UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2014
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 333-170016
FIRST LEVEL ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida |
| 90-0599877 |
State or other jurisdiction of incorporation or organization |
| (I.R.S. Employer Identification No.) |
303 South Andrew Ave. #203 Fort Lauderdale FL |
| 33301 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code 954-599-3672
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes x No
Indicate by check mark whether the registrant (1) has filed all 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.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
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” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes x No
As of October 31, 2014 issuer had 37,000,000 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Report except those Exhibits so incorporated as set forth in the Exhibit index.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Business section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any current or historical fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” under Part I, Item 1A of this Form 10-K. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
PART I
Item 1. Business
We are a development stage company incorporated in the state of Florida in June, 2008. The current focus of our development stage company has the primary focus of developing mobile applications as follows:
1) VIPwink
VIPwink is a patent pending mobile application which is available for beta testing for iTunes and Android phones in the fourth quarter of 2014. The VIPwink mobile application will empower individuals, brands and any others (VIP’s) with a significant Twitter following to monetize their fans, and differentiate the casual from the most passionate follower. The VIPwink app seamlessly integrates into the “VIP’s” existing Twitter account and gives them control over their original content.
Through the VIPwink mobile application, any “VIP” will be able to delay their Tweets to their existing Twitter network and reward their most passionate “followers” with immediate access to exclusive content or offers. Through the VIPwink platform, these “VIP’s” of the social world can offer premium content via a paid subscription based model. The premium content will be locked out to all non-subscribers and available on a time delay set by the “VIP” via admin functionality. VIPwink will finally enable all of Twitter’s most followed individuals and brands to monetize, identify, and capture direct contact data from their true fans. This application is currently being beta tested.
VIPwink has executed agreements with a selective roster of VIP celebrities, athletes, branded products and others for our beta testing of our functioning prototype. The preliminary roster of VIPwink has approximately 20,000,000 followers on Twitter as of October 31, 2014. We continuously are in negotiations to execute further agreements to coincide with our development of this application.
2) MobileSonars
Mobile Sonars is a white label mobile application, that through questionnaire for any location that is “pushed” to the user when they arrive matching is then determined. If activated and at the geo-location a user is then matched with others who have answered the questions in a similar manner based on a pre-determined or user selected threshold. Mobile Sonars will allow a partner site to monetize a growing database of users that are on property or at the event in real time. Which will allow them to offer deals, discounts, and coupons while users are both their and not there. Allow users to connect to others at a specific location and only that location or event, who match specific criteria.
Promotion and Advertising
We intend to initially rely upon point of purchase promotions, trade magazines, public relations and the internet to promote our products. Point of purchase promotional advertising will constitute the most significant portion of our promotion and advertising activities. This will include sampling programs, displays and brochures which we intend to provide to each retail outlet for our products in an effort to get customers to try our product. We will rely on public relations to trade publications to enhance retailer awareness of our products. Internet will be utilized for consumer awareness and retailer awareness purposes.
Trademarks, Patents and Intellectual Property
We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties.
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We expect to seek trademark protection for our products as soon as each product trademark is selected, as well as trademark protection for any advertising slogans we adopt. We will do a search of existing trademarks prior to selecting trademarks for our products. We believe that trademark protection will be important to brand name recognition and distributor and consumer loyalty to our products. We intend to register our important trademarks in the United States. We will use our best efforts to maintain the confidentiality of our product recipes through confidentiality agreements and physical security but do not anticipate that it will be possible to secure patents for our products or prevent competitors from developing similar products.
Government Regulation
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. As a company in a new and rapidly innovating industry, we are exposed to the risk that many of these laws may evolve or be interpreted by regulators or in the courts in ways that could materially affect our business. These laws and regulations may involve taxation, unclaimed property, intellectual property, product liability, travel, distribution, electronic contracts and other communications, competition, consumer protection, the provision of various online payment and point of sale services, employee, merchant and customer privacy and data security or other areas.
There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments that could affect us, and our global operations may be constrained by regulatory regimes and laws in Europe and other jurisdictions outside the United States that may be more restrictive and adversely impact our business.
Competition
We anticipate that larger, more established companies may directly compete with us over time. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to benefit from their existing customer base with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively than we do. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services.
Employees
As of August 31, 2014, we have one full-time employee. Most activities to date have been undertaken by our officers as needed. Our officers do not currently spend all of their time on our business and estimate they devote approximately 15% of their business time on the business of the Company. We anticipate that we will begin hiring employees as needed to support our business.
