UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended August 31, 2012

 

[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________ to _____________

 

Commission file number: 333-163782

 

EMPIRE POST MEDIA, INC. and SUBSIDIARY

(Exact name of registrant as specified in its charter)

 

Nevada		27-1122308
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

5023 N. Parkway Calabasas, Calabasas, CA		91302
(Address of principal executive offices)		(Zip Code)

 

310-472-5138

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” ion Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

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

 

As of October 5, 2012, there were 207,837,336 shares of $0.001 par value common stock issued and outstanding.

 

 

 

FORM 10-Q

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

INDEX

 

			Page
PART I.	Financial Information		F-1
	Item 1. Financial Statements (Unaudited)		F-1
	Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation		3
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		7
	Item 4. Controls and Procedures		7
PART II.	Other Information		8
	Item 1. Legal Proceedings		8
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		8
	Item 3. Defaults Upon Senior Securities		8
	Item 4. Submission of Matters to a Vote of Security Holders.		8
	Item 5. Other Information		8
	Item 6. Exhibits		8
	Signatures		9

 

  

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

CONDENSED CONSOLIDATED BALANCE SHEETS

AUGUST 31, 2012 AND NOVEMBER 30, 2011

 

		August 31, 2012				November 31, 2011
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	534			$	51,098
TOTAL CURRENT ASSETS			534				51,098
DEVELOPMENT ASSETS			106,525				96,363
TOTAL ASSETS		$	107,059			$	147,461
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	43,553			$	30,249
Accounts payable to shareholder			21,500				12,500
Accounts payable to related parties			20,000				9,000
Accrued interest			10,373				8,602
Advances payable			85,000				100,000
Notes payable, non-recourse			35,500				35,500
Note payable to shareholder			22,249				14,192
TOTAL CURRENT LIABILITIES			238,175				210,043
COMMITMENTS AND CONTINGENCIES, note 6
SHAREHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 share issued and outstanding			-				-
Common stock, $0.001 par value, 400,000,000 shares authorized, 207,837,336 and 250,237,336 shares issued and outstanding			39,105				81,505
Additional paid-in capital			95,145				325,070
Subscription receivable			-				(298,125	)
(Deficit) accumulated during the development stage			(265,366	)			(171,032	)
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)			(131,116	)			(62,582	)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)		$	107,059			$	147,461

 

See Notes to Condensed Consolidated Financial Statements

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 2012 AND, 2011,

AND CUMULATIVE FROM OCTOBER 13, 2009 (INCEPTION) THROUGH AUGUST 31, 2012

(UNAUDITED)

 

																		Cumulative from
																		October 13, 2009
		Three Months Ended August 31,								Nine Months Ended August 31,								(inception) to
		2012				2011				2012				2011				August 31, 2012
REVENUE		$	-			$	13,500			$	-			$	84,603			$	89,603
COST OF REVENUE			-				16,425				833				73,729				79,436
GROSS PROFIT			-				(2,925	)			(833	)			10,874				10,167
EXPENSES:
General and Administrative			25,572				23,778				91,101				59,350				278,006
LOSS FROM OPERATIONS			(25,572	)			(26,703	)			(91,934	)			(48,476	)			(267,839	)
OTHER INCOME (EXPENSE)			-				-				-				4,873				4,873
NET LOSS BEFORE PROVISION OF INCOME TAXES			(25,572	)			(26,703	)			(91,934	)			(43,603	)			(262,966	)
Provision of Income Taxes			(2,400	)			-				(2,400	)			-				(2,400	)
															.
NET LOSS		$	(27,972	)		$	(26,703	)		$	(94,334	)		$	(43,603	)		$	(265,366	)
Basic and diluted loss per share		$	-			$	-			$	-			$	-
Weighted average shares outstanding (Basic and diluted)			242,402,553				238,656,901				247,616,245				207,956,138

 

See Notes to Condensed Consolidated Financial Statements

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD FROM OCTOBER 13, 2009 (INCEPTION)

THROUGH AUGUST 31, 2012

(UNAUDITED)

 

