Attached files
file | filename |
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8-K - FORM 8-K - IMARX THERAPEUTICS INC | c01482e8vk.htm |
EX-99.2 - EXHIBIT 99.2 - IMARX THERAPEUTICS INC | c01482exv99w2.htm |
EX-10.16 - EXHIBIT 10.16 - IMARX THERAPEUTICS INC | c01482exv10w16.htm |
EX-10.13 - EXHIBIT 10.13 - IMARX THERAPEUTICS INC | c01482exv10w13.htm |
EX-10.12 - EXHIBIT 10.12 - IMARX THERAPEUTICS INC | c01482exv10w12.htm |
EX-10.10 - EXHIBIT 10.10 - IMARX THERAPEUTICS INC | c01482exv10w10.htm |
EX-10.15 - EXHIBIT 10.15 - IMARX THERAPEUTICS INC | c01482exv10w15.htm |
EX-10.14 - EXHIBIT 10.14 - IMARX THERAPEUTICS INC | c01482exv10w14.htm |
EX-10.11 - EXHIBIT 10.11 - IMARX THERAPEUTICS INC | c01482exv10w11.htm |
Exhibit 99.1
SWEET SPOT PRODUCTIONS, INC.
TABLE OF CONTENTS
PAGE # | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
2 | |||
BALANCE SHEETS |
3 | |||
STATEMENTS OF OPERATIONS |
4 | |||
STATEMENT OF STOCKHOLDERS DEFICIT |
5 | |||
STATEMENTS OF CASH FLOWS |
6 | |||
NOTES TO FINANCIAL STATEMENTS |
7 |
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Sweet Spot Productions, Inc.
Sweet Spot Productions, Inc.
We have audited the accompanying balance sheets of Sweet Spot Productions, Inc. (the Company) as
of October 31, 2008 and 2009, and the related statements of operations, stockholders deficit, and
cash flows for the years then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company was not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Sweet Spot Productions, Inc. as of October 31, 2008 and 2009,
and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 2 of the financial statements, the Company has negative
working capital, has suffered losses and has experienced declines in revenues. These factors raise substantial doubt
about the Companys ability to continue as a going concern. Managements plans with respect to
these matters are also discussed in Note 2. The accompanying financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ dbbmckennon | ||||
Newport Beach, California | ||||
May 20, 2010 |
2
SWEET SPOT PRODUCTIONS, INC.
BALANCE SHEETS
BALANCE SHEETS
October 31, | January 31, | |||||||||||
2008 | 2009 | 2010 | ||||||||||
(Unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | | $ | 10,660 | $ | 62,641 | ||||||
Accounts receivable, net |
38,165 | 12,618 | 28,761 | |||||||||
Prepaid expenses and other current assets |
5,912 | | | |||||||||
Total current assets |
44,077 | 23,278 | 91,402 | |||||||||
Property and equipment, net (Note 3) |
47,894 | 29,071 | 24,149 | |||||||||
Total assets |
$ | 91,971 | $ | 52,349 | $ | 115,551 | ||||||
Liabilities and Stockholders Deficit |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 3,567 | $ | 1,364 | $ | 58,185 | ||||||
Accrued liabilities related party |
| 18,014 | 27,014 | |||||||||
Deferred revenue |
| 4,401 | 1,956 | |||||||||
Total current liabilities |
3,567 | 23,779 | 87,155 | |||||||||
Deferred tax liability |
7,790 | 5,085 | 5,085 | |||||||||
Tax contingency reserve |
199,188 | 217,110 | 220,374 | |||||||||
Total liabilities |
210,545 | 245,974 | 312,614 | |||||||||
Commitments and contingencies (Note 4) |
||||||||||||
Stockholders deficit (Note 5): |
||||||||||||
Common stock no par value; 1,000,000 shares
authorized, issued, and outstanding |
12,500 | 12,500 | 12,500 | |||||||||
Accumulated deficit |
(131,074 | ) | (206,125 | ) | (209,563 | ) | ||||||
Total stockholders deficit |
(118,574 | ) | (193,625 | ) | (197,063 | ) | ||||||
Total liabilities and stockholders deficit |
$ | 91,971 | $ | 52,349 | $ | 115,551 | ||||||
See notes to accompanying financial statements
3
SWEET SPOT PRODUCTIONS, INC.
