The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets that can be liquidated in a timely manner, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has a deficit accumulated since inception (June 2, 2008) through November 30, 2012; of ($1,419,714).The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations, from inception to November 30, 2012 by way of issuing common shares, advances from related parties and a long term Note arrangement.
As of November 30, 2012, the Company had issued 52,500,000 common shares, for a total of $1,202,500. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
In accordance with ASC Topic 825 and 820 the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
In August, 2011 and February, 2012, the company filed, amended and restated Articles of Incorporation with the Secretary of State of Florida which:
On July 30, 2010, the then sole officer and director of the Company purchased 1,000,000 shares of the common stock in the Company at $0.005 per share for $5,000.
On July 31, 2010, eight (8) individuals (including four (4) minor aged children) purchased 4,500,000 shares of the common stock in the Company at $0.005 per share for $22,500. These 4,500,000 common shares were issued as consideration for the deposit of $22,500 on the agreement to purchase intellectual properties.
On April 30, 2011, the Company issued 500,000 shares of the common stock in the Company at $0.025 per share for $12,500 as payment of debt to related parties.
On July 31, 2011, the Company issued 1,200,000 shares of the common stock in the Company at $0.025 per share for $30,000 as payment of liabilities for consulting services rendered.
On August 26, 2011, the Company issued 14,700,000 shares of the common stock in the Company at $0.025 per share for $367,500 as payment of liabilities for consulting services rendered.
FIRST LEVEL ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On August 26, 2011, the Company issued 9,600,000 shares of the common stock in the Company at $0.025 per share for $240,000 as payment of the liability for the company’s children’s library.
On February 29, 2012, the Company issued 1,300,000 shares of the common stock in the Company at $0.025 per share for $32,500 as payment of debt to related parties.
On February 29, 2012, the Company issued 3,000,000 shares of the common stock in the Company at $0.025 per share for $75,000 as payment for consulting services.
On February 29, 2012, the Company issued 120,000 shares of the common stock in the Company at $0.025 per share for $3,000 pursuant to the Form S-1 as filed with the Securities and Exchange Commission.
On April 17, 2012, the Company issued 4,080,000 shares of the common stock in the Company at $0.025 per share for $102,000 as payment for consulting services (3,000,000 common shares) and stock based compensation (1,080,000 common shares).
On May 31, 2012, the Company issued 6,800,000 shares of the common stock in the Company at $0.025 per share for $170,000 of which 2,800,000 common shares was payment for stock based compensation and 4,000,000 common shares were issued for services rendered.
In June, 2012, the Company issued 3,200,000 shares of the common stock in the Company at $0.025 per share for $80,000 of which 2,000,000 common shares was payment for stock based compensation and 1,200,000 common shares were issued for services rendered.
In August, 2012, the Company issued 3,000,000 shares of the common stock in the Company at $0.025 per share for $75,000 of which 2,500,000 common shares was payment for stock based compensation and 500,000 common shares were issued for services rendered.
From inception (June 2, 2008) through November 30, 2012, the Company has not granted any stock options and warrants.
NOTE 6 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. In accordance with ASC Topic 740 – Accounting for Income Tax and ASC Topic 605 - Accounting for Uncertainty in Income Taxes, when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The components of the Company’s deferred tax asset as of November 30, 2012 are as follows:
November 30, 2012
Net operating loss carry forward
Times Tax at Statutory rate
Deferred Tax Asset
Net deferred tax asset
The net federal operating loss carry forward will expire between 2028 and 2031. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
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FIRST LEVEL ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 – RELATED PARTY TRANSACTIONS
During the period from June 2, 2008 (inception) through August 31, 2011 the former sole officer and director paid incorporation costs of $684 on behalf of the Company. Additionally, other affiliates and related parties have made advances from time to time and at November 30, 2012 and August 31, 2011, the amounts were $0 and $0 respectively. These were classified as loans from related parties.
On April 17, 2012, the Company entered into a Convertible Note with a related entity controlled by our Chief Executive Officer (Steve Adelstein). Under the terms of this Note, the maximum amount to be advanced (from time to time) is $150,000 on or before December 31, 2012. The Note matures on August 31, 2015 including interest of 9% compounded quarterly. Additionally, the Note can be converted into common shares of the Company at $0.03 per common share at the sole discretion of the Note holder and/or assigns. As advances under this Note are at the sole discretion of the holder, there are no assurances that any future advances will be provided. At November 30, 2012, the Note amount was $125,000.