										Additional
		Common Stock								Paid in				Accumulated				Subscription
		Shares				Amount				Capital				(Deficit)				Receivable				Total
BALANCE, October 13, 2009 (Date of Inception			-			$	-			$	-			$	-			$	-			$	-
Issuance of shares for cash in October 2009 ($0.000125 per share)			24,000,000				3,000				-				-				-				3,000
Issuance of shares for services in October 2009 ($0.000125 per share)			168,000,000				21,000				-				-				-				21,000
Net (Loss), November 2009			-				-				-				(22,297	)			-				(22,297	)
BALANCE, November 30, 2009			192,000,000				24,000				-				(22,297	)			-				1,703
Net (Loss), November 2010			-				-				-				(61,654	)			-				(61,654	)
																							-
BALANCE, November 30, 2010			192,000,000				24,000				-				(83,951	)			-				(59,951	)
Issuance of shares for accrued salaries in February 2011 ($0.01875 per share)			837,336				105				15,595				-				-				15,700
Issuance of shares for subscription receivable on June 16, 2011 ($0.00625 per share)			54,400,000				54,400				285,600				-				(340,000	)			-
Payment received from Subscription Receivable, July and August, 2011			-				-				-				-				50,000				50,000
Issuance of stock to acquire subsidiary Hybrid Reality Entertainment August 4, 2011 ($.00625)			3,000,000				3,000				15,750				-				-				18,750
																							-
Interest on Subscription Receivable, August 2011			-				-				2,925				-				(2,925	)			-
Interest on Subscription Receivable, November 2011			-				-				5,200				-				(5,200	)			-
Net (Loss), November 2011			-				-				-				(87,081	)			-				(87,081	)
BALANCE, November 30, 2011			250,237,336				81,505				325,070				(171,032	)			(298,125	)			(62,582	)
Payment received from Subscription Receivable, January and February, 2012			-				-				-				-				25,800				25,800
Interest on Subscription Receivable			-				-				8,485				-				(8,485	)			-
To Cancel the Balance of Subscription Receivable, August 14, 2012			(42,400,000	)			(42,400	)			(238,410	)			-				280,810				-
Net (Loss), August 2012			-				-				-				(94,334	)			-				(94,334	)
																							-
BALANCE, August 31, 2012			207,837,336			$	39,105			$	95,145			$	(265,366	)		$	-			$	(131,116	)

 

See Notes to Condensed Consolidated Financial Statements

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED AUGUST 31, 2012 AND 2011,

AND CUMULATIVE FROM OCTOBER 13, 2009 (INCEPTION) THROUGH AUGUST 31, 2012

(UNAUDITED)

 

		For the Nine Months Ended August 31, 2012				For the Nine Months Ended August 31, 2011				Cumulative from October 13, 2009 (inception) to August 31, 2012
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss		$	(94,334	)		$	(43,603	)		$	(265,366	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of property and equipment			-				(4,873	)			(4,873	)
Common stock issued for services			-				-				21,000
Depreciation expenses			-				2,568				8,281
Increase/Decrease in:
Accounts receivable			-				(15,500	)			(15,500	)
Accounts payable			13,304				16,628				43,553
Accounts payable to shareholder			9,000				9,000				37,200
Accounts payable to related parties			11,000				-				20,000
Accrued interest			1,771				2,484				7,373
NET CASH USED IN OPERATING ACTIVITIES			(59,259	)			(33,296	)			(148,332	)
CASH FLOW FROM INVESTING ACTIVITIES:
Capitalized development asset			(10,162	)			(16,098	)			(35,031	)
Cash received from Hybrid Reality			-				1,256				1,256
NET CASH USED IN INVESTING ACTIVITIES			(10,162	)			(14,842	)			(33,775	)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock			25,800				50,000				78,800
Proceeds from shareholder loan			28,150				24,439				76,094
Payments on shareholder loan			(20,093	)			(27,960	)			(57,253	)
Proceeds from advances payable			10,000				50,000				110,000
Payments on advances payable			(25,000	)			-				(25,000	)
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES			18,857				96,479				182,641
NET INCREASE (DECREASE) IN CASH			(50,564	)			48,341				534
CASH BEGINNING OF PERIODS			51,098				908				-
CASH AT THE END OF PERIODS		$	534			$	49,249			$	534
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid in cash		$	-			$	-			$	-
Interest expense paid in cash		$	-			$	-			$	-
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Acquisition of computer equipment through assumption of a note payable to Shareholder		$	-			$	-			$	15,408
Acquisition of rights to television series through issuance of stock and assumption of liabilities		$	-			$	71,994			$	71,494
Conversion of liability to equity		$	-			$	15,700			$	15,700
Distribution of computer equipment as settlement of note payable to shareholder		$	-			$	12,000			$	12,000

 

See Notes to Condensed Consolidated Financial Statements

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Organization and Nature of Operations

 