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS
Years Ended | Quarters Ended | |||||||||||||||
October 31, | January 31, | |||||||||||||||
2008 | 2009 | 2009 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenue |
$ | 1,108,435 | $ | 413,793 | $ | 230,014 | $ | 128,986 | ||||||||
Cost of revenue |
926,191 | 304,009 | 180,384 | 57,880 | ||||||||||||
Gross profit |
182,244 | 109,784 | 49,630 | 71,106 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling and marketing |
102,331 | 44,248 | 17,394 | 9,222 | ||||||||||||
General and administrative |
252,248 | 127,870 | 39,404 | 62,008 | ||||||||||||
Total operating expenses |
354,579 | 172,118 | 56,798 | 71,230 | ||||||||||||
Loss from operations |
(172,335 | ) | (62,334 | ) | (7,168 | ) | (124 | ) | ||||||||
Other income |
31 | 2,500 | | 750 | ||||||||||||
Loss before provision for
income taxes |
(172,304 | ) | (59,834 | ) | (7,168 | ) | 626 | |||||||||
Provision for income taxes |
69,881 | 15,217 | 2,425 | 4,064 | ||||||||||||
Net loss |
$ | (242,185 | ) | $ | (75,051 | ) | $ | (9,593 | ) | $ | (3,438 | ) | ||||
See notes to accompanying financial statements
4
SWEET SPOT PRODUCTIONS, INC.
STATEMENT OF STOCKHOLDERS DEFICIT
YEARS ENDED OCTOBER 31, 2008 AND 2009 AND QUARTER ENDED JANUARY 31, 2010
STATEMENT OF STOCKHOLDERS DEFICIT
YEARS ENDED OCTOBER 31, 2008 AND 2009 AND QUARTER ENDED JANUARY 31, 2010
Common Stock | Retained | Stockholders | ||||||||||||||
Shares | Amount | Earnings | Equity (Deficit) | |||||||||||||
Balances as of November 1, 2007 |
1,000,000 | $ | 12,500 | $ | 111,111 | $ | 123,611 | |||||||||
Net loss |
| | (242,185 | ) | (242,185 | ) | ||||||||||
Balances as of October 31, 2008 |
1,000,000 | 12,500 | (131,074 | ) | (118,574 | ) | ||||||||||
Net loss |
| | (75,051 | ) | (75,051 | ) | ||||||||||
Balances as of October 31, 2009 |
1,000,000 | 12,500 | (206,125 | ) | (193,625 | ) | ||||||||||
Net loss (unaudited) |
| | (3,438 | ) | (3,438 | ) | ||||||||||
Balances as of January 31, 2010 (unaudited) |
1,000,000 | $ | 12,500 | $ | (209,563 | ) | $ | (197,063 | ) | |||||||
See notes to accompanying financial statements
5
SWEET SPOT PRODUCTIONS, INC.
