UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2016
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number: 333-170016
First Level Entertainment Group, Inc.
(Exact name of registrant as specified in its charter)
Florida |
| 90-0599877 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
305 South Andrews Avenue, Suite 203 Fort Lauderdale, Florida |
| 33301 |
(Address of principal executive offices) |
| (Zip Code) |
(954) 599-3672
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at July 1, 2016 |
Common Stock, $0.001 |
| 40,000,000 shares |
FIRST LEVEL ENTERTAINMENT GROUP, INC.
TABLE OF CONTENTS
| PAGE |
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Part I Financial Information | 4 |
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Item 1. Financial Statements | 4 |
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Consolidated Balance Sheets at May 31, 2016 (unaudited) and August 31, 2015 (audited) | 4 |
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Consolidated Statements of Operations for the three and nine months ended May 31, 2016 and 2015 (unaudited) | 5 |
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Consolidated Statements of Cash Flows at May 31, 2016 and May 31, 2015 (unaudited) | 6 |
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Notes to Condensed Consolidated Financial Statements | 7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 9 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 13 |
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Item 4. Controls and Procedures. | 13 |
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Part II Other Information | 15 |
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Item 1. Legal Proceeding. | 15 |
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Item 1A. Risk Factors. | 15 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 15 |
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Item 3. Defaults Upon Senior Securities. | 15 |
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Item 4. Mine Safety Disclosures | 15 |
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Item 5. Other Information. | 15 |
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Item 6. Exhibits. | 15 |
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Signatures | 15 |
- 2 -
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed in this report, in our Annual Report on Form 10-K for the year ended August 31, 2015, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in that report, and in other documents which we file with the SEC. These forward-looking statements involve risks and uncertainties, and relate to future events or our future financial or operating performance and include, but are not limited to, statements concerning:
· | the anticipated benefits and risks of our business relationships; |
· | our ability to attract retail and business customers; |
· | the anticipated benefits and risks associated with our business strategy; |
· | our future operating results; |
· | the anticipated size or trends of the market segments in which we compete and the anticipated competition in those markets; |
· | potential government regulation; |
· | our future capital requirements and our ability to satisfy our capital needs; |
· | the potential for additional issuances of our securities; |
· | our plans to devote substantial resources to our sales and marketing teams; |
· | the possibility of future acquisitions of businesses, products or technologies; |
· | our belief that we can attract customers in a cost-efficient manner; |
· | our belief that current or future litigation will likely not have a material adverse effect on our business; |
· | the ability of our online marketing campaigns to be a cost-effective method of attracting customers; |
· | our belief that we can internally develop cost-effective branding campaigns; |
· | the results of upgrades to our infrastructure and the likelihood that additional future upgrades can be implemented without disruption of our business; |
· | our belief that we can maintain or improve upon customer service levels that we and our customers consider acceptable; |
· | our belief that our information technology infrastructure can and will support our operations and will not suffer significant downtime; |
· | statements about our community site business and its anticipated functionality; |
· | our belief that we can maintain inventory levels at appropriate levels despite the seasonal nature of our business; and, |
· | our belief that we can successfully offer and sell a constantly changing mix of products and services |
Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “First Level”, the “Company”, “we”, “us”, “our” and similar terms refer to First Level Entertainment Group, Inc., a Florida corporation.