Limited office space and services are provided without charge by a related party which is considered immaterial for financial presentation. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 8 – NOTE PAYABLE
On July 31, 2010, the company acquired intellectual property for a total cost of $262,500. At closing, the company executed a promissory note in the amount of $240,000 having the following salient terms and conditions:
The intellectual property secures the promissory note
There is no stated interest rate, but interest is calculated as cash flow is receive by the company from any/all sources at $0.075 per song download and $0.125 per song from any/all sources including, but not limited to, compact disc (CD)
There are no stated period payments of principle and the promissory note is due in its entirety July 31, 2015.
The promissory note is executed in its entirety to Tammi Shnider as Trustee representing a total of eight (8) individuals (including four (4) minor aged children). Tammi Shnider is a related party.
On August 26, 2011, this Note was paid in full with the issuance of 9,600,000 common shares valued at $0.025 per common share.
NOTE 9 – OFFICE LEASE OBLIGATIONS
On October 1, 2011, the Company has entered into an operating lease agreement for its warehouse and corporate offices located in Franklin, Tennessee consisting of approximately 1,900 square feet. The lease was terminated at January 31, 2012 and the company forfeited its security deposit of $5,600.
NOTE 10 – SUBSEQUENT EVENTS
We have evaluated events and transactions that occurred subsequent to November 30, 2012 through December 14, 2012, the date the financial statements were issued, for potential recognition or disclosure in the accompanying financial statements. Other than the disclosures above, we did not identify any events or transactions that should be recognized or disclosed in the accompanying financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
We are a development stage company incorporated in the state of Florida in June, 2008. The current focus of our development stage company has the primary focus of developing mobile applications as follows:
The VIPWINK™ mobile application is currently in software development stage for iTunes and Android phones whereby allowing the celebrity to offer premium content via a paid subscription based model. The premium content will be locked out to all non-subscribers and available on a time delay established by the celebrity.
This application should enable celebrities, athletes, branded products and others to monetize their (Twitter™) followers and have better control content and timing of often negative, runaway trends that currently plague them and the industry. This application is conceptually being developed for beta testing in the second quarter of 2013.
VIPWINK™ has executed agreements with a selective roster of VIP celebrities, athletes, branded products and others for our beta testing of our functioning prototype. The preliminary roster of VIPWINK™ has approximately 2,000,000 followers on Twitter™. We continuously are in negotiations to execute further agreements to coincide with our development of this application.
We have filed a patent application (13/662,417) with the United State Patent and Trademark Office (USPTO) on October 27, 2012 titled “Localized Interest Based Matching of Mobile Device Users.”
MobileSonars™ is a designed mobile application which is location-specific by the user answering a specific questionnaire that is “pushed” to the user at the location, social, business event and/or venue. When the application is activated at the specific location, the user is then matched with others who have answered the questions in a similar manner based on a pre-determined threshold. Matching profiles can be displayed on user’s mobile phone and related electronics. Downloading and checking-in will be accomplished through direct user input, a physical marker including a QR (Quick Response) code, RFID (Radio Frequency Identification), or the user can opt-in for automatic check-in GPS (Global Positioning System).
Additionally, the Company, on July 31, 2010, acquired intellectual property consisting of thirty-five (35) children’s songs to market and sell through distribution channels throughout the United States and foreign territories. Our music library consists of our thirty-five (35) songs, having personalization for approximately 200 children’s names, being marketed in three (3) primary formats consisting of Compact Disc (CD), Video (DVD) and MP3 (Direct Download). The present strategy of marketing these products to the end user (the consumer’s point of purchase) is through the efforts of independent distributors specializing in marketing these types of formats. The ultimate consumer will be able to purchase our products through the normal source of physical retailers allowing the consumer to purchase inventories of our CD/DVD products and ecommerce through the internet via direct downloads.
Our financial statements have been prepared on the basis of accounting principles applicable to a going concern. As a result, they do not include adjustments that would be necessary if we were unable to continue as a going concern and would therefore be obligated to realize assets and discharge our liabilities other than in the normal course of operations. As reflected in the accompanying financial statements, the Company is a development stage entity having generated no revenues from inception through November 30, 2012. We have used cash flows in operations of $131,614 from inception (June 2, 2008) to November 30, 2012 and has an accumulated deficit of ($1,419,714) through November 30, 2012.
This raises substantial doubt about our ability to continue as a going concern, as expressed by our auditors in its opinion on our financial statements included in this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.
