ITEM 1. BUSINESS.
Writers’ Group Film Corp (sometimes the "Company") is a Delaware corporation incorporated on March 9, 2007. On February 25, 2011, we acquired all of the outstanding shares of capital stock of Front Row Networks, Inc., a Nevada corporation (sometimes “Front Row”) from its shareholders and the Company (directly or through Front Row) is currently engaged in content creation to produce, acquire and distribute live concerts in three dimensional format (“3D”) for initial worldwide digital broadcast into digitally-enabled movie theaters and thereafter, licensed to DVD and Blu-Ray retailers, free TV broadcasters, cable and emerging 3D cable channels, and mobile streaming providers. We believe that the licensing of the distribution rights to the live concerts will be the primary source of revenue for the Company.
We further believe that we will be able to generate revenue when we present live concerts in 3D, at lower ticket prices, to a worldwide fan base in a cost-effective manner.
The Company intends to acquire additional licensing rights from the artist and concert sponsors and will sell merchandise, such as clothing, household goods, and other products, tailored to each artist and to each sponsor, in movie theaters where the live concert is exhibited.
We believe that by packaging new 3D concert theatrical events, with existing 2D and 3D catalogues, Front Row will create an identity as the premiere brand in 3D theatrical events.
The Company believes that the entertainment and music industry is experiencing major market expansion along with major structural and technological change, to include the 3D format. Although the industry is dominated by the major studios, the Company believes that there is still opportunity for independent production of theatrical content.
We anticipate that any selection of any content and our participation in the venture may be complex and extremely risky. Further, there can be no assurance that any of our digital broadcasts that are completed will be successfully marketed. Due to current general economic condition and the shortages of available capital, there is no assurance that we will be able to identify and evaluate and produce marketable content.
We intend to use outside financing wherever it is possible for our 3D productions. This ability will allow the Company to attract higher quality independent projects. Typically a single purpose entity specific to the film project will be established to produce and finance the concert. This entity then contracts with the financing parties and the artists and sponsors. We will be competing, however, with other established and well-financed entities.
The Company has divested itself of the current film library and work in progress and the pilot television episode and the Company currently does not intend to produce any additional film or television products other than concerts that can be produced in the 3D format.
ITEM 1A.
ITEM 1A. RISK FACTORS.
1. Our auditor has expressed substantial doubt regarding our ability to continue as a going concern.
We continue to incur losses in our operations. While we expect to generate revenues within the next fiscal year, there is no assurance that we will be successful.
2. The creation of content for the entertainment industry is highly competitive and we will be competing with companies with much greater resources than we have.
The business in which we engage is significantly competitive. Each of our primary business operations is subject to competition from companies which, in some instances, have greater production, distribution and capital resources than us. We compete for relationships with a limited supply of facilities and talented creative personnel to produce our films. We will compete with major entertainment and motion picture studios, such as Sony, Warner Brothers and The Walt Disney Company, for general content. We also anticipate that we will compete with a large number of United States-based and international distributors of independent films, including divisions of The Walt Disney Company/Pixar, Warner Brothers, Universal, Paramount/DreamWorks, Fox and Sony/MGM in the production of concerts that may be expected to appeal to national and international audiences. More generally, we anticipate we will compete with various other leisure-time activities, such as home videos, movie theaters, personal computers and other alternative sources of entertainment.
The production and distribution of Blu-Ray and video disks are significantly competitive businesses, as they compete with each other, in addition to other forms of entertainment and leisure activities. There will be a proliferation of free TV broadcasters, cable and emerging 3D cable channels, and mobile streaming providers looking for any content, to include content that is not related live concerts.
There is also active competition among all production companies in the entertainment and related industries for services of producers, directors, musicians and others and for the acquisition of literary properties. The increased number of theatrical films released in the United States has resulted in increased competition for theater space and audience attention and may have an effect on competing live 3D concert broadcasting.
Revenues for any entertainment products depend in part on general economic conditions, but the competitive situation of a producer of films and concerts is still greatly affected by the quality of, and public response to, the entertainment product that the artist makes available to the marketplace.
There is strong competition throughout the home video industry, both from home video subsidiaries of several major motion picture studios and from independent companies, as well as from new film viewing opportunities such as pay-per-view.
3. Audience acceptance of our live concerts in 3D will determine our success, and the prediction of such acceptance is inherently risky.
We believe that our live concert theatrical success will be dependent upon general public acceptance, marketing, advertising and the quality of the production. The Company's production will compete with numerous independent and foreign productions, in addition to productions produced and distributed by a number of major domestic companies, many of which are divisions of conglomerate corporations with assets and resources substantially greater than that of ours. Our management believes that in recent years with the current promotion of 3D movies and equipment to show 3D productions, that there has been an increase in competition in virtually all facets of our business. The growth of pay-per-view television and the use of home video products may have an effect upon theater attendance and non-theatrical motion picture distribution. As we may distribute productions to all of these markets, it is not possible to determine how our business will be affected by the developments, and accordingly, the resultant impact on our financial statements. Moreover, audience acceptance can be affected by any number of things over which we cannot exercise control, such as a shift in leisure time activities or audience acceptance of a particular style of music or artist.