Empire Post Media, Inc. and Subsidiary (the “Company”) was founded in the State of Nevada on October 13, 2009. The Company is in the business of providing post production services to the movie and television industry. The services include both two-dimensional and three-dimensional formats and are offered on a collateralized-deferred basis to producers and owners of feature films; television movies, specials and series; short subjects and documentaries. In the opinion of management, the accompanying financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the period presented. On August 4, 2011, Empire acquired 100% of the outstanding shares of Hybrid Reality Entertainment, Inc. (Hybrid), a California corporation. Hybrid was incorporated in May of 2011. At the date of acquisition, Hybrid has the rights to the newly created television series, Journey Beyond, and is now being used by the Company to create, develop, and produce reality-based television programs.

 

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the Securities and Exchange Commission (SEC) rules for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The balance sheet information as of November 30, 2011 was derived from the audited financial statements included in Form 10-K filed March 14, 2012. These interim financial statements should be read in conjunction with that report.

 

In June of 2011, the Company’s Board of Directors authorized an eight-for-one share split, to take effect on July 7, 2011. Each shareholder of record on July 7, 2011 received seven additional shares for each share held on that date. As required by accounting guidance, authorized shares, issued and outstanding shares and per share amounts have been retroactively restated throughout these condensed consolidated financial statements and the accompanying notes to reflect Empire’s change in capital structure.

 

Basic of Consolidation

 

The condensed consolidated financial statements include the accounts of Empire Post Media, Inc. (Empire) and its wholly owned subsidiary, Hybrid Reality Entertainment, Inc (Hybrid). All significant intercompany accounts and transactions since the date of acquisition have been eliminated in consolidation.

 

Development Stage Activities

 

Since inception the Company has only limited revenue-producing business operations. All of the operating results and cash flows reported in the accompanying condensed consolidated financial statements from October 13, 2009 (date of inception) through August 31, 2012 are considered to be those related to the development stage activities and represent the ‘cumulative from inception’ amounts required to be reported pursuant to the accounting standards for Development Stage Enterprises. The Company is focusing significant efforts on developing its business.

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)

 

Going Concern

 

The Company has only limited revenues and has generated a net operating loss since its inception. The Company also has a negative working capital and accumulated deficit at August 31, 2012. These factors among others raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the carrying amount of the recorded assets or the amount of liabilities that might result from the outcome of this uncertainty. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company’s ability to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management plans to raise additional capital through stock offerings in order to build up the business and name recognition. However, there can be no assurance that the Company will be able to raise sufficient capital to fully implement its business model.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

The Company extends credit to its customers and maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial conditions of any of its customers have deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.

 

Property and Equipment

 

Property and equipment are stated at cost and consists solely of computer equipment. All of the computer equipment was purchased by an officer/shareholder of the Company immediately preceding its transfer to the Company. Therefore the transferor’s historical cost is the same as the cost of the asset. Depreciation of computer equipment is computed on the straight-line basis over 3 years, the estimated useful life of the equipment.

 

		For The Three Months Ended								For The Nine Months Ended								Cumulative from October 13, 2009
		August 31,								August 31,								(inception) to
		2012				2011				2012				2011				August 31, 2012
Depreciation Expense		$	-			$	1,284			$	-			$	2,568			$	8,281

 

On May 21, 2011, the Company sold all of its property and equipment for $12,000, which reduced the officer/shareholder loan. Empire recorded $4,873 as gain for the year ended November 30, 2011 from the sale of its property and equipment.

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Development Assets

 

The Company capitalizes all costs for bringing its television production to market including production overhead costs and capitalization-of-interest costs. Development assets are stated at fair value. The Company will record a write-down of development asset(s) when it determines that it is probable that a development asset(s) has become impaired, using the specific-identification model. The Company will write off the development asset(s) if the project has not been green-lit, or set for production, within three years from the date the initial cost capitalization. Capitalization of development assets begins when the first costs related to a television project exceeded $5,000. Any tax incentives will be recorded as reductions in television production cost in according to the accounting prescribed by ASC 740-10-25. Cost amortization is based on the use of individual-film-forecast method over a period not to exceed 10 years. However, if the secondary market has been established, amortization of production costs may be done over a longer period. ASC 926 includes guidance specific to episodic television series for assessing which revenue streams can be included in ultimate revenues. The Company will write off development asset(s) in excess of the contractual license fees on an episode-by-episode basis.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its knowledge of its business in making estimates. Accordingly, actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The carrying amount of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable, approximates fair value due to the relatively short maturity of such instruments.