- 3 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| May 31, |
| August 31, |
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| 2016 |
| 2015 |
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| (unaudited) |
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ASSETS | |||||||
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CURRENT ASSETS: |
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Cash and equivalents |
| $ | 131 |
| $ | 227 |
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Total Current Assets |
|
| 131 |
|
| 227 |
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Total Assets |
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| 131 |
|
| 227 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 137,500 |
| $ | 137,500 |
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Accrued expenses |
|
| 241,250 |
|
| 179,750 |
|
Advances from related parties |
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| 260,498 |
|
| 249,061 |
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Total Current Liabilities |
|
| 639,248 |
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| 566,311 |
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STOCKHOLDERS’ DEFICIT: |
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Preferred Stock, par value $.001; 10,000,000 shares authorized; |
|
| — |
|
| — |
|
Common stock, par value $.001; 500,000,000 shares authorized; |
|
| 40,000 |
|
| 40,000 |
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Additional paid in capital |
|
| 2,460,000 |
|
| 2,460,000 |
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Accumulated deficit |
|
| (3,139,117 | ) |
| (3,066,084 | ) |
Total Stockholders’ Deficit |
|
| (639,117 | ) |
| (566,084 | ) |
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Total Liabilities and Stockholders’ Deficit |
| $ | 131 |
| $ | 227 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
| For the Three |
| For the Nine |
| ||||||||
|
| Months Ended |
| Months Ended |
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|
| May 31, |
| May 31, |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
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Revenue |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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Operating Expenses: |
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Advertising and Marketing |
|
| — |
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| — |
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| — |
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| 46,197 |
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Legal and Accounting |
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| 3,000 |
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| 12,250 |
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| 10,500 |
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| 73,771 |
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Consulting and Software Development |
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| 15,000 |
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| 59,000 |
|
| 60,000 |
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| 348,988 |
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General and Administrative |
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| 475 |
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| 5,628 |
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| 2,533 |
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| 77,194 |
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Total Operating Expenses |
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| 18,475 |
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| 76,878 |
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| 73,033 |
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| 546,150 |
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Operating Loss |
|
| (18,475 | ) |
| (76,878 | ) |
| (73,033 | ) |
| (546,150 | ) |
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Other Income (Expense) |
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Impairment |
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| — |
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| — |
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| — |
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| 258,000 |
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Interest Expense |
|
| — |
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| — |
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| — |
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| (830 | ) |
Total Other Income (Expense) |
|
| — |
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| — |
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| — |
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| (258,830 | ) |
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Net loss before Income Taxes |
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| (18,475 | ) |
| (76,878 | ) |
| (73,033 | ) |
| (804,980 | ) |
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Provision for Income Taxes |
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| — |
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| — |
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| — |
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| — |
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Net loss |
|
| (18,475 | ) |
| (76,878 | ) |
| (73,033 | ) |
| (804,980 | ) |
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Basic and diluted net loss per common share |
| $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) |
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Basic and diluted weighted average number of common shares outstanding |
|
| 40,000,000 |
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| 40,000,000 |
|
| 40,000,000 |
|
| 38,397,153 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Nine Months Ended |
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| May 31, |
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| 2016 |
| 2015 |
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OPERATING ACTIVITIES: |
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Net loss |
| $ | (73,033 | ) | $ | (804,980 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Expenses paid by related party on behalf of the company |
|
| 11,437 |
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| 36,515 |
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Impairment of intangible assets |
|
| — |
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| 258,000 |
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Common Stock issued for services |
|
| — |
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| 240,380 |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
|
| — |
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| — |
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Accounts payable and accrued expenses |
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| 1,500 |
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| (29,132) |
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Accrued expense-related party |
|
| 60,000 |
|
| 30,000 |
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Net cash used in operating activities |
|
| (96 | ) |
| (269,217 | ) |
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INVESTING ACTIVITIES: |
|
| — |
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| — |
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FINANCING ACTIVITIES: |
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Increase/(decrease) in notes payable |
|
| — |
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| (48,000 | ) |
Proceeds from related party advances |
|
| — |
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| 209,350 |
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Payments on related party debt |
|
| — |
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| (15,004 | ) |
Proceeds from issuance of common stock |
|
| — |
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| 127,200 |
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Net cash provided by financing activities |
|
| — |
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| 273,546 |
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NET CHANGE IN CASH |
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| (96) |
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| 4,329 |
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CASH BEGINNING BALANCE |
|
| 227 |
|
| 319 |
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CASH ENDING BALANCE |
| $ | 131 |
| $ | 4,648 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Taxes paid |
|
| — |
|
| — |
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Interest paid |
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| — |
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| — |
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NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: |
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Common stock issued for forgiveness of related party advances |
|
| — |
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| 72,420 |
|
Common stock issued for forgiveness of debt |
|
| — |
|
| 22,000 |
|
Common stock issued for acquisition intangible asset |
|
| — |
|
| 258,000 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2016 (unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
First Level Entertainment Group, Inc. (“the Company”), formerly known as Sound Kitchen Entertainment Group, Inc., commenced operations in February 1, 2012. The Company was incorporated on June 2, 2008 in the State of Florida and established a fiscal year end of August 31. The Company is in the entertainment business presently focusing on mobile applications. The Company has following wholly-owned subsidiaries: i) Mobile Sonars Inc.; ii) Am I There Inc.; iii) Message Attic Corp.; VIP Wink Corp.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The August 31, 2015 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2015 filed with the SEC on December 15, 2015.