4. The competition for booking screens may have an adverse effect to any theatrical revenues.
In the distribution of motion pictures, there is very active competition to obtain bookings of pictures in theaters and television networks and stations throughout the world. A number of major motion picture companies have acquired motion picture theaters. Such acquisitions may have an adverse effect on our distribution endeavors and our ability to book certain theaters which, due to their prestige, size and quality of facilities, are deemed to be especially desirable for motion picture bookings.
5. We have limited financial resources and there are risks we may be unable to acquire financing when needed.
To achieve and maintain competitiveness, we may be required to raise substantial funds. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We anticipate that we may need to raise additional capital to develop, promote and distribute our live concerts and to acquire property rights of the artists. Such additional capital may be raised through public or private financing as well as borrowings and other sources. Public or private offerings may dilute the ownership interests of our stockholders. Additional funding may not be available under favorable terms, if at all. If adequate funds are not available, we may be required to limit our operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain products and services that we would not otherwise relinquish and thereby reduce revenues to the company.
6. We are at the risk of mobile telephone and internet competition which may develop and the effects of which we cannot predict.
The mobile telephone application and internet market is new, rapidly evolving and intensely competitive. We believe that the principal competitive factors in maintaining a mobile telephone application and an internet business are selection, convenience of download and other features, price, speed and accessibility, customer service, quality of image and site content, and reliability and speed of fulfillment. Although we intend to be able to compete in this market, in 2D and maybe 3D when technology is further developed, many potential competitors have longer operating histories, more customers, greater brand recognition, and significantly greater financial, marketing and other resources. In addition, larger, well-established and well-financed entities may acquire, invest in, or form joint ventures as the Internet, and e-commerce in general, continue to become more widely accepted.
In addition, we will face competition on any sale of merchandise that is tailored to an artist and sponsor, or either. Many of our existing competitors, in addition to a number of potential new competitors, have significantly greater financial, technical and marketing resources than we do.
7. We are at risk of technological changes to which we may be unable to adapt as swiftly as our competition.
We believe that our future success will be partially affected by continued growth in the use of digital and 3D broadcasting. The production, acquisition and distribution of live concerts in movie theaters and by DVD and Blu-Ray retailers, free TV broadcasters, cable and emerging 3D cable channels, and mobile streaming providers are still relatively new, and predicting the extent of further growth, if any, are difficult. The market for 3D content is characterized by rapid technological developments, evolving industry standards and customer demands and frequent new product introductions and enhancements. Our failure to adapt to any technological developments effectively could adversely affect our business, operating results, and financial condition.
8. The DVD and Blu-Ray and the distribution of entertainment content and related materials are at a high risk for piracy which may affect our earnings.
The entertainment content distribution industry, including us, may continue to lose an indeterminate amount of revenue as a result of piracy both in the country to unauthorized copying from our product at post production houses, copies of prints in circulation to theaters, unauthorized videotaping at theaters and other illegal means of acquiring our copy written material. The USTR has placed Argentina, Brazil, Egypt, Indonesia, Israel, Kuwait, Lebanon, Pakistan, the Philippines, Russia, Ukraine and Venezuela on the 301 Special Watch List for excessive rates of piracy of motion pictures and optical disks. The USTR has placed Azerbaijan, Bahamas, Belarus, Belize, Bolivia, Bulgaria, Colombia, the Dominican Republic, Ecuador, Hungary, Italy, Korea, Latvia, Lithuania, Mexico, Peru, Romania, Taiwan, Tajikistan, Thailand, and Uzbekistan on the watch list for excessive piracy.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We have no unresolved comments from the Securities and Exchange Commission.
ITEM 2.
ITEM 2. PROPERTIES.
We utilize an executive office at 8200 Wilshire Boulevard, Suite 200, Beverly Hills, California 90211. This space is located near the major production studios in Los Angeles County. Our rent consists of 200 square feet at $ 199.00 per month pursuant to a lease for one year.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Sharp v. Writer’s Group Film Corp., et al.
On May 16, 2011, an individual, George Sharp (“Sharp”), filed a lawsuit against Writer's Group Film Corp., Front Row Networks, Inc. Mr. Tal L. Kapelner, Ms. Ariella Kapelner and Mr. John Diaz (collectively, “Defendants”), in the Superior Court, County of Los Angeles. The nature of the litigation is fraud and negligent misrepresentation, and violation of California Corporations Code Section 25400.
This lawsuit was amicably resolved on February 13, 2012, with no culpability found on the Company or its officers and directors.
There is no litigation pending or threatened by or against the Company.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Price.
The Company's common stock is publicly traded in the over-the-counter market in the OTC Bulletin Board System under the ticker symbol WRIT. The following table sets forth the reported high and low prices of our common stock for each quarter during the fiscal year ended March 31, 2012 and 2011. The prices reflect inter-dealer prices without mark-ups mark-downs, or commissions, and may not necessarily reflect actual transactions.
Fiscal Year Ended March 31, 2012
Fiscal Year Ended March 31, 2011
The Securities and Exchange Commission adopted Rule 15g-9, which established the definition of a "penny stock," for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stock in both public offering and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
(b) Holders.