Management
The following table provides information on our executive officers and directors:
Name | Age | Positions |
Steve Adelstein | 67 | Chairman of the Board and Chief Executive Officer |
Robert Hussey | 65 | President, director |
Steven Berman | 51 | Chief Operating Officer, director |
Alfred Fernandez | 51 | Chief Financial Officer, director |
Steve Adelstein. Mr. Adelstein has served as our Chairman of the Board of Directors and Chief Executive Officer since April 2012. Mr. Adelstein has a financial background and is an inactive Certified Public Accountant. Mr. Adelstein has been an investor, founder, officer, director and/or consultant in several start-up development stage companies over the past five years including, but not limited to EcoLiveGreen Corp., Buyrite Club Corp., Oser Ventures Inc. and Information Architects. Corp. Additionally, Mr. Adelstein over the past five years was an acting financial consultant to several public and private entities.
Robert F. Hussey. Mr. Hussey is a seasoned financial, marketing and operations executive in sectors including packaged goods, financial services and advertising. In recent years, Mr. Hussey has focused on advising private equity and institutional investors in these industries, and in special situations. He serves on the Board of Amphion Capital, Amphion Capital Advisors, and CPX Interactive Inc., a leading global digital media company.
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Among his accomplishments are the founding, NASDAQ IPO and ultimate sale to Heritage Media/News Corp, of POP Radio Corp, which under Mr. Hussey’s leadership became the country’s largest direct broadcast satellite (DBS) network. In 2012/13, Mr. Hussey headed up Hipcricket.com, as CEO, a leading mobile marketing & advertising firm based in NYC and Seattle. Bob is also a founding investor in Moonit.com, Apple Store’s #1 social media astrological based relationship management App.
Bob received his MBA from George Washington University and his undergraduate degree from Georgetown University, where he has served on their Board of Regents.
Steven Berman. Mr. Berman has served as our Chief Operating Officer and a member of our Board of Directors since February 2012. For the past five years, Mr. Berman has been an independent consultant to various entities having the primary focus of development stage planning including, but not limited to, Deepstacks.com and Playbook.com from time to time. Additionally, Mr. Berman was Co-founder and Vice President of River Gaming, LLC from August 2004 to August 2008.
Alfred Fernandez. Mr. Fernandez has served as Chief Financial Officer since August 2011 and a member of our Board of Directors since July 2010. From July 2010 until August 2011 he also served as our sole officer and director. Mr. Fernandez also acts as a consultant to several privately held entities .Mr. Fernandez has served as Chief Financial Officer of MediaNet Group Technologies, Inc., a publicly held company, from July 2007 to July, 2010. Prior to joining the MediaNet Group Technologies, Inc., Mr. Fernandez served as Chief Financial Officer of Money Express Financial Corp., a privately traded international money service company from 2004 to May 2007. Mr. Fernandez is an active CPA and has a J.D. from Seton Hall University and a B.A. in Accounting from Rutgers University
Available Information
The Company electronically files reports with the SEC. The public may read and copy any materials the Company has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through the Company’s website, as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any stockholder who requests it. The Company’s Code of Conduct, Corporate Governance Guidelines and committee charters are also posted on the site.
Item 1A. Risk Factors
Not required.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of August 31, 2014 and 2013, the Company did not lease or own any properties. Currently, the Company utilizes the offices of Steve Adelstein, our Chief Executive Officer and Chairman of the Board of Directors, at no cost to the Company and is included in consulting fees charged by the Chairman to the Company for services performed.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
As of August 31, 2014, there were approximately 50 shareholders of record of the Company’s Common Stock.
Dividends and Dividend Policy
The Company did not declare or pay cash dividends in either fiscal year 2014 or 2013. The Company anticipates that, for the foreseeable future, it will retain any earnings for use in the operation of its business.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Equity Compensation Plan Information as of August 31, 2014 and 2013
We have made individual grants of shares of our common stock from time to time as compensation to directors, officers consultants and advisors. Such grants are not approved by the shareholders.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
Results of Operations
In the year ended August 31, 2014 we had $-0- in sales of products and $-0- in cost of sales. Legal and accounting fees were $17,375. Selling, general and administrative expenses were $65,520. Consulting and software development costs were $629,384. Interest expense was $8,456 and impairment expense was $-0-. As a result we recorded a net loss of $793,548 in the year ended August 31, 2014. The increase in Consulting and software development costs is a result of our completion of our VIPwink app
In the year ended August 31, 2013 we had $-0- in sales of products and $-0- in cost of sales. Legal and accounting fees were $57,543. Selling, general and administrative expenses were $10,343. Consulting and software development costs were $321,677. Interest expense was $11,834 and impairment expense was $-0-. As a result we recorded a net loss of $401,397 in the twelve months ended August 31, 2013.
Liquidity and Capital Resources
During the twelve months ended August 31, 2014, working capital decreased $178,548 to a deficit of $494,933 from a deficit of $316,385. The primary reason for the decrease was an increase in accounts payable of $221,489 and a decrease in accrued expenses of $62,875. During this same period, stockholders’ equity decreased by $178,548 as a result of net losses incurred during the fiscal year.
Cash flows
Net cash used in operating activities was $132,934 for the year ended August 31, 2014. In the 2014 period cash was used by our loss from operations and increases in accounts payable offset by cash provided by our increases in accrued expenses, common stock issued for services and impairment expenses.