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS
Years Ended | Quarters Ended | |||||||||||||||
October 31, | January 31, | |||||||||||||||
2008 | 2009 | 2009 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||
Net loss |
$ | (242,185 | ) | $ | (75,051 | ) | $ | (9,593 | ) | $ | (3,438 | ) | ||||
Adjustments to reconcile net loss to net cash
used in operating activities: |
||||||||||||||||
Depreciation |
19,416 | 19,596 | 5,003 | 4,922 | ||||||||||||
Provision for bad debt |
10,000 | 4,300 | | | ||||||||||||
Deferred tax liability |
(2,860 | ) | (2,705 | ) | | | ||||||||||
Deferred tax contingency |
70,947 | 17,922 | 2,425 | 3,264 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
73,132 | 21,246 | 22,222 | (16,143 | ) | |||||||||||
Prepaid expenses and other current assets |
98,650 | 5,912 | 5,912 | | ||||||||||||
Accounts payable |
(1,767 | ) | (2,188 | ) | 2,368 | 56,820 | ||||||||||
Accrued liabilities related party |
| 18,000 | | 9,000 | ||||||||||||
Deferred revenue |
(26,416 | ) | 4,401 | 3,278 | (2,444 | ) | ||||||||||
Net cash provided by (used in) operating
activities |
(1,083 | ) | 11,433 | 31,615 | 51,981 | |||||||||||
Cash flows from investing activities |
||||||||||||||||
Purchases of property and equipment |
(1,372 | ) | (773 | ) | (20 | ) | | |||||||||
Net cash used in investing activities |
(1,372 | ) | (773 | ) | (20 | ) | | |||||||||
Net increase (decrease) in cash and
cash equivalents |
(2,455 | ) | 10,660 | 31,595 | 51,981 | |||||||||||
Cash and cash equivalents at beginning
of the period |
2,455 | | | 10,660 | ||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 10,660 | $ | 31,595 | $ | 62,641 | ||||||||
* | Cash paid for income taxes and interest was insignificant during the periods presented. |
See notes to accompanying financial statements
6
SWEET SPOT PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
Note 1 Nature of the Business
Sweet Spot Productions, Inc. (Sweet Spot or the Company) is a California corporation which was
formed on September 6, 2006. The Company conducts its operations primarily from facilities located
in Los Angeles, California.
The Company is an interactive agency providing production services for trailers and television
spots for the motion picture and video gaming markets. The Company will commence other services
within the entertainment industry upon merger with Sycamore films as described in Note 7.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The
Company has sustained losses, has declining revenues in recent periods and has negative working
capital as of January 31, 2010. The Companys ability to continue as a going concern is dependent
upon obtaining additional capital and generating positive cash flows from operations. These factors
raise substantial doubt about the Companys ability to continue as a going concern. Management
intends to seek additional capital either through debt or equity offerings and is attempting to
increase sales volume. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a going concern.
Unaudited Interim Financial Information
The accompanying balance sheet as of January 31, 2010, the statements of operations and cash flows
for the quarters ended January 31, 2009 and 2010, and the statement of stockholders equity
(deficit) for the quarter ended January 31, 2010 are unaudited. The unaudited interim financial
statements have been prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the Companys financial position, results of operations and cash flows
for the quarters ended January 31, 2009 and 2010. The financial data and other information
disclosed in these notes to the financial statements related to the quarterly periods are
unaudited. The results of the quarter ended January 31, 2010 are not necessarily indicative of the
results to be expected for the year ending October 31, 2010 or for any other interim period or for
any other future year.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Assets
and liabilities which are subject to significant judgment and use of estimates include the
determination of receivables and deferred revenue, allowance for doubtful accounts, valuation
allowances with respect to recoverability of long-lived assets, useful lives associated with
property and equipment, and potential tax liabilities. On an ongoing basis, management evaluates
its estimates compared to historical experience and trends, which form the basis for making
judgments about the carrying value of assets and liabilities.
7
Fair Value of Financial Instruments
Effective November 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements, which has been codified into Accounting Standards
Codification (ASC) 820 (ASC 820). This standard defines fair value, establishes a framework
for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to
measure fair value and enhances disclosure requirements for fair value measurements. The
implementation of this guidance did not change the method of calculating the fair value of assets
or liabilities. The primary impact from adoption was additional disclosures. The portion of this
guidance that defers the effective date for one year for certain non-financial assets and
non-financial liabilities measured at fair value, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis, was implemented November 1, 2009, and
did not have an impact on the Companys results of operations, cash flows, or financial position.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of
unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that may be used to
measure fair value which are the following:
| Level 1Quoted prices in active markets for identical assets or liabilities. |
|
| Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities. |
|
| Level 3Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. |
As of October 31, 2009 and January 31, 2010, the Company did not have Level 1, 2, or 3 financial
assets, nor did it have any financial liabilities.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and
accrued liabilities approximate fair value because of the short-term maturity of these items.