The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended August 31, 2015. The quarterly information presented should be read in conjunction with the annual report filed on Form 10-K with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment.
Website Development Costs
The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are expensed and costs incurred in the day to day operation of the website are expensed as incurred.
- 7 -
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2016 (unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-lived assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Revenue and Cost Recognition
The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification(“ASC”) 605 “Revenue Recognition” which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale. Cost of sales includes any labor cost and the amortization of intellectual property.
Basic and Diluted Net Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of May 31, 2016 or 2015 which were excluded from the calculation of diluted loss per common share as their effect would have been anti-dilutive.
NOTE 3 – GOING CONCERN
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has a deficit accumulated since inception (June 2, 2008) through May 31, 2016 of $3,139,117. 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, 2016, by way of issuing common shares and advances from related parties. As of May 31, 2016, the Company had issued 40,000,000 common shares. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – RELATED PARTY TRANSACTIONS
As of May 31, 2016 the Company owed $260,498 to a related party (an officer and majority shareholder) for operating expenses paid on the Company’s behalf. During the year ended August 31, 2015 this related party advances $249,061.
As of May 31, 2016 the Company accrued consulting fees to a related party (an officer and majority shareholder) of $60,000.
NOTE 5 – SUBSEQUENT EVENTS
We have evaluated events and transactions that occurred subsequent to May 31, 2016 through the date of this report, the date the consolidated financial statements were issued, for potential recognition or disclosure in the accompanying consolidated financial statements.
- 8 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
Overview
We are a development stage company incorporated in the state of Florida in June 2008. The current focus of our development stage company has the primary focus of developing mobile applications as follows:
1) VIPwink
VIPwink is a patent pending mobile application which is available for beta testing for iTunes and Android phones in the fourth quarter of 2014. The VIPwink mobile application will empower individuals, brands and any others (VIP’s) with a significant Twitter following to monetize their fans, and differentiate the casual from the most passionate follower. The VIPwink app seamlessly integrates into the “VIP’s” existing Twitter account and gives them control over their original content.
Through the VIPwink mobile application, any “VIP” will be able to delay their Tweets to their existing Twitter network and reward their most passionate “followers” with immediate access to exclusive content or offers. Through the VIPwink platform, these “VIP’s” of the social world can offer premium content via a paid subscription based model. The premium content will be locked out to all non-subscribers and available on a time delay set by the “VIP” via admin functionality. VIPwink will finally enable all of Twitter’s most followed individuals and brands to monetize, identify, and capture direct contact data from their true fans. This application is currently being beta tested.
VIPwink has executed agreements with a selective roster of VIP celebrities, athletes, branded products and others for our beta testing of our functioning prototype. The preliminary roster of VIPwink has approximately 11,500,000 followers on Twitter as of May 31, 2016. We are continuously in negotiations to execute further agreements to coincide with our development of this application.
2) Mobile Sonars
Mobile Sonars is a white label mobile application, that through questionnaire for any location that is “pushed” to the user when they arrive matching is then determined. If activated and at the geo-location a user is then matched with others who have answered the questions in a similar manner based on a pre-determined or user selected threshold. Mobile Sonars will allow a partner site to monetize a growing database of users that are on property or at the event in real time. Which will allow them to offer deals, discounts, and coupons while users are both their and not there. Allow users to connect to others at a specific location and only that location or event, who match specific criteria.
Going Concern
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations from inception by way of issuing common shares and through advances made by related parties. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The August 31, 2015 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2015 filed with the SEC on December 15, 2015.