Net cash used in operating activities was $49,533 for the year ended August 31, 2013. In the 2013 period cash was used by our loss from operations, offset by increases in accounts payable and accrued expenses and common stock issued for services.
Net cash provided by financing activities for the year ended August 31, 2014 was $133,000 and reflects proceeds we received from our chief executive officer, proceeds form the issuance of common stock, issuance of short-term notes payable, offset by payments on related party debt.
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Net cash provided by financing activities for the twelve months ended August 31, 2013 was $45,350 and reflects proceeds we received from our chief executive officer.
Recent Financing Transactions
The Company is currently a development stage company and its continued existence is dependent upon the Company’s ability to resolve its liquidity problems, principally by obtaining additional debt financing and/or equity capital. The Company has yet to generate a significant internal cash flow, and until sales of products increase from current levels, the Company is highly dependent upon debt and equity funding, should continuing debt and equity funding requirements not be met the Company’s operations may cease to exist.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of its financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses and the valuation of our assets and contingencies. We believe our estimates and assumptions to be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or conditions. Our financial statements are based on the assumption that we will continue as a going concern. If we are unable to continue as a going concern we would experience additional losses from the write-down of assets.
Stock-Based Compensation - Employees
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
· | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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· | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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· | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
· | The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: |
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· | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
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· | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic . entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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· | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
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· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended August 31, 2014 and 2013.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include (a) affiliates of the Company; (b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
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The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Going Concern
The Company is currently a development stage company and its continued existence is dependent upon the Company’s ability to resolve its liquidity problems, principally by obtaining additional debt financing and/or equity capital. The Company has yet to generate a significant internal cash flow, and until sales of products increase from current levels, the Company is highly dependent upon debt and equity funding, should continuing debt and equity funding requirements not be met the Company’s operations may cease to exist.
New 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 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
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FIRST LEVEL ENTERTAINMENT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
| Page Number |
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Report of Independent Registered Public Accounting Firm | F-2 |
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Consolidated Balance Sheets at August 31, 2014 and 2013 | F-3 |
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Consolidated Statements of Operations - For the Years Ended August 31, 2014 and 2013 | F-4 |
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Consolidated Statements of Changes in Shareholders’ Equity - For the Years Ended August 31, 2014 and 2013 | F-5 |
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Consolidated Statements of Cash Flows – For the Years Ended August 31, 2014 and 2013 | F-6 |
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Notes to Consolidated Financial Statements | F-7 to F-11 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
First Level Entertainment Group, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of First Level Entertainment Group, Inc. (“the Company”) as of August 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. The Company is 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 Company’s 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Level Entertainment Group, Inc. as of August 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company will need additional working capital to service its debt and for its planned activities, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in the notes to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler Gibb, LLC
Salt Lake City, UT
December 1, 2014
F-2
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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| August 31, |
| August 31, |
| ||
|
| 2014 |
| 2013 |
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ASSETS |
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CURRENT ASSETS: |
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|
|
|
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|
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Cash and equivalents |
| $ | 319 |
| $ | 253 |
|
Total Current Assets |
|
| 319 |
|
| 253 |
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Accounts payable |
|
| 222,989 |
|
| 1,500 |
|
Accrued expenses |
|
| 202,263 |
|
| 265,138 |
|
Advance from related parties |
|
| — |
|
| 50,000 |
|
Notes payable |
|
| 70,000 |
|
| — |
|
Total Current Liabilities |
|
| 495,252 |
|
| 316,638 |
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STOCKHOLDERS’ DEFICIT: |
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Preferred Stock, par value $.001; 10,000,000 shares authorized; 0 issued and outstanding at August 31, 2014 and August 31, 2013 |
|
| — |
|
| — |
|
Common stock , par value $.001; 500,000,000 shares authorized; 36,000,000 shares issued as of August 31, 2014 and 30,000,000 shares issued as of August 31, 2013 |
|
| 36,000 |
|
| 30,000 |
|
Additional paid in capital |
|
| 1,744,000 |
|
| 1,135,000 |
|
Accumulated Deficit |
|
| (2,274,933 | ) |
| (1,481,385 | ) |
Total Stockholders’ Deficit |
|
| (494,933 | ) |
| (316,385 | ) |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit |
| $ | 319 |
| $ | 253 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the Years Ended |
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|
| August 31, |
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|
| 2014 |
| 2013 |
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Revenue |
| $ | — |
| $ | — |
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|
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|
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Operating Expenses: |
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|
|
|
|
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Advertising and Marketing |
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| 72,813 |
|
| — |
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Legal and Accounting |
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| 17,375 |