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We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations. There can be no assurance that we will operate at a profit or additional debt or equity financing will be available, or if available, can be obtained on satisfactory terms.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, management evaluates these estimates and assumptions, including but not limited to those related to revenue recognition and the impairment of long-lived assets, goodwill and other intangible assets. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
(included in ASC 718 “Compensation-Stock Compensation”)
The Company adopted SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company accounts for stock-based compensation arrangements with nonemployees in accordance with the Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. The Company records the expense of such services to employees and non employees based on the estimated fair value of the equity instrument using the Black-Scholes pricing model.
(included in ASC 605 “Revenue Recognition”)
The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales taxes. Amounts received in advance for subscription services, are deferred and recognized as revenue over the subscription term.
The most important metric by which we judge the Company’s performance now and in the near term is generating revenues on the top line and sales growth. Our current commitment to develop and deliver quality products means that, for the near future, bottom line profitability will be a poor indicator of our success.
Since investors are certain to be the primary, near term source of liquidity to support our development and marketing efforts, our liquidity will be driven by our ability to attract repeat investments from current shareholders and to find new ones. All investors must fully understand that an investment in our company is of high risk and they can lose their total invested capital.
Our primary marketing challenge for the coming twelve (12) months is to implement and “go live” with our initial networking applications to achieve market awareness and acceptance. Additionally, we plan to market our children’s music library from and through independent distributors (including CDs, DVDs, web downloads (MP3 format) currently under development and anticipated to be completed for beta testing in the third quarter of 2013. Additionally, management is seeking new acquisitions to complement existing products.
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These forward-looking statements, pertaining to revenues, are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. As our revenues commence, we plan to invest in marketing and sales by increasing the number of direct sales throughout our web portal to build brand awareness. We expect that in the future, marketing and sales expenses will increase in absolute dollars commencing in the second quarter of 2013. We do not expect our revenues to increase significantly until third quarter of 2013.
General and Administrative Expenses
We expect that general and administrative expenses associated with executive compensation will substantially increase in the future as our products commence their marketing potential. In addition, we believe in the middle part of the 2013 fiscal year that the compensation packages required to attract the senior executives of the Company will require management to execute against its business plan which will increase our total expenses, including, but not limited to, general and administrative, legal, accounting, marketing and compensation.
Summary of Condensed Results of Operations
Any measurement and comparison of revenues and expenses from continuing operations should not be considered necessarily indicative or interpolated as the trend to forecast our future revenues and results of operations.
Results for the Three Months Ended November 30, 2012
Revenues. The Company’s revenues for the three months ended November 30, 2012 were $0. Additionally, the Company has not had any revenues from inception (June 2, 2008) to November 30, 2012.
Legal and Accounting Expenses. Legal and Accounting expenses for the three months ended November 30, 2012 were $9,170 as compared to $6,500 for the three months ended November 30, 2011. These increase costs of legal and accounting expenses were a direct result of product development commencing an activity phase whereby additional expenses are required.
General and Administrative Expenses. General and administrative expenses for the three months ended November 30, 2012 were $5,953 as compared to $6,800 for the three months ended November 30, 2011. These expenses are normal and reoccurring for our Company as a development stage entity.
Compensation. Compensation expense for the three (3) months ended November 30, 2012 was $42,900 as compared to $0 for the three (3) months ended November 30, 2011. These increase costs of $42,900 were a direct result of hiring three (3) employees and the commencing of activity.
Net Loss. Net loss for the three months ended November 30, 2012 was ($59,699) as compared to ($13,300) for the three months ended November 30, 2011. The substantial increase of net loss of $46,399 was a result of hiring corporate officers entering into the company’s development stage of internet and mobile applications.
Impact of Inflation
We believe that the rate of inflation has had negligible effect on our operations. We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.
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Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by advances from related parties, conversion of debt to common shares and the sale of common shares to related parties and others.
As of November 30, 2012, total current assets were $1,386.
As of November 30, 2012, total current liabilities were $163,600, which consisted of $156,100 for accrued expenses and $7,500 of accounts payable. As of August 31, 2012, total current liabilities were $144,424, which consisted of $136,924 of accrued expenses and $7,500 of accounts payable. We had net working capital deficit of ($162,214) as of November 30, 2012, compared to net working deficit capital of ($140,015) at August 31, 2012.
During the three months ended November 30, 2012, our operating activities used cash of $40,523.
The Company does not have any material commitments as of November 30, 2012.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any anticipate entering into any off-balance arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
The company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures 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 on his evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceeding.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended August 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer
XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.
* To be submitted by amendment
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Date: January 9, 2013
/s/ Steve Adelstein
Chief Executive Officer
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