Concentrations of Credit Risk
Cash and Cash Equivalents
The Company, at times, maintains cash balances at financial institutions in excess of amounts
insured by United States government agencies or payable by the United States government directly.
The Company places its cash and cash equivalents with high credit quality financial institutions.
8
Accounts Receivable, Allowance for Doubtful Accounts and Concentrations
The Company provides credit to customers throughout the United States. In these instances, the
Company performs limited credit evaluations of its customers and does not obtain collateral with
which to secure its accounts receivable. Accounts receivable, if any, are reported net of an
allowance for doubtful accounts, which is managements best estimate of potential credit losses.
The Companys allowance for doubtful accounts is based on historical experience, but management
also takes into consideration customer concentrations, creditworthiness, and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts. As of October 31, 2008,
2009, and January 31, 2010, the allowance for doubtful accounts was $10,000, $14,300, and $14,300,
respectively.
Three customers made up 76% of the Companys accounts receivable as of October 31, 2008 and 88% of
the Companys total revenue for the year ended October 31, 2008. Two customers made up 60% of the
Companys accounts receivable as of October 31, 2009 and three customers made up 84% of the
Companys total revenue for the year ended October 31, 2009.
Two customers made up 97% of the Companys total revenue for the quarter ended January 31, 2009.
Two customers made up 80% of the Companys accounts receivable as of January 31, 2010 and 95% of
the Companys total revenue for the quarter ended January 31, 2010. The loss of one or more of
these customers would have a significant impact on the Companys operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or
less to be cash equivalents. The Company had no cash equivalents as of October 31, 2008 and 2009
and January 31, 2010.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets, which is three to
five years. Maintenance and repairs are expensed as incurred. Significant renewals and betterments
are capitalized. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected
in the Companys results of operations.
Long-Lived Assets
Long-lived assets, which consist primarily of property and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts may not be
recoverable. An impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual disposition are less than its
carrying value. If an asset is determined to be impaired, the impairment is measured by the amount
that the carrying value of the asset exceeds its fair value. The Company uses quoted market prices
in active markets to determine fair value whenever possible. When quoted market prices are not
available, management estimates fair value based on the best alternative information available,
which may include prices charged for similar assets or other valuation techniques such as using
cash flow information and present value accounting measurements. As of October 31, 2008 and 2009
and January 31, 2010, there were no impairment charges identified on the Companys long-lived
assets.
9
Revenue Recognition
The Company derives its revenue from professional fees charged to customers for the production of
trailers and television spots for the motion picture and video gaming industries. The Company
enters into fixed-price arrangements with its customers. To date, there have been no time and
materials contracts. The Company recognizes revenue in accordance with ASC 605-35, Revenue
Recognition, Construction-Type and Production-Type Contracts (formerly Statement of Position No.
81-1). Accordingly, the Company records its revenue using the percentage-of-completion method of
accounting. Under the percentage-of-completion method, revenues are recorded based on actual costs
incurred to the total costs expected to be incurred at the completion of the contract.
If, in the future, the Company enters into time and materials contracts, the Company will recognize
revenue as the services are performed based on the contractual billing rates.
The Company defers revenue when a billing pursuant to the contract has been issued to, or cash has
been received from, the customer, and the arrangement does not qualify for revenue recognition
under the Companys policy. These amounts are reflected as deferred revenue on the accompanying
balance sheets. The Company records accounts receivable upon billing under the contract or upon a
contractual right based on work performed.