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| 57,543 |
|
Consulting and Software Development |
|
| 629,384 |
|
| 321,677 |
|
General and Administrative |
|
| 65,520 |
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| 10,343 |
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|
|
|
|
|
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Total Operating Expenses |
|
| 785,092 |
|
| 389,563 |
|
|
|
|
|
|
|
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Operating Loss |
|
| (785,092 | ) |
| (389,563 | ) |
|
|
|
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Other Expense |
|
|
|
|
|
|
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Interest Expense |
|
| (8,456 | ) |
| (11,834 | ) |
Total Other Expense |
|
| (8,456 | ) |
| (11,834 | ) |
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|
|
|
|
|
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Net loss before Income Taxes |
|
| (793,548 | ) |
| (401,397 | ) |
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|
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|
|
|
|
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Provision for Income Taxes |
|
| — |
|
| — |
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|
|
|
|
|
|
|
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Net loss |
|
| (793,548 | ) |
| (401,397 | ) |
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Basic and diluted net loss per common share |
| $ | (0.02 | ) | $ | (0.02 | ) |
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Basic and diluted weighted average number of common shares outstanding |
|
| 32,204,384 |
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| 21,987,215 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
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| Total |
| |
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| Additional |
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| Stockholders’ |
| |||
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| Common Stock |
| Paid in |
| Accumulated |
| Equity |
| ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| (Deficit) |
| ||||
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Balance at August 31, 2012 |
| 17,500,000 |
| $ | 17,500 |
| $ | 835,000 |
| $ | (1,079,988 | ) | $ | (227,488 | ) |
|
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|
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|
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|
|
|
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Common stock issued for debt |
| 3,590,000 |
|
| 3,590 |
|
| 86,160 |
|
| — |
|
| 89,750 |
|
Common stock issued for services |
| 8,910,000 |
|
| 8,910 |
|
| 213,840 |
|
| — |
|
| 222,750 |
|
Net Loss for the year ended August 31, 2013 |
| — |
|
| — |
|
| — |
|
| (401,397 | ) |
| (401,397 | ) |
Balance at August 31, 2013 |
| 30,000,000 |
| $ | 30,000 |
| $ | 1,135,000 |
| $ | (1,481,385 | ) | $ | (316,385 | ) |
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|
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|
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|
|
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|
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Common stock issued for cash |
| 1,200,000 |
|
| 1,200 |
|
| 59,800 |
|
| — |
|
| 61,000 |
|
Common stock issued for services |
| 2,378,700 |
|
| 2,379 |
|
| 351,387 |
|
| — |
|
| 353,766 |
|
Common stock issued for debt |
| 2,421,300 |
|
| 2,421 |
|
| 197,813 |
|
| — |
|
| 200,234 |
|
Net Loss for the year ended August 31, 2014 |
| — |
|
| — |
|
| — |
|
| (793,548 | ) |
| (793,548 | ) |
Balance at August 31, 2014 |
| 36,000,000 |
| $ | 36,000 |
| $ | 1,744,000 |
| $ | (2,274,933 | ) | $ | (494,933 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
FIRST LEVEL ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Years Ended |
| ||||
|
| August 31, |
| ||||
|
| 2014 |
| 2013 |
| ||
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OPERATING ACTIVITIES: |
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|
|
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Net loss |
| $ | (793,548 | ) | $ | (401,397 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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|
|
|
|
|
|
Impairment of intellectual assets, net |
|
| — |
|
| — |
|
Expenses paid on behalf of the company |
|
| 148,234 |
|
| 6,901 |
|
Stock issued for services |
|
| 353,766 |
|
| 222,749 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 158,614 |
|
| 122,214 |
|
|
|
|
|
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|
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Net cash used in operating activities |
|
| (132,934 | ) |
| (49,533 | ) |
|
|
|
|
|
|
|
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INVESTING ACTIVITIES: |
|
| — |
|
| — |
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|
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|
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|
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|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Increase/(decrease) in notes payable |
|
| 70,000 |
|
| — |
|
Cash increase due to related notes payable |
|
| 38,250 |
|
| 45,350 |
|
Payments on related party debt |
|
| (36,250 | ) |
| — |
|
Issuance of common stock for cash |
|
| 61,000 |
|
| — |
|
Net cash provided by financing activities |
|
| 133,000 |
|
| 45,350 |
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
| 66 |
|
| (4,183 | ) |
CASH BEGINNING BALANCE |
|
| 253 |
|
| 4,436 |
|
|
|
|
|
|
|
|
|
CASH ENDING BALANCE |
| $ | 319 |
| $ | 253 |
|
|
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|
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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|
|
|
|
|
|
Taxes paid |
|
| — |
|
| — |
|
Interest paid |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
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NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Stock issued for debt |
|
| 200,234 |
|
| 89,751 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
August 31, 2014
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
First Level Entertainment Group, Inc. (“the Company”), formerly known as Sound Kitchen Entertainment Group, Inc., is in the development stage commencing operations in February 1, 2012 and has incurred losses since entering the development stage totaling $2,274,933. The Company was incorporated on June 2, 2008 in the State of Florida and established a fiscal year end of August 31. The Company is in the entertainment business presently focusing on mobile applications. The Company has the following wholly-owned subsidiaries: i) Mobile Sonars Inc.; ii) Am I There Inc.; iii) Message Attic Corp; iv) VIP Wink Corp.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements present the consolidated balance sheet, statements of operations, stockholders’ equity and cash flows of the Company including its wholly owned subsidiaries. These consolidated financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Long-Lived Assets
In accordance with ASC 360-10-05-4 “Property, Plant, and Equipment-Impairment or Disposal of Long-Lived Assets”, which was previously Financial Accounting SFAS No.144, “Accounting for the Impairment or Disposal of Long-lived Assets”, the Company assesses long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. Recoverability of asset groups to be held and used in measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds the fair value of the asset group. The Company evaluates its long-lived assets for impairment on at least an annual basis. The Company recorded impairment charges of $-0- and $-0- during the fiscal years ended August 31, 2014 and 2013, respectively.