There are 77 holders of record of the Company's Common Stock.
Currently, a certain number of our issued and outstanding shares of Common Stock held by non-affiliates are eligible for sale under Rule 144 promulgated under the Securities Act of 1933, as amended, subject to certain limitations included in said Rule. In general, under Rule 144, a person (or persons whose shares are aggregated), who has satisfied a six month holding period, under certain circumstances, has unlimited public resale under said Rule if the seller complies with said Rule
In summary, Rule 144 applies to affiliates (that is, control persons) and non-affiliates when they resell restricted securities (those purchased from the issuer or an affiliate of the issuer in nonpublic transactions) issued by a shell company. Non-affiliates reselling restricted securities, as well as affiliates selling restricted or non-restricted securities, are not considered to be engaged in a distribution and, therefore, are not deemed to be underwriters as defined in Section 2(11) if the seller complies with said Rule.
(c) Dividends.
We have declared no stock or cash dividends and we do not intend to declare or pay any dividends in the future.
(d) Application of California law.
Section 2115 of the California General Corporation law provides that a corporation incorporated under the laws of a jurisdiction other than California, but which has more than one-half of its "outstanding voting securities" and which has a majority of its property, payroll and sales in California, based on the factors used in determining its income allocable to California on its franchise tax returns, may be required to provide cumulative voting until such time as the Company has its shares listed on certain national securities exchanges, or designated as a national market security on NASDAQ (subject to certain limitations). Accordingly, holders of our Common Stock may be entitled to one vote for each share of Common Stock held and may have cumulative voting rights in the election of directors. This means that holders are entitled to one vote for each share of Common Stock held, multiplied by the number of directors to be elected, and the holder may cast all such votes for a single director, or may distribute them among any number of all of the directors to be elected.
(e) Purchases of Equity Securities.
We (and affiliated purchasers) have made no purchases or repurchases of any securities of the Company or any other issuer.
(f) Securities Authorized for Issuance under an Equity Compensation Plan.
We have not authorized the issuance of any of our securities in connection with any form of equity compensation plan.
(g) Recent Sale of Unregistered Securities
On February 25, 2010, we sold and issued an aggregate of 100,000,000 shares of common stock in exchange for all of the issued and outstanding shares of Front Row. The sale and issuance of the shares was exempt from registration under the Securities Act of 1933, as amended, by virtue of section 4(2) as a transaction not involving a public offering. Each of the three shareholders had acquired the shares for investment and not with a view to distribution to the public. All of these shares had been issued for investment purposes in a "private transaction" and were "restricted" shares as defined in Rule 144 under the Securities Act of 1933, as amended.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to smaller reporting companies.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION and RESULTS OF OPERATIONS.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A “Risk Factors” in our annual report on Form 10-K for fiscal year ended March 31, 2012, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Forward looking statements made by penny stock issuers are excluded from the safe harbors in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the Security and Exchange Commission (“SEC”). These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Overview
Writers’ Group Film Corp. (“we”, “us”, “our”, “WRIT”, or the “Company”) was incorporated in Delaware on March 9, 2007 to produce films, television programs and similar entertainment programs for various media formats.
Front Row Networks (“FRN”) was incorporated on July 27, 2010 in the State of Nevada. The Company is a content creation company which intends to produce, acquire and distribute live concerts in 3D for initial worldwide digital broadcast into digitally-enabled movie theaters. This new concept is intended to present live concerts in 3D, at lower ticket prices, to a massive fan base worldwide in a cost-effective manner. Following the initial 3D theatrical run, the distribution rights to the concerts will be licensed, in both 2D and 3D format, to DVD and Blu-Ray retailers, Free TV broadcasters, cable and emerging 3D cable channels, and mobile streaming providers. Front Row Networks will also sell merchandising, such as clothing, household goods, and other products, tailored to each Artist and to each Sponsor, in movie theaters where the live concert is exhibited
In February 2011, FRN completed a reverse acquisition transaction through a share exchange with WRIT, whereby WRIT acquired 100% of the issued and outstanding capital stock of FRN in exchange for 100,000,000 shares of the Common Stock of WRIT. As a result of the reverse acquisition, FRN became WRIT’s wholly-owned subsidiary and the former FRN’s shareholders became controlling stockholders of WRIT. The share exchange transaction with WRIT was treated as a reverse acquisition, with FRN as the accounting acquirer and WRIT as the acquired party.
Consequently, the assets and liabilities and the historical operations that will be reflected in the consolidated financial statements for periods prior to the Share Exchange Agreement will be those of FRN and will be recorded at the historical cost basis. After the completion of the Share Exchange Agreement, the Company’s consolidated financial statements will include the assets and liabilities of both FRN and WRIT, the historical operations of FRN and the operations of WRIT from the closing date of the Share Exchange Agreement.
On July 7, 2011, we modified our February 2011 Share Exchange Agreement and agreed to assume $100,000 in new debt which is shown as a reduction of our Paid-In Capital.