- 9 -
The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended August 31, 2015. The quarterly information presented should be read in conjunction with the annual report filed on Form 10-K with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment.
Website Development Costs
The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are expensed and costs incurred in the day to day operation of the website are expensed as incurred.
Long-lived assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Revenue and Cost Recognition
The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification(“ASC”) 605 “Revenue Recognition” which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale. Cost of sales includes any labor cost and the amortization of intellectual property.
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Basic and Diluted Net Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is adjusted for any potentially dilutive debt or equity.
Outlook
The most important metric by which we judge the Company’s performance now and in the near term is generating revenues on the top line and sales growth. Our current commitment to develop and deliver quality products means that, for the near future, bottom line profitability will be a poor indicator of our success.
Since investors are certain to be the primary, near term source of liquidity to support our development and marketing efforts, our liquidity will be driven by our ability to attract repeat investments from current shareholders and to find new ones. All investors must fully understand that an investment in our company is of high risk and they can lose their total invested capital.
Our primary marketing challenge for the coming twelve (12) months is to implement and “go live” with our initial networking applications to achieve market awareness and acceptance. Additionally, management is seeking new acquisitions to complement existing products.
Revenues
These forward-looking statements, pertaining to revenues, are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. As our revenues commence, we plan to invest in marketing and sales by increasing the number of direct sales throughout our web portal to build brand awareness. We expect that in the future, marketing and sales expenses will increase in absolute dollars commencing in the fourth quarter of 2015. We do not expect our revenues to increase significantly until first quarter of 2017.
General and Administrative Expenses
We expect that general and administrative expenses associated with executive compensation will substantially increase in the future as our products commence their marketing potential. In addition, we believe in the last part of the 2016 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, 2016
Revenues. The Company’s revenues for the three months ended May 31, 2016 were $-0-. Additionally, the Company has not had any revenues from inception (June 2, 2008) to May 31, 2016.
Legal and Accounting Expenses. Legal and Accounting expenses for the three months ended May 31, 2016 were $3,000 as compared to $12,250 for the three months ended May 31, 2015. These decreased costs of legal and accounting expenses were a direct result of maturing product development.
General and Administrative Expenses. General and administrative expenses for the three months ended May 31, 2016 were $475 as compared to $5,628 for the three months ended May 31, 2015. These expenses are normal and reoccurring for our Company as a development stage entity.
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Consulting and Software Development. The expense for the three months ended May 31, 2016 was $15,000 as compared to $59,000 for the three months ended May 31, 2015. These decrease costs of $44,000, were a direct result of the decreased software development activity.
Net Loss. Net loss for the three months ended May 31, 2016 was $18,475 as compared to $76,878 for the three months ended May 31, 2015. The decrease of net loss of $58,403 was a result of reduced issuance of stock for development services and consulting.
Results for the Nine Months Ended May 31, 2016
Revenues. The Company’s revenues for the nine months ended May 31, 2016 were $-0-. Additionally, the Company has not had any revenues from inception (June 2, 2008) to May 31, 2016.
Legal and Accounting Expenses. Legal and Accounting expenses for the nine months ended May 31, 2016 were $10,500 as compared to $73,771 for the nine months ended May 31, 2015. These decreased costs of legal and accounting expenses were a direct result of maturing product development.
General and Administrative Expenses. General and administrative expenses for the nine months ended May 31, 2016 were $2,533 as compared to $77,194 for the nine months ended May 31, 2015. These expenses are normal and reoccurring for our Company.
Consulting and Software Development. The expense for the nine months ended May 31, 2016 was $60,000 as compared to $348,988 for the nine months ended May 31, 2015. These decrease costs of $288,988 were a direct result of the decreased software development activity.
Net Loss. Net loss for the nine months ended May 31, 2016 was $73,033 as compared to $804,980 for the nine months ended May 31, 2015. The decrease of net loss of $731,947 was a result of the entering into the company’s beta testing stage of internet and mobile applications.
Impact of Inflation
We believe that the rate of inflation has had negligible effect on our operations. We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.
Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by advances from related parties, conversion of debt to common shares and the sale of common shares to related parties and others.
As of May 31, 2016, total current assets were $131.
As of May 31, 2016, total current liabilities were $639,248, which consisted of $137,500 for accounts payable, $241,250 for accrued expenses, which included 60,000 accrued expenses related party. Also there was $260,498 of advances from related parties. As of August 31, 2015, total current liabilities were $566,311, which consisted of $179,750 of accrued expenses and $137,500 of accounts payable. We had net working capital deficit of $639,117 as of May 31, 2016, compared to net working deficit capital of $566,084 at August 31, 2015.
During the nine months ended May 31, 2016, our operating activities used cash of $96.
Material Commitments
The Company does not have any material commitments as of May 31, 2016.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any anticipate entering into any off-balance arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Recent Accounting Pronouncements
The company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Company management maintains controls and procedures designed to ensure that information required to be disclosed in the reports that is filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of May 31, 2016, the date of this report, the Company’s chief executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and principal financial officer.
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; |
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· | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and the Company’s directors; and |
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· | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As part of the Company’s compliance efforts relative to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2016. In making this assessment, management used the criteria set forth in the Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Company management evaluated control deficiencies identified through the Company’s test of the design and operating effectiveness of controls over financial reporting to determine whether the deficiencies, individually or in combination, are significant deficiencies or material weaknesses. In performing the assessment, the Company’s management has identified material weaknesses in internal control over financial reporting existing as of May 31, 2016. The Company’s evaluation of the significance of each deficiency included both quantitative and qualitative factors. Based on that evaluation, the Company’s management concluded that as of May 31, 2016, and as of the date that the evaluation of the effectiveness of the Company’s internal controls and procedures was completed, the Company’s internal controls are not effective, for the reason discussed below:
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| 1. | Company management does not yet have written documentation of the Company’s internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement Section 404 of the Sarbanes-Oxley Act and may be applicable to the Company in future years. |
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| 2. | Company management does not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to the Company’s extremely small size and the fact that the Company has only had one management employee, whom is also an executive officer and director, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. |
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| 3. | The Company currently does not employ any full-time accounting personnel, which means the Company lacks the requisite expertise in the key functional areas of finance and accounting. In addition, this means that the Company does not have available personnel to properly implement control procedures. |
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| 4. | The Company does not have a functioning audit committee or outside independent directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. |
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| 5. | Company management has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are no employees and only one officer and director with management functions and therefore there the Company lacks segregation of duties. |
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| 6. | There is a strong reliance on the external auditors and contract accountants to review and adjust the annual and quarterly financial statements, to monitor new accounting principles, and to ensure compliance with GAAP and SEC disclosure requirements. |
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| 7. | There is a strong reliance on the external attorneys to review and edit the annual and quarterly filings and to ensure compliance with SEC disclosure requirements. |
In light of the material weaknesses described above, Company management performed additional analysis and other procedures to ensure the Company’s financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, Company management believes that the financial statements included in this Current Report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
In addition, although the Company’s controls are not effective, these significant weaknesses did not result in any material misstatements in the Company’s financial statements. The Company’s management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which is intended to mitigate the lack of segregation of duties until there are sufficient personnel and (3) has, subsequent to the evaluation period, appointed outside directors and will establish an audit committee in the future.
(b) Changes in Internal Control and Financial Reporting. Other than the weaknesses identified above, there were no other changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceeding.
None.
Item 1A. Risk Factors.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Management believes the above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933 as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits
Exhibit No. | Description |
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31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.1 | Section 1350 Certification of Chief Executive Officer |
32.2 | Section 1350 Certification of Chief Financial Officer |
101 * | XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q. |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FIRST LEVEL ENTERTAINMENT GROUP, INC. | |
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Date: July 6, 2016 | By: | /s/ Steve Adelstein |
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| Steve Adelstein |
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| Chief Executive Officer |
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Date: July 6, 2016 | By: | /s/ Alfred Fernandez |
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| Steve Adelstein |
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| Chief Financial Officer |
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