization of intellectual property.

Compensation

The Company expenses compensation as incurred. For the three (3) months ended May 31, 2012, the Company had compensation of $124,500 of which $110,450 was remitted as stock compensation and $14,050 was remitted as earned.

Research and Development, Consulting Services and Marketing

The company expenses research and development, consulting services and marketing as incurred.  The company has had research and development, consulting services and marketing expenses of $190,000 for the three (3) month period ended May 31, 2012 and $668,500 from inception (June 2, 2008) through May 31, 2012.

Property

The Company entered into a three (3) year lease agreement commencing October 1, 2011 and expenses the cost as incurred. The lease was terminated effective January 31, 2012.

Net Loss per Share

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period.  Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company.  Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

Foreign Currency Translation

The financial statements are presented in United States dollars. In accordance with ASC Topic 830, “Foreign Currency Translation”, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date.  Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented.  Related translation adjustments are reported as a separate component of stockholder’s equity (deficit), whereas gains or losses resulting from foreign currency transactions are included in results of operations.

Stock-based Compensation

The Company recognizes compensation expense over the requisite service period for issuance of equity (including common shares) at the time of vesting or issuance. Total stock-based compensation expense for the three (3) month period ending May 31, 2012 was $110,450.

The Company has not adopted a stock option plan and has not granted any stock options.  Accordingly, no stock-based compensation for options has been recorded to date.

Share Based Expenses

In accordance with ASC Topic 230, this statement requires a public entity to expense the cost of employee services received in exchange for an award of equity instruments. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements.  The Company adopted ASC Topic 230 upon creation of the company and expenses share based costs in the period incurred.

Related Parties

Loans from Related Parties

Related parties, which can be a corporation, individual, investor or another entity are considered to be related if the party has the ability, directly or indirectly, to control the other party or exercise significant influence over the Company in making financial and operating decisions.  Companies are also considered to be related if they are subject to common control or common significant influence.  The Company has these relationships.

Convertible Note from Related Parties

On April 17, 2012, the Company entered into a Convertible Note with a related entity controlled by our Chief Executive Officer (Steve Adelstein). Under the terms of this Note, the maximum amount to be advanced (from time to time) is $150,000 on or before December 31, 2012. The Note matures on August 31, 2015 including interest of 9% compounded quarterly. Additionally, the Note can be converted into common shares of the Company at $0.03 per common share at the sole discretion of the Note holder and/or assigns. As advances under this Note are at the sole discretion of the holder, there are no assurances that any future advances will be provided. At May 31, 2012, the Note amount was $32,500.

Services rendered from Related Parties

From time to time, the Company utilizes services including, but not limited to, consulting, marketing and strategic planning from related parties. During the three (3) months ended May 31, 2012, the Company remitted $100,000 for professional services performed with the issuance of 4,000,000 common shares (valued at $0.025 per common share) with a related entity controlled by our Chief Executive Officer (Steve Adelstein).

Recent Accounting Pronouncements

The Company has evaluated all the recent accounting pronouncements through May 31, 2012 and believes that none of them, including those not yet effective, will have a material effect on the financial position or results of operations of the Company.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

NOTE 3 – GOING CONCERN

The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern.  This contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  Currently, the Company does not have material assets that can be liquidated in a timely manner, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern.  The Company has a deficit accumulated since inception (June 2, 2008) through May 31, 2012; of ($1,016,755).The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan.  There can be no assurance that the Company will be successful in either situation in order to continue as a going concern.  The Company has funded its initial operations, from inception to May 31, 2012 by way of issuing common shares and advances from related parties. 

As of May 31, 2012, the Company had issued 46,800,000 common shares, for a total of $1,013,200. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with ASC Topic 825 and 820 the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies.  The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.

NOTE 5 – CAPITAL STOCK

In August, 2011 and February, 2012, the company filed, amended and restated Articles of Incorporation with the Secretary of State of Florida which:

· changed the name of the corporation to First Level Entertainment Group, Inc.