Financial Performance Highlights
The following summarizes certain key financial information for the fiscal year ended March 31, 2012 and for the inception period ended March 31, 2011:
·
Revenues: Our revenues were $397,000 and $160,000 for the fiscal year ended March 31, 2012 and for the inception period ended March 31, 2011.
·
Net loss: Net loss was $772,914 and $14,708 for the fiscal year ended March 31, 2012 and for the inception period ended March 31, 2011.
Results of Operations
The following table sets forth key components of our results of operations for the inception period ended March 31, 2011, as well as for the fiscal year ended March 31, 2012.
Fiscal Year Ended March 31, 2012 Compared to the Inception Period Ended March 31, 2011
Revenues. Revenues increased 148.1% to $397,000 for the fiscal year ended March 31, 2012 from $160,000 for the inception period ended March 31, 2011.
Revenues in the amount of $397,000 for the fiscal year ended March 31, 2012 were comprised of a license fee of $172,000 from Anvil International, Ltd. (“Anvil International”) and a license fee of $225,000 from 3D Conversion Rights LLC (“3D Conversion Rights”), a company wholly owned by Mr. John Diaz, the CEO and major shareholder of the Company. The Company granted to Anvil International and 3D Conversion Rights the exclusive right and license under copyright, to distribute, transmit, display, exhibit, project, license, simulcast, perform and otherwise exploit certain 2D and 3D completed motion pictures based upon live concert performances.
Revenues for the inception period ended March 31, 2011were derived from a Production Services Agreement the Company entered into in November 2010 to provide the pre-production, principal photography and post-production services for a music video. The services were completed in December 2010 and the total service revenue was $160,000 for the fiscal year ended March 31, 2011.
Cost of revenue. In the fiscal year ended March 31, 2012, the Company did not incur any cost of revenue because the licensed 2D and 3D pictures were completed in prior year. In the inception period ended March 31, 2011, the Company incurred $130,459 cost for the pre-production, principal photography and post-production of the music video.
Wages and benefits. Wages and benefits expenses increased to $273,571 for the fiscal year ended March 31, 2012 from $14,318 for the inception period ended March 31, 2011. The increase is mainly due to the minimal personnel cost during the inception period. The wages and benefits expenses for the fiscal year ended March 31, 2012 include employee stock compensation in the amount of $85,000.
Audit and accounting. Audit and accounting expenses was $59,125 for the fiscal year ended March 31, 2012. The increase in the audit and accounting expense is mainly related to the cost for being a public company.
Legal fee. Legal fee was $150,539 for the fiscal year ended March 31, 2012. The legal fee is mainly related to the George Sharp lawsuit, which is discussed in more detail in Note 10 “Equity” to our consolidated financial statements.
Other general and administrative expenses. Other general and administrative expenses increased to $161,412 for the fiscal year ended March 31, 2012 from $23,845 for the inception period ended March 31, 2011. Those expenses consist primarily of company’s business development, consulting fees and other expenses incurred in connection with general operations.
Loss from operations. Our loss from operations was $247,647 for the fiscal year ended March 31, 2012 and $8,622 for the inception period ended March 31, 2011.
Loss on extinguishment of debt. We recorded a loss on extinguishment of debt of $23,309 for the fiscal year ended March 31, 2012 due to a modification of a convertible note (discussed in more detail in Note 7 “Convertible Debt” to our consolidated financial statements).
Gain or loss from derivative liability. We recorded a loss from derivative liability of $481,212 for the fiscal year ended March 31, 2012, which is discussed in more detail in Note 6 “Convertible Debt”, Note 7 “Convertible Debt - Related Party” and Note 8 “Derivative Liabilities” to our consolidated financial statements.
Interest expense. We incurred $20,746 interest expense related to the convertible debt for the fiscal year ended March 31, 2012, and $6,086 interest expense related to the convertible debt for the inception period ended March 31, 2011.
Net loss. As a result of the foregoing factors, we generated a net loss of $772,914 for the fiscal year ended March 31, 2012, and we generated a net loss of $14,708 for the inception period ended March 31, 2011.
Liquidity and Capital Resources
As reflected in the accompanying consolidated financial statements, the Company has accumulated deficits of $787,622 at March 31, 2012 that includes losses of $772,914 for the fiscal year ended March 31, 2012 and losses of $14,708 for the fiscal year ended March 31, 2011. The Company also had a working capital deficiency of $687,960 as of March 31, 2012 and a working capital deficiency of $51,444 as of March 31,2011. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.
As of March 31, 2012 and 2011, we have $15,599 and $58,598 cash and cash equivalents, respectively. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report. To date, we have financed our operations primarily through cash flows from operations and borrowings from third and related parties.
Operating activities
Cash used in operating activities of $226,299 for fiscal year ended March 31, 2012 reflected our net loss of $772,914, adjusted for revenue of $303,000 settled by debt cancellation and non-cash expenses, consisting primarily of $481,212 of loss on derivative liability, $23,309 of loss of debt extinguishment, $246,975 of stock based compensation to employee, consultant and other services, $12,835 of amortization of debt discount and $4,845 imputed interest on related party loan. Additional sources of cash include decreases in accounts receivable of $24,800 and increase in accounts payable and accrued liability of $97,592. Uses of cash included an increase in related party accounts receivable of $46,800.