 

We considered the guidance of Topic ASC 835-30-25-2 which states that if determinable, the established exchange price of property acquired in consideration for the note may be used to establish the present value of the note. The fair value of the note approximates its carrying amount, due to its short maturity. Discounting the future payments using an imputed rate of interest different from the stated rate would not have a significant impact on the note, as the note is due on demand.

 

Revenue Recognition

 

Revenue is recognized in accordance with the guidance of FASB ASC 605-10-25, which is when the revenue is realized or realizable, and when revenue is earned. Revenue is considered earned when the services to be rendered under the contracts are substantially completed. All contracts are collateralized with a legally perfected, secured interest in each project’s distribution receipts and other revenues.

 

The Company recognizes revenue for its television series when five of the following conditions are met: (1) persuasive evidence of sale or licensing arrangement exists, (2) the series are completed and have been delivered or are available for immediate and unconditional delivery, (3) the license period has begun, (4) the fee is fixed or determinable, and (5) collection of the fee is reasonable assured.

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Consulting Fees

 

Consulting fees include fees for services provided by officers/shareholders of the Company. (See Note 7 - Related Party Transactions).

 

		For The Three Months Ended								For The Nine Months Ended								Cumulative from October 13, 2009
		August 31,								August 31,								(inception) to
		2012				2011				2012				2011				August 31, 2012
Consulting fees		$	3,750			$	3,800			$	22,950			$	9,800			$	83,650

 

Income Taxes

 

The Company accounts for income taxes under the liability method in accordance with FASB ASC 740-10. Under this standard, deferred income tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Deferred income tax assets are reduced by a valuation allowance when the Company is unable to make the determination that it is more likely than not that some portion or all of the deferred income tax asset will be realized.

 

The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the periods ended August 31, 2012 and 2011. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state jurisdictions. For jurisdictions in which tax filings are prepared, the Company is subject to income tax examinations by state tax authorities and the IRS for tax years through 2011.

 

Earnings (Loss) per Share

 

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. The weighted average numbers of shares outstanding have been retroactively restated to consider an 8 for 1 stock split effective July 7, 2011.

 

3. NOTE PAYABLE TO SHAREHOLDERS

 

At August 31, 2012, the Company has an outstanding note payable balance, bearing 8% interest, due on demand, due from an officer/shareholder of the Company in the amount of $7,249. Interest accrued on this note totaled $6,922 since inception. For the nine months ended August 31, 2012 and 2011, an officer/shareholder advanced the Company $13,150 and $24,439 and was repaid $20,093 and $27,960, respectively.

 

The Company has a note payable to another shareholder for an amount of $15,000, bearing 5% interest. The note is due and payable on August 1, 2013. Interest accrued on this note total $113 for the three and nine months ended August 31, 2012.

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

4. CONCENTRATIONS

 

Cash Deposits

 

The Company maintains its cash at a financial institution. The account is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. On May 20, 2009, the FDIC temporarily increased its coverage from $100,000 to $250,000 per depositor through December 31, 2013. The Company’s cash account, at times, may exceed federally insured limits.

 

5. NOTES PAYABLE, NON-RECOURSE

 

On May 10, 2011, Hybrid, the Company’s wholly owned subsidiary, entered into an Investment Agreement with two independent investors who provided the Company with two nonrecourse loans for the total amount of $30,000. Loans will be repaid with 10% fixed interest rate upon the funding of the first season of the Journey Beyond series. On August 31, 2011, Hybrid entered in an agreement with a shareholder who provided additional $5,500 non-recourse loan. Loan will be repaid with 6% interest per annum upon the funding of the first season of the Journey Beyond series. Accrued interest for these three loans totaled $3,338 as of August 31, 2012. There is no assurance regarding the funding of the first season of the Journey Beyond series. If the series are not funded, loan balance and interest will be forgiven.

 

6. COMMITMENTS AND CONTINGENCIES

 

Advances Payable

 

For the nine months ended August 31, 2012, the Company repaid $25,000 and received additional $10,000 advance from escrow account. As of August 31, 2012, Advances Payable balance totaled $85,000.

 

Investment Agreement

 

In June of 2012, the Company has decided to bring distribution of the series Journey Beyond in house rather than have an outside distributor. In the best interest of the Company and its shareholders, the Board has agreed with the Investor to release $1,100,000 of the investment monies that were ear-marked for the Journey Beyond project back to the Investor. On September 4, 2012, the Company distributed the remaining balance in the escrow account back to the Investor. The Board and the Investor will continue to visit the possibility of investing monies into future theatrical projects of the Company on an individual project basis.