· increased the number of authorized shares of common stock from 100,000,000 shares to 500,000,000 shares and fixed a par value of $0.001 per share,

· authorized a class of 10,000,000 shares of blank check preferred stock, par value  $0.001 per share, and

· included indemnification provisions customary under Florida law, as well as election not to be governed by the provisions of the Florida Business Corporation Act governing affiliated transactions and an election to be governed by the provisions related to control share acquisitions.

On July 30, 2010, the then sole officer and director of the Company purchased 1,000,000 shares of the common stock in the Company at $0.005 per share for $5,000.

On July 31, 2010, eight (8) individuals (including four (4) minor aged children) purchased 4,500,000 shares of the common stock in the Company at $0.005 per share for $22,500.  These 4,500,000 common shares were issued as consideration for the deposit of $22,500 on the agreement to purchase intellectual properties.

On April 30, 2011, the Company issued 500,000 shares of the common stock in the Company at $0.025 per share for $12,500 as payment of debt to related parties.

On July 31, 2011, the Company issued 1,200,000 shares of the common stock in the Company at $0.025 per share for $30,000 as payment of liabilities for consulting services rendered.

On August 26, 2011, the Company issued 14,700,000 shares of the common stock in the Company at $0.025 per share for $367,500 as payment of liabilities for consulting services rendered.

On August 26, 2011, the Company issued 9,600,000 shares of the common stock in the Company at $0.025 per share for $240,000 as payment of the liability for the company’s children’s library.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

On February 29, 2012, the Company issued 1,300,000 shares of the common stock in the Company at $0.025 per share for $32,500 as payment of debt to related parties.

On February 29, 2012, the Company issued 3,000,000 shares of the common stock in the Company at $0.025 per share for $75,000 as payment for consulting services.

On February 29, 2012, the Company issued 120,000 shares of the common stock in the Company at $0.025 per share for $3,000 pursuant to the Form S-1 as filed with the Securities and Exchange Commission.

On April 17, 2012, the Company issued 4,080,000 shares of the common stock in the Company at $0.025 per share for $102,000 as payment for consulting services (3,000,000 common shares) and stock based compensation (1,080,000 common shares).

On May 31, 2012, the Company issued 6,800,000 shares of the common stock in the Company at $0.025 per share for $170,000 of which 2,800,000 common shares was payment for stock based compensation and 4,000,000 common shares were issued for services rendered.

From inception (June 2, 2008) through May 31, 2012, the Company has not granted any stock options and warrants.

NOTE 6 – INCOME TAXES

We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. In accordance with ASC Topic 740 – Accounting for Income Tax and ASC Topic 605 - Accounting for Uncertainty in Income Taxes, when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.  We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.

The components of the Company’s deferred tax asset as of May 31, 2012 are as follows:

	May 31, 2012
Net operating loss carry forward	$	1,016,755
Times Tax at Statutory rate		35%
Deferred Tax Asset		355,864
Valuation allowance		(355,864	)
Net deferred tax asset	$	0

The net federal operating loss carry forward will expire between 2028 and 2030.  This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

NOTE 7 – RELATED PARTY TRANSACTIONS

During the period from June 2, 2008 (inception) through August 31, 2011 the former sole officer and director paid incorporation costs of $684 on behalf of the Company.  Additionally, other affiliates and related parties have made advances from time to time and at May 31, 2012 and August 31, 2011, the amounts were $34 and $400 respectively. These were classified as loans from related parties.

On April 17, 2012, the Company entered into a Convertible Note with a related entity controlled by our Chief Executive Officer (Steve Adelstein). Under the terms of this Note, the maximum amount to be advanced (from time to time) is $150,000 on or before December 31, 2012. The Note matures on August 31, 2015 including interest of 9% compounded quarterly. Additionally, the Note can be converted into common shares of the Company at $0.03 per common share at the sole discretion of the Note holder and/or assigns. As advances under this Note are at the sole discretion of the holder, there are no assurances that any future advances will be provided. At May 31, 2012, the Note amount was $32,500.