F-7
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
August 31, 2014
Fair Value for Financial Assets and Financial Liabilities
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 - | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
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|
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| Level 2 - | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
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| Level 3 - | Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash, advances, prepaid expenses and accounts payable approximate their fair values because of the short maturity of these instruments.
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment.
Revenue and Cost Recognition
The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification (“ASC”) 605 “Revenue Recognition” which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale. Cost of sales includes any labor cost and the amortization of intellectual property.
Basic and Diluted Net Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of common shares during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of August 31, 2014 or 2013, which were excluded from the calculation of diluted loss per common share as their effect would have been anti-dilutive.
F-8
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
August 31, 2014
Software Development Costs
The Company capitalizes its costs to develop its software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which approximates three years. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized and expensed over the estimated useful life of the upgrades.
The Company did not capitalize any software development costs in fiscal year 2014 or 2013 because the above criteria have not yet been met. The Company’s capitalized software amortization will be included in depreciation and amortization in the Company’s statements of operations.
The company has had consulting and software development expenses of $629,384 for the year ended August 31, 2014 and $321,677 for the year ended August 31, 2013.
Stock-based Compensation
The Company follows the provisions of ASC 718, “Share-Based Payment.” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.
The Company accounts for non-employee share-based awards based upon ASC 505-50, “Equity-Based Payments to Non-Employees.” ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.
The Company recognizes the cost associated with share-based awards that have a graded vesting schedule on a straight-line basis over the requisite service period of the entire award.
Related Parties
Related parties, which can be a corporation, individual, investor or another entity are considered to be related if the party has the ability, directly or indirectly, to control the other party or exercise significant influence over the Company in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence. The Company has these relationships.
Recent Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development or exploration stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of August 31, 2014.
F-9
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
August 31, 2014
NOTE 3 – GOING CONCERN
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations from inception by way of issuing common shares and through advances made by related parties. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – RELATED PARTY TRANSACTIONS
On April 17, 2012, the Company entered into a convertible note with an affiliated company (Venture Capital Clinic Corp.) owned by the Company’s Chief Executive Officer and Chairman of the Board of Directors, Steve Adelstein. The note is for a maximum amount of $150,000 (determined from time to time as advances are made) having a stated interest rate of nine percent and is convertible into common shares at $0.03 per share at the sole discretion of the note holder. Both principal and interest are due August 31, 2015 and can be prepaid without penalty. At August 31, 2012, the principal balance of the note outstanding was $87,500 with accrued interest of approximately $2,500. On May 31, 2013, the note amount was converted to common stock, leaving an outstanding balance of principal and interest of $-0- at August 31, 2013.
The Company does not lease or rent any property. Office space and services are provided without charge by an officer / shareholder. Such costs are immaterial to the consolidated financial statements and accordingly, have not been reflected therein. 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.
As of August 31, 2013 the Company owed $50,000 to related parties for operating expenses paid on the Company’s behalf. During the year ended August 31, 2014 this related party advanced $38,250 to the company and paid for $148,234 of additional operating expenses on the Company’s behalf. The Company paid $36,250 in cash against the outstanding payable and paid 320,000 shares of common stock at $0.025 per share in settlement of $8,000 of the outstanding payable and 580,000 shares of common stock at $0.18 per share in settlement of $104,400 leaving an ending balance due of $-0-. All related party balances bear no interest and are due on demand.
NOTE 5 – NOTES PAYABLE
On April 10, 2014, the Company entered into a note agreement with an unrelated third party to borrow a maximum amount of $150,000 (determined from time to time as advances are made) having a stated interest rate of six (6) percent and is convertible into common shares at fair market value at the discretion of the note holder both principal and interest are due April 10, 2015 and can be prepaid without penalty. At August 31 2014, the principal balance of the note outstanding was $70,000 with accrued interest of $790.