 

Commitments

 

On August 4, 2011, Empire entered into an agreement to acquire 100% outstanding shares of Hybrid’s stock for 3,000,000 (post split shares) of Empire’s common stock at the price of $.00625 per share. Hybrid’s shareholders will receive an additional 7,000,000 shares (post split shares) of Empire’s common stock upon the receipt of financing for the production of the first 13 episodes of the Journey Beyond series. Hybrid’s shareholders will receive an additional 10,000,000 shares (post split shares) of Empire’s common stock upon receipt of a commitment, satisfactory to Empire, for the airing of a second season of Journey Beyond. At the date of acquisition, Hybrid owns the right to one reality-based television program. If the Company successfully develop and market Journey Beyond, the Company will share the profit with the producers and the investors. The profit sharing terms are determined based on a project by project basis.

 

In March 2012, the Company entered into a month-to-month operating lease with an unrelated party for a monthly rent of $100.

 

Contingencies

 

The Company is involved in legal proceedings in the ordinary course of its business. In August 2012 the Company was served with a lawsuit filed in the Superior Court of the State of California, San Diego Central District by an individual alleging violations of California laws restricting unsolicited commercial e-mail advertisers. The Company completely denies any involvement with the distribution unsolicited advertising materials and is vigorously defending the lawsuit. Although management of the Company cannot predict the ultimate outcome of these legal proceedings with certainty, Management does not believe that this legal action will have any material effect on the Company’s condensed consolidated financial statements.

 

  

EMPIRE POST MEDIA, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AUGUST 31, 2012

(UNAUDITED)

 

7. RELATED PARTY TRANSACTIONS

 

On February 25, 2011, the Company converted $15,700 of accrued compensations of one current officer and one former officer into shares of the Company’s common stock at a price of $.01875 per share for a total of 837,336 shares (post-split shares).

 

For the nine months ended August 31, 2012 and 2011, the Company paid Mr. Allen Dunn for his services in an amount of $13,950, and $800, respectively. Mr. A. Dunn is the son of the Company’s majority shareholder, Peter Dunn.

 

As of August 31, 2012 and November 30, 2011, the Company had an outstanding accounts payable balance of $20,000 and $9,000 due to one of its director for accounting services, respectively.

 

As of August 31, 2012 and November 30, 2011, the Company had an outstanding accounts payable balance of $21,500 and $12,500 due to its shareholder/officer, respectively.

 

8. SUBSCRIPTIONS RECEIVABLE

 

On June 16, 2011, the Company entered in an agreement with SLC Air, Inc. to issue 6,800,000 pre-split common shares (an equivalent of 54,400,000 post-split shares) at the average price of $.05 per share for a note receivable of $340,000, net of transaction fees. The balance of $50,000 and $290,000 were due on August 16, 2011 and October 31, 2011, respectively, including accrued interest of 6½ % per annum. As of August 14, 2012, accrued interest totaled $15,810 and subscriptions receivable balance totaled $265,000. As of August 14, 2012, the Company has received $75,800 in repayments on the subscription receivable and interest. On August 14, 2012, the Company entered into an agreement with SLC Air to not seek repayment of the purchase balance owed to it, and SLC Air agreed to return back 42,400,000 shares of the Company’s common stock.

 

  

Item 2. Management’s Discussion and Analysis or Plan of Operation

 

General Overview

 

Empire Post Media, Inc. (“Empire” and/or the “Company) was incorporated under the laws of the State of Nevada on October 13, 2009, with a business plan for providing and financing post-production services to the movie and television industry. The Company is in the development stage and has generated $89,603 of revenues since inception.

 

On August 4, 2011, Empire acquired 100% of the outstanding shares of Hybrid Reality Entertainment, Inc. (Hybrid), a California corporation. Hybrid was incorporated in May of 2011. At the date of acquisition, Hybrid has the rights to the newly created television series, Journey Beyond, and is now being used by the Company to create, develop, and produce reality-based television programs.

 

On April 5, 2010, the United States Securities and Exchange Commission (the “SEC”) declared effective our registration on Form S-1 (the “Registration Statement”). The Registration statement was for the sale of up to 96,000,000 registered shares of our common stock (the “Shares”) owned by Mr. Peter Dunn, our founder and CEO ( the “Selling Shareholder”) at a price of $.005 per share. The Company did not receive any of the proceeds from the sale of the shares. The Company paid all of the expenses of the offering because it wanted to (i) become a reporting company with the Commission under the Securities Exchange Act of 1934 (the “1934 Act”); and (ii) enable its common stock to be traded on the OTC Bulletin Board. The Company’s common stock currently trades on the OTC Bulletin Board.