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FIRST LEVEL ENTERTAINMENT GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

Limited office space and services are provided without charge by a related party which is considered immaterial for financial presentation. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities.  If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests.  The Company has not formulated a policy for the resolution of such conflicts.

NOTE 8 – NOTE PAYABLE

On July 31, 2010, the company acquired intellectual property for a total cost of $262,500. At closing, the company executed a promissory note in the amount of $240,000 having the following salient terms and conditions:

a)	The intellectual property secures the promissory note
b)	There is no stated interest rate, but interest is calculated as cash flow is receive by the company from any/all sources at $0.075 per song download and $0.125 per song from any/all sources including, but not limited to, compact disc (CD)
c)	There are no stated period payments of principle and the promissory note is due in its entirety July 31, 2015.
d)	The promissory note is executed in its entirety to Tammi Shnider as Trustee representing a total of eight (8) individuals (including four (4) minor aged children). Tammi Shnider is a related party.

On August 26, 2011, this Note was paid in full with the issuance of 9,600,000 common shares valued at $0.025 per common share.

NOTE 9 – OFFICE LEASE OBLIGATIONS

On October 1, 2011, the Company has entered into an operating lease agreement for its warehouse and corporate offices located in Franklin, Tennessee consisting of approximately 1,900 square feet. The lease was terminated at January 31, 2012 and the company forfeited its security deposit of $5,600.

NOTE 10 – SUBSEQUENT EVENTS

We have evaluated events and transactions that occurred subsequent to May 31, 2012 through June 15 2012, the date the financial statements were issued, for potential recognition or disclosure in the accompanying financial statements.  Other than the disclosures above, we did not identify any events or transactions that should be recognized or disclosed in the accompanying financial statements.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended August 31, 2011 filed on October 7, 2011 with the Securities and Exchange Commission and are hereby referenced.

The statements in this report include forward-looking statements.  These forward-looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations.  You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur.  You can identify a forward-looking statement by the use of the forward-terminology, including words such as “may”, “will”, “believes”, “anticipates”, “estimates”, “expects”, “continues”, “should”, “seeks”, “intends”, “plans”, and/or words of similar import, or the negative of these words and phrases or other variations of these words and phrases or comparable terminology.  These forward-looking statements relate to, among other things: our sales, results of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative expenses; our ability to maintain and develop relationship with our existing and potential future customers;  and, our ability to maintain a level of investment that is required to remain competitive.  Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; risks associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic events; general economic conditions, government mandates and conditions in the gaming/entertainment industry in particular; and, the continued employment of our key personnel and other risks associated with competition.

For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements see the “Liquidity and Capital Resources” section under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this item of this report and the other risks and uncertainties that are set forth elsewhere in this report or detailed in our other Securities and Exchange Commission reports and filings.  We believe it is important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a development stage company incorporated in the state of Florida in June, 2008. The Company, on July 31, 2010, acquired intellectual property consisting of thirty-five (35) children’s songs to market and sell through distribution channels throughout the United States and foreign territories. The current focus of our development stage company is as follows:

· A portfolio of mobile and social networking applications that are designed to appeal to a broad section of Internet and smart phone users.

· Children’s intellectual properties, including original children’s music, videos and discs. Emphasis will be placed on creating original children’s music having a CD format that is personalized for the child’s individual name and download songs on the internet.

Going Concern

Our financial statements have been prepared on the basis of accounting principles applicable to a going concern. As a result, they do not include adjustments that would be necessary if we were unable to continue as a going concern and would therefore be obligated to realize assets and discharge our liabilities other than in the normal course of operations.  As reflected in the accompanying financial statements, the Company is a development stage entity having generated no revenues from inception through May 31, 2012. We have provided cash flows in operations of $199,566 from inception (June 2, 2008) to May 31, 2012 and has an accumulated deficit of ($1,016,755) through May 31, 2012.

This raises substantial doubt about our ability to continue as a going concern, as expressed by our auditors in its opinion on our financial statements included in this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.