NOTE 6 – STOCKHOLDERS’ DEFICIT
On May 31, 2013 the Company authorized a 3:1 Reverse Stock Split the financial statements have been retroactively adjusted to reflect the stock split. From inception (June 2, 2008) through August 31, 2013, the Company has not granted any stock options and warrants.
During the year ended August 31, 2013, the Company issued 3,590,000 (post stock-split) shares of common stock valued at $0.025 per share in extinguishment of related party notes and advances payable. The total value of shares issued was $89,751 and no gain or loss on extinguishment was recognized in the transaction. The Company also issued 8,910,000 (post stock-split) shares of common stock valued at $0.025 per share for services valued at $222,749. The value of the shares was based on the most recent share price of common stock issued for cash to non-related parties.
F-10
FIRST LEVEL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
August 31, 2014
During the year ended August 31, 2014, the Company issued 2,421,300 (post stock-split) shares of common stock valued at $0.08 per share in extinguishment of $200,234 of related party notes and other accounts payable. No gain or loss on extinguishment was recognized in the transactions. The Company also issued 2,378,700 (post stock-split) shares of common stock valued at $0.15 per share for services valued at $353,766. The values of the shares were based on the most recent share price of common stock issued for cash to non-related parties. During the year ended August 31, 2014 the Company also issued 1,200,000 (post stock-split) shares of common stock valued at $0.05 per share for cash proceeds of $61,000.
NOTE 7 – INCOME TAXES
Net deferred tax assets consist of the following components:
|
| August 31, 2014 |
| August 31, 2013 |
| ||
Deferred tax asset: |
|
|
|
|
|
|
|
Net operating loss carryforwards |
| $ | (898,599 | ) | $ | (585,147 | ) |
Common stock issued for services |
|
| 455,770 |
|
| 316,032 |
|
Impairment expense |
|
| 103,688 |
|
| 103,688 |
|
Valuation allowance |
|
| 339,141 |
|
| 165,427 |
|
Net deferred tax asset |
| $ | — |
| $ | — |
|
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income statutory tax rates to pretax income (loss) from continuing operations as follows:
|
| August 31, 2014 |
| August 31, 2013 |
| ||
Tax benefit at statutory rates |
| $ | (313,451 | ) | $ | (158,552 | ) |
Common stock issued for services |
|
| 139,738 |
|
| 87,986 |
|
Impairment expense |
|
| — |
|
| — |
|
Change in valuation allowance |
|
| 173,713 |
|
| 70,566 |
|
Net provision for income taxes |
| $ | — |
| $ | — |
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The Company has accumulated net operating loss carryovers of approximately $898,599 as of August 31, 2014, which are available to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may limit the utilization of the net operating loss carry forwards in future years. The tax losses begin to expire in 2034.
NOTE 8 – SUBSEQUENT EVENTS
During September 2014, the Company was advanced $185,200 by a related party. The related party also paid expenses of the company of $9,042.
During September 2014, the Company paid $48,000 of its note payable to reduce the outstanding balance to $22,000
During October 2014, the Company issued 1,000,000 shares of common stock valued at $0.18 per share. The company received $132,000 of cash and $48,000 in services.
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to August 31, 2014 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item9A. Controls and Procedures.
Disclosure controls and procedures
Under the direction of our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures as of August 31, 2014. Our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of August 31, 2014.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Treasurer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter covered by this report. Based on the foregoing, our President and Treasurer concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls 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, regardless of how remote.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management of is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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· | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
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· | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2014. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.
Based on the assessment performed, management has concluded that the Company’s internal control over financial reporting, as of August 31, 2014, is not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements in accordance with generally accepted accounting principles. Further, management has identified material weaknesses in internal control over financial reporting as of August 31, 2014.
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of August 31, 2014 (the “Evaluation Dates”), to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Each of the following is deemed a material weakness in our internal control over financial reporting:
· | We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures. |
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· | We did not maintain proper segregation of duties for the preparation of our financial statements. We currently have only one officer overseeing all transactions. This has resulted in several deficiencies, including the lack of control over preparation of financial statements and proper application of accounting |
Management believes that the material weaknesses set forth in the two items above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our consolidated financial statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures once we have the financial resources to do so:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to an audit committee resulting in a fully functioning audit committee, which will undertake the oversight in the establishment and monitoring of required internal controls and procedures, such as reviewing and approving estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of outside directors to a fully functioning audit committee, would remedy the lack of a functioning audit committee.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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This quarterly report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers and Corporate Governance
Steve Adelstein, Chief Executive Officer and Chairman of the Board
Mr. Adelstein has served as our Chairman of the Board of Directors and Chief Executive Officer since April 2012. Mr. Adelstein has a financial background and is an inactive Certified Public Accountant. Mr. Adelstein has been an investor, founder, officer, director and/or consultant in several start-up development stage companies over the past five years including, but not limited to EcoLiveGreen Corp., Buyrite Club Corp., Oser Ventures Inc. and Information Architects Corp. Additionally, Mr. Adelstein over the past five years was an acting financial consultant to several public and private entities.