 

Critical Accounting Policies and Estimates

 

Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR60”) issued by the SEC, suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to Empire’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of our significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the condensed consolidated financial statements.

 

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

 

The Company bases its estimates on management historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There is no assurance that actual results will not differ from these estimates.

 

See footnotes in the accompanying condensed financial statements regarding recent financial accounting developments.

 

Income Taxes

 

We make estimates to determine our current provision for income taxes, as well as our income taxes payable. Our estimates with respect to the current provision for income taxes take into account current tax laws and our interpretation of current tax laws, as well as possible outcomes of any future tax audits. Changes in tax laws or our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in our financial statements.

 

  

Results of Operation

 

The Company is a development stage company that has a limited history of operations. Since our inception on October 13, 2009 to August 31, 2012, we have generated limited revenues. As of August 31, 2012, we had $534 in current assets. We presently may not have the sufficient capital to continue our operations.

 

The Company’s result of operations for the quarters and the nine months ended August 31, 2012 and 2011, and from inception to August 31, 2012 as follow:

 

		For The Three Months Ended								For The Nine Months Ended								Cumulative from October 13, 2009
		August 31,								August 31,								(inception) to
		2012				2011				2012				2011				August 31, 2012
Revenue		$	-			$	13,500			$	-			$	84,603			$	89,603
Cost of Revenue		$	-			$	16,425			$	833			$	73,729			$	79,436
Operating Expenses		$	(25,572	)		$	23,778			$	91,101			$	59,350			$	278,006
Other Income/Expense		$	-			$	-			$	-			$	4,873			$	4,873
Net Loss		$	(27,972	)		$	(26,703	)		$	94,334			$	(43,603	)		$	(265,366	)

 

Plan of Operation

 

We did not receive any proceeds from the sale of shares under Registration Statement during the quarter ended August 31, 2012. Our continued existence is dependent upon our ability to obtain additional financing and to generate revenue. We estimate that our capital requirements for the next 6 months will be in the range of $30,000 to $60,000.

 

On June 16, 2011, the Company entered in an agreement with SLC Air, Inc. to issue 6,800,000 pre-split common shares (an equivalent of 54,400,000 post-split shares) at the average price of $.05 per share for a note receivable of $340,000, net of transaction fees. The balance of $50,000 and $290,000 were due on August 16, 2011 and October 31, 2011, respectively, including accrued interest of 6½ % per annum. As of August 14, 2012, accrued interest totaled $15,810 and subscriptions receivable balance totaled $265,000. As of August 14, 2012, the Company has received $75,800 in repayments on the subscription receivable and interest. On August 14, 2012, the Company entered into an agreement with SLC Air to not seek repayment of the purchase balance owed to it, and SLC Air agreed to return back 42,400,000 shares of the Company’s common stock.

 

For Empire Post Media to execute its current business plan, it will need to raise additional money over and above its normal operating expenses. The company plans to follow it successful third party fund raising program for this need.

 

The motion picture industry is intensely competitive. While the Company intends to grow its business during the next twelve (12) months, volatile market conditions and the ongoing uncertainty of the global economic outlook could stymie that growth at any time.

 

Based on our current operating plan, we may not generate revenue that is sufficient to cover our expenses for the next six months, and we will need to obtain additional financing to operate our business for the next six months. Our “burn rate” is approximately $10,000 per month. Most of our expenses are anticipated to be outside services, consulting, legal, accounting, transfer agent, and other costs associated with being a public company. Since we intend to utilize our officers and directors, who currently are part time and whose salaries are being accrued, to sell our services, our marketing costs should be minimal, if any. Additional financing, whether through public or private equity or debt financing, arrangements with the security holder or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity is dependent on our ability to generate revenue and to raise additional capital.

 

If we issue additional equity securities to raise funds, the ownership percentage of our existing security holder would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets. The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either short or long-term capital requirements, our operations and liquidity could be materially adversely affected and we could be forced to cease operations.

 

Our limited revenues and dependence on our ability to raise additional capital to continue our existence raise substantial doubt about our ability to continue as a going concern. Our financial statements and their explanatory notes do not include any adjustments that might result from the outcome of this uncertainty. If we fail to obtain additional financing, either through an offering of our securities or by obtaining loans, we may be forced to cease our business.