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We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern.  Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable.  If we are unable to obtain adequate capital, we could be forced to cease operations.  There can be no assurance that we will operate at a profit or additional debt or equity financing will be available, or if available, can be obtained on satisfactory terms.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, management evaluates these estimates and assumptions, including but not limited to those related to revenue recognition and the impairment of long-lived assets, goodwill and other intangible assets. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Stock Compensation

(included in ASC 718 “Compensation-Stock Compensation”)

The Company adopted SFAS No. 123R,Share-Based Payment(“SFAS 123R”), which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company accounts for stock-based compensation arrangements with nonemployees in accordance with the Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. The Company records the expense of such services to employees and non employees based on the estimated fair value of the equity instrument using the Black-Scholes pricing model.

Revenue Recognition

(included in ASC 605 “Revenue Recognition”)

The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales taxes. Amounts received in advance for subscription services, are deferred and recognized as revenue over the subscription term.

Outlook

The most important metric by which we judge the Company’s performance now and in the near term is generating revenues on the top line and sales growth. Our current commitment to develop and deliver quality products means that, for the near future, bottom line profitability will be a poor indicator of our success.

Since investors are certain to be the primary, near term source of liquidity to support our development and marketing efforts, our liquidity will be driven by our ability to attract repeat investments from current shareholders and to find new ones. All investors must fully understand that an investment in our company is of high risk and they can lose their total invested capital.

Our primary marketing challenge for the coming twelve (12) months is to implement and “go live” with our initial networking applications to achieve market awareness and acceptance. Additionally, we plan to market our children’s music library from and through independent distributors (including CDs, DVDs, web downloads (MP3 format) currently under development and anticipated to be completed for beta testing in the third quarter of 2012. Additionally, management is seeking new acquisitions to complement existing products.

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Revenues

These forward-looking statements, pertaining to revenues, are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations.  You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur.  As our revenues commence, we plan to invest in marketing and sales by increasing the number of direct sales throughout our web portal to build brand awareness. We expect that in the future, marketing and sales expenses will increase in absolute dollars commencing in the third quarter of 2012. We do not expect our revenues to increase significantly until fourth quarter of 2012.

General and Administrative Expenses

We expect that general and administrative expenses associated with executive compensation will substantially increase in the future as our products commence their marketing potential. In addition, we believe in the latter part of the 2012 fiscal year that the compensation packages required to attract the senior executives of the Company will require management to execute against its business plan which will increase our total expenses, including, but not limited to, general and administrative, legal, accounting, marketing and compensation.

Summary of Condensed Results of Operations

Any measurement and comparison of revenues and expenses from continuing operations should not be considered necessarily indicative or interpolated as the trend to forecast our future revenues and results of operations.

Results for the Three Months Ended May 31, 2012

Revenues. The Company’s revenues for the three months ended May 31, 2012 were $0. Additionally, the Company has not had any revenues from inception (June 2, 2008) to May 31, 2012.

Legal and Accounting Expenses.Legal and Accounting expenses for the three months ended May 31, 2012 were $3,300 as compared to $1,600 for the three months ended May 31, 2011. These increase costs of legal and accounting expenses were a direct result of product development commencing an activity phase whereby additional expenses are required.

General and Administrative Expenses. General and administrative expenses for the three months ended May 31, 2012 were $6,305 as compared to $816 for the three months ended May 31, 2011.  These expenses are normal and reoccurring for our Company as a development stage entity.

Consulting. Consulting expenses for the three months ended May 31, 2012 were $190,000 as compared to $2,000 for the three months ended May 31, 2011.  The substantial increase of ($188,000) in expenses for the period ended May 31, 2012 were a direct result of product development commencing an activity phase whereby additional expenses are required.

Compensation. Compensation expense for the three (3) months ended May 31, 2012 was $124,500 as compared to $0 for the three (3) months ended May 31, 2011. These increase costs of $124,500 were a direct result of product development commencing an activity phase of development whereby additional management expenses are required.