Robert F. Hussey, President and Director
Mr. Hussey is a seasoned financial, marketing and operations executive in sectors including packaged goods, financial services and advertising. In recent years, Mr. Hussey has focused on advising private equity and institutional investors in these industries, and in special situations. He serves on the Board of Amphion Capital, Amphion Capital Advisors, and CPX Interactive Inc., a leading global digital media company.
Among his accomplishments are the founding, NASDAQ IPO and ultimate sale to Heritage Media/News Corp, of POP Radio Corp, which under Mr. Hussey’s leadership became the country’s largest direct broadcast satellite (DBS) network. In 2012/13, Mr. Hussey headed up Hipcricket.com, as CEO, a leading mobile marketing & advertising firm based in NYC and Seattle. Bob is also a founding investor in Moonit.com, Apple Store’s #1 social media astrological based relationship management application.
Bob received his MBA from George Washington University and his undergraduate degree from Georgetown University, where he has served on their Board of Regents.
Steven Berman, Chief Operating Officer, director
Mr. Berman has served as our Chief Operating Officer and a member of our Board of Directors since February 2012. For the past five years, Mr. Berman has been an independent consultant to various entities having the primary focus of development stage planning including, but not limited to, Deepstacks.com and Playbook.com from time to time. Additionally, Mr. Berman was Co-founder and Vice President of River Gaming, LLC from August 2004 to August 2008.
Alfred Fernandez, Chief Financial Officer, director
Mr. Fernandez has served as Chief Financial Officer since August 2011 and a member of our Board of Directors since July 2010. From July 2010 until August 2011 he also served as our sole officer and director. Mr. Fernandez also acts as a consultant to several privately held entities .Mr. Fernandez has served as Chief Financial Officer of MediaNet Group Technologies, Inc., a publicly held company, from July 2007 to July, 2010. Prior to joining the MediaNet Group Technologies, Inc., Mr. Fernandez served as Chief Financial Officer of Money Express Financial Corp., a privately traded international money service company from 2004 to May 2007. Mr. Fernandez is an active CPA and has a J.D. from Seton Hall University and a B.A. in Accounting from Rutgers University.
Our officers are elected annually by the board of directors and may be replaced or removed by the board at any time. Our directors are elected by our shareholders annually and serve until the election and qualification of their successors or their earlier resignation or removal.
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Board of Director Committees
Our board of directors also serves as our audit committee. We do not have any executive, compensation or any other committee of our board of directors.
Code of Ethics
We have adopted a code of ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. We will provide a copy to any person without charge upon written request to Steve Adelstein President, First Level Entertainment Group, Inc.
Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our officers for our last two completed fiscal years for all services rendered to us. No other executive officer was paid in excess of $100,000 during any such fiscal years.
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning cash and certain other compensation we paid to our Officer for the fiscal year ending August 31, 2014 and 2013
Name & Principal Position | Fiscal Year | Salary | Stock Bonus | Option Awards | Non-Equity | Non-Qualified | All Other | Total |
Steve Adelstein | 2014 | -0- | -0- | -0- | -0- | -0- | 221,200 | 221,200 |
Chief Executive Officer | 2013 | -0- | -0- | -0- | -0- | -0- | 328,500 | 328,500 |
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Steve Berman | 2014 | 36,000 | 8,100 | -0- | -0- | -0- | 68,000 | 112,100 |
Chief Operating Officer | 2013 | -0- | -0- | -0- | -0- | -0- | 141,766 | 141,766 |
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Alfred Fernandez | 2014 | -0- | 28,800 | -0- | -0- | -0- | 34,250 | 63,050 |
Chief Financial Officer | 2013 | -0- | -0- | -0- | -0- | -0- | 18,250 | 18,250 |
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Robert Hussey | 2014 | -0- | -0- | -0- | -0- | -0- | 28,000 | 28,000 |
Director | 2013 | -0- | -0- | -0- | -0- | -0- | 15,000 | 15,000 |
Other Compensation Arrangements
None of our executive officers have any written employment agreements or any arrangements for employee benefits, severance payments or change of control payments. We have not established any long-term compensation plans, stock based compensation plans, incentive compensation plans or other compensation or benefit plans. We anticipate that such plans will be established as our business develops.