Revenue is recognized net of estimated sales returns and allowances. If actual sales returns and
allowances are greater than estimated by management, additional expense may be incurred. In
determining the estimate for sales allowances, the Company relies upon historical experience and
other factors, which may produce results that vary from estimates. To date, the estimated sales
returns and allowances have varied within ranges consistent with managements expectations and have
not been significant.
Cost of Revenue
Cost of revenue primarily consists of expenses relating to service providers used in the production
process including: personnel, licensing fees, and other costs allocable to the Companys projects.
Selling and Marketing
Selling and marketing consists of those costs which are related to personnel and other promotional
activities. All advertising costs are expensed as incurred. The Company had no advertising costs
for the years ended October 31, 2008 and 2009, or for the quarters ended January 31, 2009 and 2010.
General and Administrative
The Companys general and administrative expenses relate primarily to the compensation and
associated costs for general and administrative personnel, professional fees, and other general
overhead and facility costs.
Stock-Based Compensation
To date, the Company has not issued any stock-based awards.
10
Income Taxes
Deferred income tax assets and liabilities are computed for temporary and permanent differences
between the financial statements and income tax bases of assets and liabilities. Such deferred
income tax asset and liability computations are based on enacted tax laws and rates applicable to
years in which the differences are expected to reverse. Income tax expense is the tax payable or
refundable for the year plus or minus the change during the year in deferred income tax assets and
liabilities. A valuation allowance is established, when necessary, to reduce deferred income tax
assets to the amount that is more likely than not to be realized.
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No.48,
Accounting for Uncertainty in Income Taxes, which has been codified into ASC 740. This
pronouncement clarifies the accounting for uncertainty in income taxes recognized in the financial
statements. This pronouncement also provides a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions taken or expected to be taken in the
Companys tax return. This standard further provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure requirements for uncertain
tax positions. The Company retroactively adopted the provision of this accounting standard on
November 1, 2007 as financial statements had not been previously issued for the Company. The
adoption did have a significant impact on the Companys results of operations, cash flows, and/or
financial position.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, which has been codified into Accounting
Standards Codification 105. This guidance establishes the FASB Accounting Standards Codification
(the Codification) as the single source of authoritative, nongovernmental generally accepted
accounting principles in the United States of America (U.S. GAAP). The Codification did not
change U.S. GAAP. All existing accounting standards were superseded and all other accounting
literature not included in the Codification is considered non-authoritative. This guidance is
effective for interim and annual periods ending after September 15, 2009. Accordingly the Company
has adopted this guidance during the year ended October 31, 2009. The adoption did not have a
significant impact on the Companys results of operations, cash flows, or financial position.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which has been codified into
Accounting Standards Codification 855. The guidance includes new terminology for considering
subsequent events and has required disclosure on the date through which an entity has evaluated
subsequent events. The standard is effective for interim or annual periods ending after June 15,
2009. The adoption did not have a significant impact on the Companys results of operations, cash
flows, or financial position.
In January 2010, the FASB amended authoritative guidance for improving disclosures about fair-value
measurements. The updated guidance requires new disclosures about recurring or nonrecurring
fair-value measurements including significant transfers into and out of Level 1 and Level 2
fair-value measurements and information on purchases, sales, issuances, and settlements on a gross
basis in the reconciliation of Level 3 fair-value measurements. The guidance also clarified
existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and
valuation techniques. The guidance became effective for interim and annual reporting periods
beginning on or after December 15, 2009, with an exception for the disclosures of purchases, sales,
issuances and settlements on the roll-forward of activity in Level 3 fair-value measurements. Those
disclosures will be effective for fiscal years beginning after December 15, 2010 and for interim
periods within those fiscal years. The Company does not expect that the adoption of this guidance
will have a material impact on the financial statements.