 

  

Liquidity and Capital Resources

 

Since our inception on October 13, 2009 to August 31, 2012, we have incurred a loss of $265,366. Our cash and cash equivalent balances were $534 as of August 31, 2012. At August 31, 2012, we had a shareholders’ deficit of $131,116 and our total liabilities due to accounts payable, accrued interest, advances payable, notes payable and amounts due to related parties were $238,175.

 

On February 25, 2011, the Company issued an aggregate of 837,336 shares of its common stock at a price of $.01875 per share in satisfaction of accrued compensations owed to one current and one previous officer.

 

On June 16, 2011, the Company issued an aggregate 54,400,000 shares of its common stock at a price of $.00625 for a subscription receivable in an amount of $340,000, bearing 6% interest, due on Oct 31, 2011. As of August 14, 2012 the Company has received $75,800 from subscription receivable. On August 14, 2012, the Company entered into an agreement with SLC Air to not seek repayment of the purchase balance owed to it, and SLC Air agreed to return back 42,400,000 shares of the Company’s common stock.

 

On August 4, 2011, the Company issued an aggregate 3,000,000 shares of its common stock at a price of $.00625 per share to acquire 100% of outstanding shares of Hybrid Reality Entertainment’s stocks.

 

Based on our current operating plan, we do not expect to generate revenue that is sufficient to cover our expenses for at least the next year. In addition, we may not have sufficient cash and cash equivalents to execute our operations for at least the next year. We will need to obtain additional financing to conduct our day-to-day operations, and to fully execute our business plan. We anticipate raising the capital necessary to fund our business through a subsequent offering of equity securities. Additional financing, whether through public or private equity or debt financing, arrangements with security holder or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us.

 

We estimate that our “burn rate” is approximately $10,000 per month. Management has estimated the cost over the next six months to be (a) between $30,000 and $60,000 to continue to marketing and financing of post-production services to the entertainment industry, and (b) $10,000 to maintain our reporting status. Therefore our current cash on hand will not satisfy our cash requirements for the next six months and in the event that our revenues do not increase, our CEO and director, Mr. Dunn, will need to arrange additional financial commitments to our company, which is not guaranteed. Between October 13, 2009 and August 31, 2012, Mr. Dunn loaned the Company up $60,894 pursuant to an Agreement to Advance Funds between Empire and Mr. Dunn. These funds were used for fees and expenses related to this offering and to sustain our business over the period. Although Mr. Dunn may be willing to make some personal additional financial commitments, the total additional amount that he is willing to invest has not yet been determined.

 

We plan to satisfy our future cash requirements - primarily for working capital required for the marketing of our services and to offset legal and accounting fees - through revenue generating activities as well as financing activities. Our financing activities will likely be in the form of future debt or equity financing.

 

Management believes that if we obtain sufficient funds to operate our business through future debt or equity financing, we will increase our sales revenue within the following twelve months. However, additional debt or equity financing may not be available to us on acceptable terms or at all, and thus we could fail to satisfy our future cash requirements.

 

If we are unsuccessful in raising the additional proceeds through future equity financing we will then have to seek additional funds through debt financing, which would be highly difficult for a new development stage company to secure. Therefore, we are highly dependent upon the future equity financing and/or support from our existing shareholders. However, if such debt financing were available, because we are a development stage company with no operations to date, we would likely have to pay additional costs associated with high risk loans and be subject to an above market interest rate. At such time these funds are required, management would evaluate the terms of such debt financing and determine whether the business could sustain operations and growth and manage the debt load. If we cannot raise additional proceeds via future debt or equity financing we would be required to cease business operations. As a result, investors in our common stock would lose all of their investment. Also management believes that if we cannot raise sufficient revenues or maintain our reporting status with the SEC we will have to cease all efforts directed towards our business. As such, any investment previously made would be lost in its entirety.

 

If we are unable to complete any phase of our development or marketing efforts because we don’t have enough money, we will cease our development and/or or marketing operations until we raise the necessary money. Attempting to raise capital after failing in any phase of our development plan could be difficult. As such, if we cannot secure additional proceeds we will have to cease operations and investors would lose their entire investment.

 

Our auditors have issued a “going concern” opinion, which is included in the financial statements included in our recent Form 10-K filing. . This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have generated only limited revenues to date. Our only other source for cash at this time is investments by our CEO and director. We must raise cash to implement our business strategy and stay in business.