Cash used in operating activities of $36,304 for the inception period ended March 31, 2011 reflected our net loss of $14,708, adjusted for $5,766 of amortization of debt discount. Additional sources of cash include increase in accrued liability of $2,638. Uses of cash included an increase in accounts receivable and prepaid expenses of $30,000.
Investing activities
The net cash provided by or used in investing activities is primarily due to funds lent to related parties. During the fiscal year ended March 31, 2012, the related parties repaid $13,500 of the borrowing from the Company. During the inception period ended March 31, 2011, the Company lend to related parties with the amount of $13,708.
Financing activities
Net cash provided by financing activities of $169,800 for the fiscal year ended March 31, 2012 includes funds borrowed from third party.
Net cash provided by financing activities of $108,610 for the inception period ended March 31, 2011 includes funds borrowed from related parties offset by shareholder distribution.
Loan Commitments
Borrowings from Related Parties
The Company entered into a loan agreement with Mrs. Nancy Louise Jones, wife of Mr. John Diaz, the CEO and major shareholder of the Company, on November 26, 2010, to borrow $60,562 with maturity date at September 1, 2012. This loan bears no interest.
Borrowings from Third Parties
On February 9, 2012, the Company borrowed $45,000 from Asher Enterprises. The maturity date of this note is November 10, 2012. This loan bears an interest rate of 8% per annum from the issuance date before default. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
On March 29, 2012, Asher Enterprises purchased a convertible note in the amount of $15,120 with an annual interest rate of 10%, from Armada International, which replaced and amended the two convertible notes dated December 1, 2010 and December 22, 2010 between the Company and Armada International, including one note in the amount of $11,000 plus accrued interest of $880, and the other note in the amount of $3,000 plus accrued interests of $240. The amended conversion price changed from $0.00001 to 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
Obligations under Material Contracts
Except with respect to the loan obligations disclosed above, we have no obligations to pay cash or deliver cash to any other party.
Inflation
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost controls in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introduction.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
·
Accounts Receivable: Accounts receivable are recorded at the net invoice value and are not interest bearing. We consider receivables past due based on the contractual payment terms. We perform ongoing credit evaluations of our customers, and generally we do not require collateral on our accounts receivable. We estimate the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and we record a provision for uncollectible accounts when collection is uncertain. To date, we have not experienced significant credit related losses.
·
Revenue Recognition: Based on Revenue Recognition Requirement for Film Sales (ASC 926-605-25), we recognize film license revenues when all of the following conditions are met:
- Persuasive evidence of a sale or licensing arrangement with a customer exists
- The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery
- The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale
- The arrangement fee is fixed or determinable
- Collection of the arrangement fee is reasonably assured
Recent Accounting Pronouncements
See Note 3. “Summary of Significant Accounting Policies - Recently issued accounting pronouncements” to our audited consolidated financial statements included elsewhere in this report.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors
Writers' Group Film Corp.
Glendale, California
We have audited the accompanying consolidated balance sheet of Writers' Group Film Corp. and its wholly owned subsidiary (collectively, the “Company”) as of March 31, 2012 and March 31, 2011, the related consolidated statements of operations, cash flows and changes in shareholders’ deficit for the year then ended March 31, 2012 and the period from July 27, 2010 (inception) through March 31, 2011. These consolidated financial statements are the responsibility of 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 the Company as of March 31, 2012, and the results of their operations and their cash flows for the year then ended March 31, 2012 and the period from July 27, 2010 (inception) through March 31, 2011in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
July 12, 2012
Writers' Group Film Corp.
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements.
Writers' Group Film Corp.
Consolidated Statement of Operations
The accompanying notes are an integral part of these consolidated financial statements.
WRITERS’ GROUP FILM CORP.
Consolidated Statements of Changes in Shareholders’ Deficit
For The Fiscal Year Ended March 31, 2012 And The Inception Period Ended March 31, 2011
The accompanying notes are an integral part of these consolidated financial statements.
Writers' Group Film Corp.
Consolidated Statement of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
WRITERS’ GROUP FILM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Writers’ Group Film Corp. (“we”, “our”, “WRIT” or the “Company”) was incorporated in Delaware on March 9, 2007 to produce films, television programs and similar entertainment programs for various media formats.
Front Row Networks, Inc. (“Front Row”) was incorporated on July 27, 2010 in Nevada. The Company is a content creation company which produces, acquires and distributes live concerts in 3D for initial worldwide digital broadcast into digitally-enabled movie theaters, TV and mobile streaming providers.
On February 25, 2011, the Company acquired Front Row in exchange for 100,000,000 common shares in a transaction accounted for as a reverse merger. As a result of this transaction, Front Row’s shareholders became the Company’s majority shareholders.
Consequently, the assets and liabilities and the historical operations reflected in the consolidated financial statements for the period from Front Row’s inception on July 27, 2010 through February 25, 2011 are those of Front Row alone.
NOTE 2 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company has accumulated deficits of $787,622 at March 31, 2012 that includes losses of $772,914for the year ended March 31, 2012. The Company also had a working capital deficiency of $687,960. These factors raisesubstantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going basis and do not include any adjustments that might result from outcome of this uncertainty.
Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
These consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiary, Front Row Networks, Inc. All significant intercompany balances and transactions have been eliminated.
Prior to the acquisition of Front Row, WRIT’s operations were intermittent and insignificant. All WRIT assets were sold to Tal L. Kapelner, former major shareholder of WRIT, for a nominal amount when Front Row was purchased.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are recorded at the net invoice value and are not interest bearing. We consider receivables past due based on the contractual payment terms. We perform ongoing credit evaluations of our customers, and generally we do not require collateral on our accounts receivable. We estimate the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and we record a provision for uncollectible accounts when collection is uncertain. To date, we have not experienced any credit related losses.
Revenue Recognition
Based on Revenue Recognition Requirement for Film Sales (ASC 926-605-25), the Company recognizes film license revenues when all of the following conditions are met:
- Persuasive evidence of a sale or licensing arrangement with a customer exists
- The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery
- The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale
- The arrangement fee is fixed or determinable
- Collection of the arrangement fee is reasonably assured
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Stock-based Compensation
Accounting Standards Codification (“ASC”) 718, “Accounting for Stock-Based Compensation" established financial accounting andreporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for an employeestock option or similar equity instrument. The Company accounts for compensation cost for share based payments to employees in accordance with ASC 718. Accordingly, employee share-based payment compensation ismeasured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at theirfair value. The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting forEquity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for current receivables and payables qualify as financial instruments. Management concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.
Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.
Level 1-
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. We have not measured the fair value of any of our assets or liabilities using Level 1 inputs.
Level 2 -
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. We have not measured the fair value of any of our assets or liabilities using Level 2 inputs.
Level 3 -
Inputs to the valuation methodology are unobservable and significant to the overall fair value measurement. We have not measured the fair value of any of our assets using Level 3 inputs. Our Level 3 liability consists of derivative liabilities.
During the fiscal year ended March 31, 2012 and the inception period ended March 31, 2011, no transfers were made into or out of the Level 1, 2, or 3 categories. We will continue to review our fair value inputs on a quarterly basis.
Financial liabilities measured at fair value on a recurring basis are summarized below at March 31, 2012. We did not have any financial assets or liabilities measured at fair value on a recurring basis at March 31, 2011.
These current inputs resulted in a loss from derivative liability in the amount of $481,212 and a balance of $529,583 in the derivative liability account.
Embedded Conversion Feature
The Company has issued convertible instruments which contain embedded conversion features. The Company evaluates the embedded conversion feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion featuremeets the definition of a liability and therefore need tobifurcate the conversion feature and account for it as a separate derivative liability.
If the embedded conversion feature does not meet the definition of a liability, the Company evaluated the conversion feature under ASC 815-40 for a beneficial conversion feature at inception. The effective conversion price was then computed based on the allocation of the proceeds to the convertible debt to determine if a beneficial conversion feature exists. The effective conversion price was compared to the market price on the date of the original note and was deemed to be less than the market value of the Company’s stock at the inception of the note. A beneficial conversion feature was recognized and gave rise to a debt discount that is amortized over the stated maturity of the convertible debt instrument or the earliest potential conversion date.
If the embedded conversion feature meets the definition of a liability, it is required a bifurcation of the conversion feature from the debt and accounting for the conversion feature as a derivative contract liability with changes in fair value recorded in the Statements of Operations.
Net Loss per Share
In accordance with ASC 260 “Earnings per Share,” basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income/(loss) per share is computed by dividing the net income/(loss) for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Such common equivalent shares have not been included in the computation of net loss per share as their effect would be anti-dilutive.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations,financial position or cash flow.
NOTE 4 - RELATED PARTY BALANCES AND TRANSACTIONS
Accounts receivable from related party
The Company and 3D Conversion Rights, a company wholly owned by Mr. John Diaz, the CEO and major shareholder of the Company entered into an exclusive license agreement on March 25, 2012. Based on the terms of this license agreement, 3D Conversion Rights agreed to pay to the Company an aggregate amount of $225,000 as the license fee, bythe cancellation of a$177,600 note payable to 3D Conversion Rights along with accrued interest of $600 and payment of $46,800 in certified funds before June 30, 2012. As of March 31, 2012, the Company has a receivable from 3D Conversion Rights in the amount of $46,800.
Due from related party
The due from related party includes the following:
At March 31, 2011, the Company has a receivable from Mr. John Diaz, the CEO and major shareholder of the Company of $13,708. This borrowing bears no interest and is repayable on demand. During the fiscal year ended March 31, 2012, Mr. Diaz repaid $13,500 of hisborrowing from the Company, leaving a balance of $208 due to the Company as of March 31, 2012.
Mr. Eric Mitchell, the CFO of the Company, borrowed $1,000 from the Company in June 2011. Mr. Mitchell repaid his borrowings from the Company in full by February 2012.