11
Note 3 Property and Equipment
Property and equipment consists of the following:
October 31, | January 31, | |||||||||||
2008 | 2009 | 2010 | ||||||||||
(Unaudited) | ||||||||||||
Computer equipment |
$ | 40,375 | $ | 40,808 | $ | 40,808 | ||||||
Office equipment |
21,421 | 21,761 | 21,761 | |||||||||
Furniture and fixtures |
12,213 | 12,213 | 12,213 | |||||||||
Gross property and equipment |
74,009 | 74,782 | 74,782 | |||||||||
Less Accumulated depreciation |
(26,115 | ) | (45,711 | ) | (50,633 | ) | ||||||
Total property and equipment, net |
$ | 47,894 | $ | 29,071 | $ | 24,149 | ||||||
During the years ended October 31, 2008 and 2009, the Company recorded depreciation expense of
$19,416 and $19,596, respectively. During the quarters ended January 31, 2009 and 2010, the
Company recorded depreciation expense of $5,003 and $4,922, respectively.
Note 4 Commitments and Contingencies
Operating Leases
The Company leases its office space under a month-to-month operating lease agreement which can be
terminated at any time.
Rent expense for the years ended October 31, 2008 and 2009 was $20,054 and $19,235, respectively.
Rent expense for the quarters ended January 31, 2009 and 2010 was $4,148 and $4,259, respectively.
Legal Proceedings
From time to time, the Company may become subject to legal proceedings, claims and litigation
arising in the ordinary course of business. The Company is not currently a party to any material
legal proceedings, nor is the Company aware of any pending or threatened litigation that would have
a material adverse effect on the Companys business, operating results, cash flows or financial
position should such litigation be resolved unfavorably.
Indemnifications
In the ordinary course of business, the Company may provide indemnifications of varying scope and
terms to customers, vendors, lessors, investors, directors, officers, employees and other parties
with respect to certain matters, including, but not limited to, losses arising out of the Companys
breach of such agreements, services to be provided by the Company, or from intellectual property
infringement claims made by third-parties. These indemnifications may survive termination of the
underlying agreement and the maximum potential amount of future payments the Company could be
required to make under these indemnification provisions may not be subject to maximum loss clauses.
The maximum potential amount of future payments the Company could be required to make under these
indemnification provisions is indeterminable. The Company has never paid a material claim, nor has
the Company been sued in connection with these indemnification arrangements. As of October 31,
2008 and 2009 and January 31, 2010, management has not accrued a liability for these guarantees,
because the likelihood of incurring a payment obligation, if any, in connection with these
guarantees is not probable or reasonably estimable.
12
Note 5 Stockholders Equity (Deficit)
Since inception, the Company issued 1,000,000 no-par shares of its common stock to its founders for
$12,500 in cash and contributed assets. There have been no other issuances of capital stock.
As of October 31, 2009, the Company is authorized to issue 1,000,000 shares of its common stock.
There are no other authorized classed of capital stock.
See Note 7 for discussion of the acquisition of the Companys common stock by Sycamore Films
resulting in a change in control.
Note 6 Income Taxes
As of October 31, 2008 and 2009, the Companys deferred tax liabilities consists of tax effected
excess depreciation taken on property and equipment for income tax purposes of $7,790 and $5,086,
respectively. As of October 31, 2008 and 2009, the Company did not have any deferred tax assets and
thus a valuation allowance was not needed. During the years ended October 31, 2008 and 2009, the
differences between the statutory tax rate and provision for income taxes was due to non-deductible
expenditures and the change in the deferred tax liability.