Net Loss. Net loss for the three months ended May 31, 2012 was ($381,605) as compared to ($4,416) for the three months ended May 31, 2011.  The substantial increase of net loss of $377,189 was a result of $57,500 impairment to asset values; an $188,000 expense for consultants entering into the company’s development stage of internet and mobile applications; commencement of management compensation of $124,500 and the balance of increase of net loss $11,605 is a result of the company’s development stage progress of its business plan.

Results for the Nine Months Ended May 31, 2012

Revenues. The Company’s revenues for the nine (9) months ended May 31, 2012 were $0. Additionally, the Company has not had any revenues from inception (June 2, 2008) to May 31, 2012.

Legal and Accounting Expenses.Legal and Accounting expenses for the nine (9) months ended May 31, 2012 were $12,300 as compared to $5,800 for the nine (9) months ended May 31, 2011. These increase costs of legal and accounting expenses were a direct result of product development commencing an activity phase whereby additional expenses are required.

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General and Administrative Expenses. General and administrative expenses for the nine (9) months ended May 31, 2012 were $12,055 as compared to $3,816 for the nine (9) months ended May 31, 2011.  These expenses are normal and reoccurring for our Company as a development stage entity.

Consulting. Consulting expenses for the nine (9) months ended May 31, 2012 were $271,000 as compared to $2,000 for the nine (9) months ended May 31, 2011.  The substantial increase of ($269,000) in expenses for the period ended May 31, 2012 were a direct result of product development commencing an activity phase whereby additional expenses are required.

Compensation. Compensation expense for the nine (9) months ended May 31, 2012 was $124,500 as compared to $0 for the nine (9) months ended May 31, 2011. These increase costs of $124,500 were a direct result of product development commencing an activity phase of development whereby additional management expenses are required.

Net Loss. Net loss for the nine (9) months ended May 31, 2012 was ($591,455) as compared to ($11,616) for the nine (9) months ended May 31, 2011.  The substantial increase of net loss of $579,839 was a result of $157,500 impairment to asset values; and $269,000 expense for consultants entering into the company’s development stage of internet and mobile applications; commencement of management compensation of $124,500 and the balance of increase of net loss $28,839 is a result of the company’s development stage progress of its business plan.

Impact of Inflation

We believe that the rate of inflation has had negligible effect on our operations.  We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.

Liquidity and Capital Resources

The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by advances from related parties, conversion of debt to common shares and the sale of common shares to related parties and others.

As of May 31, 2012, total current assets were $100.

As of May 31, 2012, total current liabilities were $29,355, which consisted of $26,821 for accrued expenses; $2,500 of accounts payable and $34 of loans from related parties.  As of August 31, 2011, total current liabilities were $10,400, which consisted of $10,000 of accrued expenses and $400 of loans from related parties.  We had net working capital deficit of ($29,255) as of May 31, 2012, compared to net working deficit capital of ($10,300) at August 31, 2011.

During the nine months ended May 31, 2012, our operating activities used cash of $35,134.

Material Commitments

The Company does not have any material commitments as of May 31, 2012.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or any anticipate entering into any off-balance arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements

The company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are not subject to risks related to foreign currency exchange rate fluctuations.  Our functional currency is the United States dollar. We do not transact our business in other currencies. As a result, we are not subject to exposure from movements in foreign currency exchange rates. We do not use derivative financial instruments for speculative trading purposes.

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Treasurer, as appropriate, to allow timely decisions regarding required disclosures. 

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our first fiscal quarter covered by this report. Based on the foregoing, our President and Treasurer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II OTHER INFORMATION

Item 1.  Legal Proceeding.

None.

Item 1A.  Risk Factors.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended August 31, 2011.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the three (3) months ended May 31, 2012, the Company issued 10,880,000 restricted common shares at $0.025 per share to consultants, officers and related parties for services rendered having a value of $272,000. All 10,880,000 common shares were and the shares issued bare a restrictive legend.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

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Item 6.  Exhibits

(a)          Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting and Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Accounting and Financial Officer
101 *	XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST LEVEL ENTERTAINMENT GROUP, INC.
DATE:  June 21, 2012	By:	/s/ Steve Adelstein
		Steve Adelstein
		Chief Executive Officer and Principal Executive Officer,

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