Due to related party
Due to related party consists of the following:
Mrs. Nancy Louise Jones
On November 26, 2010, the Company borrowed $60,562 from Mrs. Nancy Louise Jones, wife of Mr. John Diaz, the CEO and major shareholder. The maturity date of this loan is September 1, 2012. This loan bears no interest. In accordance with ASC 835-30 Imputation of Interest, the Company uses 8%, the prevailing rate for similar debt, to recognize the imputed interest expense of $4,845 on this debt for the year ended March 31, 2012. The imputed interest expense is accounted as a capital transaction and recorded as an increase of Additional Paid-In Capital.
3D Conversion Rights
During January and March 2011, the Company borrowed $177,600 from 3D Conversion Rights.As of March 31, 2012, these loans were cancelled as a portion of the license fee that 3D Conversion Rights paid to the Company in exchange for the right to distribute certain completed concert films owned by the Company throughout Spain and Portugal for three years.
NOTE 5 - NOTES PAYABLE
Note payable consists of the following:
Asher Enterprises Note Payable
On February 9, 2012, the Company borrowed $45,000 from Asher Enterprises. The maturity date of this note is November 10, 2012. This loan bears an interest rate of 8% per annum. Interest on overdue principal after default accrues at an annual rate of 22%. After 180 days following the date of the note, Asher Enterprises has the right to convert all or a portion of the remaining outstanding principal amount of this note into shares of the Company’s Common Stock. The conversion price will be 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.As of March 31, 2012, the note payable is not convertible yet.
Anvil International Note Payable
During April and May 2011, the Company borrowed $124,800 from Anvil International.On March 31, 2012, these loans were cancelled as a portion of the license fee that Anvil International paid to the Company in exchange for the right distribute certain completed concert filmsowned by the Company throughout Brazil for three years.
Tal Kapelner Note Payable
On July 7, 2011, the Company modified the February 3, 2011 Share Exchange Agreement and agreed to assume $100,000 in new debt which is shown as a reduction of our Paid-In Capital. The note was converted into 10,000 shares of Series B Preferred Stock during the year ended March 31, 2012.
NOTE 6 - CONVERTIBLE DEBTS
The convertible debts were originally issued in September 2009, March 2010 and December 2010, respectively, bear an interest rate at 8% per annum, due in one year, and are convertible at $0.00001 per share. The debts are in default at March 31, 2011 and 2012.The Company evaluated the application of ASC 815-15 and ASC 815-40 for the debts listed above and concluded these instruments were not required to be accounted for as derivatives. The Company also evaluated ASC 470-30 & ASC 470-05 and concluded that the conversion option was a beneficial conversion feature with an intrinsic value. The Company determined the intrinsic value of the conversion options on these debts and amortized the amount over the life of the debts using the effective interest rate method. As of March 31, 2011, the beneficial conversion feature on these debts has been fully amortized.
During the year endedMarch 31, 2012, $2,178 of convertible debts was converted into 217.78 million shares of common stock at $0.00001 per share.
Asher Enterprise, Inc.
On March 29, 2012, Asher Enterprises, Inc. purchased a convertible note for $15,120 with an annual interest rate of 10%, from Armada International, which is a related party. The new Asher convertible noteis due on demand, with interest at 10%, and changes the conversion price from $0.00001 to 58% multiplied by the average of the lowest two trading prices for the Common Stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date.
TheCompany analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” anddetermined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number ofshares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair valueat the date of inception and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The Companyalso analyzed the modification of the term under ASC 470-50 “Debt Modifications and Extinguishments”.The Company determinedthe creditor has not granted a concession under the modified terms, the change in the fair value of the embedded conversion feature is greater than 10% of the carry value of the debt immediately prior to the modification and concludedthe modification is substantial and should be accounted as debt extinguishment. The fair value of the embedded conversion optionresulted in the recognition of loss on extinguishment of debt of $23,309 on March 29, 2012.
In April 2012, the Company converted the $15,120 balance into 7,957,895 common shares at $.0019 per share.
Other Third Party Convertible Notes
As a result of the Asher Convertible Note (as discussed above), under ASC 815-15“Derivatives and Hedging”, all other share-settleable instruments must be reclassified from equity. The Company had conversion options embedded in other third party convertible notes of $4,612. The convertible debts were issued in September 2009, bear an interest rate at 8% per annum, due in one year, and are convertible at$0.00001 per share. The debts are in default at March 31, 2011.The addition of the embedded conversion option resultedin a full discount to the note of $4,612 on March 29, 2012. See Note 8 for additional information on the derivative liability.
NOTE 7 - CONVERTIBLE DEBTS - RELATED PARTY
These convertible debts were originally issued in March, and December 2010, respectively, bear an interest rate at 8% per annum,due in one year, and are convertible at $0.00001 per share. The debts are in default as of March 31, 2012.
The Company evaluated the application of ASC 815-15 and ASC 815-40 for the debts listed above and concluded these instruments were not required to be accounted for as derivatives. The Company also evaluated ASC 470-30 & ASC 470-05 and concluded that the conversion option was a beneficial conversion feature with an intrinsic value of $18,601 and recorded a discount on the debts of $5,766 during the initial period ended March 31, 2011. The discount will be amortized over the life of the debts using the effective interest rate method. As of March 31, 2011, $12,835 remained unamortized. As of March 31, 2012, the beneficial conversion feature on these debts has been fully amortized.