As discussed in Note 2, the Company adopted FIN 48 on November 1, 2007. The current provision for
income taxes for the years ended October 31, 2008 and 2009, relates to estimated income taxes,
penalties and interest, related to certain tax positions that are not supportable through existing
tax law. The Companys uncertain tax positions relate to the potential tax liability of the
Company resulting from payments made to affiliated companies that were reported as consulting fees
rather than employee compensation. A reconciliation of the amount of uncertain tax positions
(UTP) from November 1, 2007 to October 31, 2009 is as follows:
Gross UTP balance as of November 1, 2007 |
$ | 128,241 | ||
Additions for tax positions of prior years |
70,947 | |||
Gross UTP balance as of October 31, 2008 |
199,188 | |||
Additions for tax positions of prior years |
17,922 | |||
Gross UTP balance as of October 31, 2009 |
$ | 217,110 | ||
As of October 31, 2008 and 2009, the Company has accrued approximately $40,322 and $53,900 for
interest and penalties related to uncertain tax positions, respectively. Penalties and interest are
recorded as income tax expense.
The Company files income tax returns in the U.S. federal and state jurisdictions. The U.S. federal
fiscal returns for the years ended 2007 through 2009 are still subject to tax examination by the
United States Internal Revenue Service. The Company is subject to examination by the California
Franchise Tax Board for the fiscal years ended 2007 through 2009 and currently does not have any
ongoing tax examinations.
Within the next twelve months, the Company does not anticipate any potential decrease in the
unrecognized tax benefit relating to the timing of certain amortization deductions due to a statute
of limitation expiration. This will not have an impact on the effective tax rate other than the
potential reduction in accrued interest as any change will be offset by a similar adjustment to our
deferred tax balances. The Company does not anticipate any other significant changes within the
next twelve months.
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Reconciliation of Provision for Income Taxes
The following is a reconciliation of provisions for income taxes:
October 31, | October 31, | |||||||
2008 | 2009 | |||||||
Tax contingency reserve |
$ | 70,949 | $ | 17,922 | ||||
Provision (benefit) for income taxes |
(2,860 | ) | (2,705 | ) | ||||
Tax payments |
1,792 | | ||||||
Provision for income taxes |
$ | 69,881 | $ | 15,217 | ||||
Note 7 Subsequent Events
On March 17, 2010, ImaRx Therapeutics, Inc. (ImaRx) entered into an Agreement for the
Purchase and Sale of Stock with Sycamore Films, Inc. and its shareholders (the Stock Purchase
Agreement) and an Agreement and Plan of Merger with Sycamore Films, Sweet Spot, and Sweet Spots
shareholders and principals (the Merger Agreement). The transaction closed on May 14, 2010.
Pursuant to the Merger Agreement, Sweet Spot merged with and into Sycamore Films and the
shareholders of Sweet Spot became shareholders of Sycamore Films. Sycamore Films will continue the
operation of the Sweet Spot business. Immediately following the closing of the Merger Agreement,
the purchase and sale of stock between ImaRx and Sycamore Films and it shareholders as set forth in
the Stock Purchase Agreement was closed. Under the terms of the Stock
Purchase Agreement, ImaRx issued approximately 79,376,735 shares of its common stock to the Sycamore shareholders
including the former shareholders of Sweet Spot. As a result, Sycamore Films became a wholly-owned
subsidiary of ImaRx and the former shareholders of Sycamore hold, in the aggregate, approximately
eighty-six percent (86%) of ImaRxs outstanding shares of commons stock on a fully diluted basis.
Former Sweet Spot shareholders ownership interest, on a fully-diluted basis, in ImaRx is approximately five percent
(5%). In connection with the closing of the Stock Purchase Agreement, all of the members of the
current Board of Directors of ImaRx resigned and a new slate of Directors and officers
were appointed for both ImaRx and Sycamore. The primary business of ImaRx will be a full-service
distribution and marketing company specializing in acquisition, distribution, and the development
of marketing campaigns for feature films.