Director Compensation
No compensation was paid to our directors in the fiscal year ended August 31, 2014.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Shareholders
At October 31, 2014, we had 37,000,000 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of October 31, 2014 by:
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· | each person known by us to be the beneficial owner of more than 5% of our common stock; |
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· | each of our directors; |
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· | each of our named executive officers; |
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· | our named executive officers and directors as a group, and |
Unless otherwise indicated, the business address of each person listed is in care of 305 South Andrews Avenue, Suite 203, Fort Lauderdale, FL 33301. The information provided herein is based upon a list of our stockholders and our records with respect to the ownership of warrants and options to purchase securities in our company. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
Name | Nature of Beneficial Ownership | Percentage |
Steve Adelstein (1) | 17,100,000 | 46.0% |
Steven Berman (2) | 2,666,667 | 6.1% |
Alfred Fernandez | 1,260,000 | 3.4% |
Robert Hussey | 2,100,000 | 5.7% |
All Officer and Directors | 22,726,667 | 61.4% |
Tammi Shnider (3) | 7,866,668 | 21.3% |
(1) Includes 8,100,000 shares of our common stock held of record by Venture Capital Clinic Corp., and 1,800,000 common shares held in the name of H2O Ultra Water Corp; both companies of which Mr. Adelstein is the sole officer and director. Mr. Adelstein has voting and dispositive control over securities held of record by Venture Capital Clinic Corp.
(2) Includes 666,667 common shares held in the name of related parties (wife and two children) under the same household.
(3) Ms. Shnider is the adult daughter of Mr. Adelstein. The number of shares of our common stock that are beneficially owned by Tammi Shnider includes 666,667 shares held for four (4) minor age children.
Promoters
none.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence
The following information concerning director independence is based on the director independence standards of The NASDAQ Stock Market Corporate Governance Rules, although our common stock is not listed on The NASDAQ Stock Market.
We do not have an independent board member.
Our Board of Directors requires that all related party transactions be reviewed and approved by an independent body of the Board of Directors.
From time to time, the Company borrows from officers, directors and related parties. At August 31, 2014 and 2013, these loans and advances were $-0- and $50,000 respectively.
Audit Committee
The Board of Directors has not designated a separate audit committee and the entire board, whose members are named above, conducts the functions of such a committee. None of the directors is an audit committee financial expert.
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Item 14. Principal Accounting Fees And Services.
| Year Ended |
| Year Ended | ||
Audit fees | $ | 9,500 |
| $ | 9,500 |
Audit-related fees | $ | 0 |
| $ | 0 |
Tax fees | $ | 0 |
| $ | 0 |
All other fees | $ | 0 |
| $ | 0 |
Total | $ | 9,500 |
| $ | 9,500 |
Audit Fees
During the fiscal year ended August 31, 2014, we incurred approximately $9,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal years ended August 31, 2014.
During the fiscal year ended August 31, 2013, we incurred approximately $9,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended August 31, 2013.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended August 31, 2014 and 2013 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A was $-0- and $-0-, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended August 31, 2014 and 2013 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $-0- and $-0-, respectively.
All Other Fees
The aggregate fees billed during the fiscal years ended August 31, 2014 and 2013 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A was $-0- and $-0-, respectively.
Pre-approved Policies
The board of directors, acting as the audit committee considered whether, and determined that, the auditor’s provision of non-audit services was compatible with maintaining the auditor’s independence. All of the services described above for the years ended August 31, 2014 and 2013 were approved by the board of directors pursuant to its policies and procedures.
Board of Directors Report
The Board of Directors has reviewed and discussed with the Company’s management and independent auditor the audited consolidated financial statements of the Company contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014. The Board has also discussed with the independent auditor the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements.
The Board has received and reviewed the written disclosures and the letter from the independent auditor required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Board concerning independence, and has discussed with its independent auditor its independence from the Company.
The Board has considered whether the provision of services other than audit services is compatible with maintaining auditor independence. Based on the review and discussions referred to above, the Board approved the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for its fiscal year ended August 31, 2014 and 2013 for filing with the SEC.
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PART IV
Item 15. Exhibits
3.1 | Articles of Incorporation. (Incorporated by Reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed November 17, 2010) |
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3.2 | By-laws. (Incorporated by Reference to Exhibit 3.2 to Registrant’s Registration Statement on Form S-1 filed November 17, 2010) |
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14.1 | Code of Ethics. (Incorporated by Reference to Exhibit 14.1 to Registrant’s Registration Statement on Form S-1 filed November 17, 2010) |
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21 | Subsidiaries of the Registrant. |
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31.1 | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
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32.1 | Certification pursuant to 18 U.S.C. Section 1350 |
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101.INS | XBRL Instance Document.** |
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101.SCH | XBRL Taxonomy Extension Schema Document.** |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.** |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.** |
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101.LAB | XBRL Taxonomy Extension Labels Linkbase Document.** |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.** |
** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FIRST LEVEL ENTERTAINMENT GROUP, INC. |
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December 2, 2014 | By: /s/ Steve Adelstein |
| Steve Adelstein |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
December 2, 2014 | By: /s/ Steve Adelstein |
| Steve Adelstein |
| Chairman of the Board of Directors |
December 2, 2014 | By: /s/ Steven Berman |
| Steven Berman |
| Member of the Board of Directors |
December 2, 2014 | By: /s/ Alfred Fernandez |
| Alfred Fernandez |
| Member of the Board of Directors |
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