 

  

As of August 31, 2012, we had a demand note payable to Mr. Dunn in an amount of $7,249. For the nine months ended August 31, 2012, the Company received additional loan of $13,150 and repaid Mr. Dunn $20,093. On May 21, 2011, the Company sold property and equipment for $12,000, which reduced the officer/shareholder loan. .

 

Operating Activities

 

The Company had $59,259 in net cash used in operating activities for the nine months ended August 31, 2012, which included $94,335 in net loss, which was decreased by an increase of $13,304 in accounts payable, $9,000 in accounts payable to shareholder, $11,000 in accounts payable to related party, and $1,771 in accrued interest. The Company had $33,296 in net cash used in operating activities for the nine months ended August 31, 2011, which included $43,603 in net loss, and $15,500 increase in accounts receivable, which amounts were offset by $2,568 in depreciation expense, $16,628 in accounts payable, $9,000 in accounts payable to shareholder, and $2,484 in accrued interest.

 

Financing Activities

 

Financing activities resulted in a net cash inflow of $182,641 from October 13, 2009 (date of inception) to August 31, 2012. For the nine months ended August 31, 2012 and 2011, financing activities resulted in a net inflow of $18,857 and $96,479, respectively.

 

Investing Activities

 

Investing activities resulted in a net outflow of $33,776 from October 13, 2009 (date of inception) to August 31, 2012. For the nine months ended August 31, 2012 and 2011, investing activities resulted in the net outflow of $10,162 and $14,842, respectively. The Company has capitalized all production costs for the Pilot of Journey Beyond, including interest.

 

Recently Issued or Newly Adopted Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Fair Value Measurement (“ASU 2011-04”), which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 will be effective for us beginning December 1, 2012. The adoption of ASU 2011-04 is not expected to have a material effect on our consolidated financial statements or disclosures.

 

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 will be effective for us beginning December 1, 2012. The adoption of ASU 2011-05 is not expected to have a material effect on our consolidated financial statements or disclosures.

 

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles—Goodwill and Other – Goodwill. ASU 2011-08 provides entities with the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, the entities are required to perform a two-step goodwill impairment test. ASU 2011-08 will be effective for us beginning December 1, 2012. The adoption of ASU 2011-08 is not expected to have a material effect on our consolidated financial statements or disclosures.

 

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities.” The amendments in this update require enhanced disclosures around financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The amendments are effective during interim and annual periods beginning after December 31, 2012. The Company does not expect this guidance to have any impact on its consolidated financial position, results of operations or cash flows.

 

Satisfaction of Our Cash Obligations for the Next Twelve Months

 

As of August 31, 2012, our cash balance was $534. Our plan for satisfying our cash requirements for the next six months, estimated to be between $30,000 and $60,000, is through services-generated income, sale of shares of our common stock, third party financing, and/or traditional bank financing. We anticipate increased services-generated income during that same period of time, but do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.

 

  

Expected Purchase or Sale of Significant Equipment

 

None

 

Additional Disclosure of Outstanding Share Data

 

As of September 26, 2012, we had 207,837,336 shares of common stock issued and outstanding.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements, including any outstanding derivative financial statements, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There are numerous factors that affect the Company’s business and the results of its operations. These factors include general economic and business conditions; our ability to raise such funds as are necessary to maintain our operations; the ability of management to execute its business plan.

 

Item 4. Controls and Procedures

 

Evaluation of our Disclosure Controls

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer/ principal financial officer has evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO/CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO/CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based upon their controls evaluation, our CEO/CFO has concluded that our Disclosure Controls are effective at a reasonable assurance level.

 

Changes in internal control over financial reporting

 

There have been no changes in our internal controls over financial reporting during our first fiscal quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In August, 2012 the Company was served with a lawsuit filed in the Superior Court of the State of California, San Diego Central District (Case No. 37-2012-00101057-CU-NP-CTL) by an individual alleging violations of California laws restricting unsolicited commercial e-mail advertisers. The Company completely denies any involvement with the distribution unsolicited advertising materials and is vigorously defending the lawsuit. Management does not believe that this legal action will have any material effect on the business of the Company.

 

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

 

None

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

 

Exhibit No.		SEC Ref. No.		Title of Document
1		31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
2		31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
3		32.1		Certification of the Principal Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 

  

SIGNATURES

 

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	EMPIRE POST MEDIA, INC.
Date: October 5, 2012
	/s/ Peter Dunn
	Peter Dunn
	Chief Executive Officer