Beginning on November 14, 2010, and continuing for a two year period immediately thereafter, the
Put Period, the former shareholders of Sweet Spot, have the right to require that, during any
90-day period following the first day of the Put Period, the Company purchase from each of them up
to 25% of their shares of the total 2,307,463 shares of ImaRx common stock received by each of them
under the Stock Purchase Agreement. They may exercise this put right, in whole or in part, at any
time or from time to time during the two year period. If during any 90-day period either or both of
the former shareholders elect not to exercise the put right with respect to any of 25% of the
shares which they are entitled to put, such shares may be put during the following 90-day period in
addition to 25% of the shares that they are entitled to put during such 90-day period. The
price at which ImaRx shall be required to purchase the shares put to the Company shall be equal to
$0.16 per share, subject to adjustment in the event of a stock split. The Company has the right to
suspend the ability of either the former shareholders to exercise their put rights during any
period in which the Company is engaged in a capital raising transaction. In that event the term of
the Put Period will be extended for an additional period equal to the period of the suspension.
In addition to the issuance of shares of ImaRx common stock under the terms of the Stock Purchase
Agreement to Shareholders of Sweet Spot, ImaRx also executed and delivered to each of the two
shareholders a promissory note in the principal amount of $200,000. Each $200,000 promissory note
is secured by a first priority perfected pledge of 50% of the shares of stock of Sycamore Films
owned by ImaRx. As a result, all of the shares of Sycamore Films held by ImaRx are pledged to
secure the obligations represented by both $200,000 promissory notes. Pursuant to the terms of the
pledge and security agreement ImaRx may not, among other things, without the prior written consent
of the former Sweet Spot shareholders, sell, gift, pledge, exchange or otherwise dispose of any of
the Sycamore Films shares, cause or permit Sycamore Films to make any change in its capital
structure or issue or create any stock or other equity interest, or take or fail to take any action
which would in any manner impair the value of the Sycamore Films shares. In the event ImaRx
defaults on the payment of either or both of the $200,000 promissory notes, and such default is not
cured within the applicable cure period, the former shareholders of Sweet Spot may exercise in
respect of the Sycamore Films shares pledged as security for the notes, in addition to other rights
and remedies they may have, all of the rights and remedies of a secured party on default under the
Uniform Commercial Code and also may sell the Sycamore Films shares or any part thereof at public
or private sale. In the event that the proceeds of any such sale is insufficient to pay all
outstanding indebtedness remaining on the notes, ImaRx may be liable for
the deficiency, together with interest. The pledge agreement will terminate upon the earliest of
ImaRxs receipt of notice expressly stating that neither of the former shareholders of Sweet Spot
any longer claims any security interest in the Sycamore Films shares, or the transfer of the
proceeds of the sale of the Sycamore Films shares subsequent to the liquidation sale of such shares
and payment of any outstanding deficiency, or the payment in full of each of the promissory notes.
In the event of such an event, ImaRx could lose all or a portion of its ownership interest in
Sycamore Films.
The
promissory notes incur interest at 7%, are due six months from the closing date of the
acquisition, and are convertible into shares of the Companys common stock upon issuance. The
holders of the notes at any time and from time to time prior to the payment of all obligations
under these promissory notes, including the principal, the interest and the default interest, if
any, in its sole discretion, shall have the right to convert all or any portion of the promissory
notes into fully paid and nonassessable shares of common stock of ImaRx every thirty (30) days
following the closing date with respect to all or any portion of the obligations under these
promissory notes, but not less than $20,000 at a time. The conversion rate is based on the average
of three (3) trading prices for the prior three (3) trading days immediately preceding the
conversion date. The trading price shall mean the intraday trading price on the OTCBB.
In addition, on May 14, 2010, ImaRx entered into employment contracts with the two former
shareholders of Sweet Spot. Each of the agreements provides for an annual salary of $200,000 from inception
of the agreement on May 14, 2010 through the term of the agreement ending May 14, 2013, unless the
agreement is earlier terminated according to the terms of the agreement. The agreement also
provides for annual compensation reviews, provisions for bonuses and other standard provisions.
ImaRx is currently evaluating the accounting impact of these transactions but expects to account
for the acquisition of Sweet Spot as a forward acquisition, the put option on the common stock
issued as a liability and the embedded conversion feature on the convertible promissory notes as a
derivative liability.
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