As a result of the Asher Convertible Note (as discussed in Note 6), under ASC 815-15“Derivatives and Hedging”, all other share-settleable instruments must be reclassified from equity. The Company had conversion options embedded in related party convertible notes of $20,450. The addition of the embedded conversion option resultedin a full discount to the note of $20,450 on March 29, 2012. See Note 8 for additional information on the derivative liability.
NOTE 8 - DERIVATIVE LIABILITIES
Asher Enterprise, Inc.
As discussed in Note 6, the Company determined that the instruments embedded in the convertible note should be classified asliabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of theabove conversion options. The fair value of the instruments was determined to be $23,309 using multinomial lattice model and $23,309 was recognized as loss on extinguishment of debt based on the following assumptions:
- The projected volatility curve for each valuation period was based on the historicalvolatility of 20 comparable companies.
1-year Volatility on March 29, 2012 156%
1-year Volatility on March 31, 2012 156%
- An event of default would occur 0% of the time, increasing 1.00% per month to amaximum of 5%;
- Asher would redeem based on availability of alternative financing, increasing2.0% monthly to a maximum of 20%;
- Asher would automatically convert the note at maturity if the registration waseffective and the company was not in default.
Other Third Party and Related Party Convertible Notes
As discussed in Note 6 and Note 7, as a result of the Asher Convertible Note (as discussed in Note 6), under ASC 815-15“Derivatives and Hedging”, all other share-settleable instruments must be reclassified from equity. The fair value of the instruments was determined to be $566,072 using multinomial lattice model of which $20,450 was recorded as discount on related party convertible debt, $4,612 was recorded as discount on third party convertible debt and $541,010 was recorded as loss on derivative liabilitybased on the following assumptions:
- The projected volatility curve for each valuation period was based on the historicalvolatility of 20 comparable companies.
1-year Volatility on March 29, 2012 156%
1-year Volatility on March 31, 2012 156%
- An event of default would occur 0% of the time, increasing 1.00% per month to amaximum of 5%;
- The holder redeem based on availability of alternative financing, increasing20.0% monthly to a maximum of 95%;
- The holder would convert monthly (equal to the average trading volume over the last 6 months)
- The holder have not converted to date despite the conversion option being in the money, so no trigger price for early conversion was considered.
Under ASC 815-15 “Derivatives and Hedging” the liabilities were subsequently measured at fair value at the end of each reportingperiod with the change in fair value recorded to earnings. The fair value of the embedded conversion featureof all the convertible notes on March 31, 2012 was $529,583 and $59,798 was recognized as gain on derivative.
The following table summarizes the derivative liabilities included in the consolidated balance sheet:
The following table summarizes the derivative (gain) or loss recorded as a result of the derivative liabilities above:
NOTE 9 - PREFERRED STOCK
Each share of Series A preferred stock is convertible at any time into the number of common shares equal to four times the sum of all outstanding common and Series B and Series C preferred shares at the time of conversion divided by the number of Series A preferred shares. Series A shareholders may receive dividends as declared by the Board. The Company has 10,000 Series A preferred shares outstanding at March 31, 2012 and 2011.
Each share of Series B preferred stock is convertible into the number of common shares equal to the designated $2 initial price of the Series B preferred stock divided by one hundred times the par value of the common stock subject to adjustments as may be determined by the Board of Directors from time to time. Series B shareholders may receive dividends as declared by the Board.On July 7, 2011, the Company modified the February 3, 2011 Share Exchange Agreement and assumed $100,000 in new debt which is shown as a reduction of Paid-In Capital. The note was converted into 10,000 Series B shares during fiscal 2012.The Company has 10,000 Series B shares outstanding at March 31, 2012 and 8,500 Series B shares outstanding at March 31, 2011. The 8,500 Series B shares were converted into 17,000,000 common shares during fiscal 2012.
Each share of Series C preferred stock is convertible at any time into 500 common shares. Series C holders may receive dividends as declared by the Board. The Company has no Series C shares outstanding at March 31, 2012 and 2011.
The Company evaluated the application of ASC 815-15 and ASC 815-40 for the embedded conversion feature of preferred stock listed above and concluded the embedded conversion option should be classified as equity.
NOTE 10 - EQUITY
Shareholder Contribution
During initial period ended March 31, 2011, initial shareholders contributed $1,000
Shareholder Distribution
During the initial period ended March 31, 2011,Front Row Network Inc.’s former CEO and major shareholder of the Company, Michael Sullivan, misappropriated$130,552 from the Company. Mr. Sullivan later entered into a loan agreement with the Company in February 2011 and pledged hisequity interest in Writers’ Group Film Corp. as collateral. The amount was treated as a shareholder distribution as it is not expected tobe fully recovered.
Reverse Merger Adjustment
In February 2011, the Company issued 100 million common shares to acquire Front Row. The transaction was accounted for as areverse merger. Shares outstanding immediately prior to the transaction and the net book value of WRIT are presented as the reversemerger adjustments.
For the Year Ended March 31, 2012:
Preferred Stock Conversion
In July and August 2011, certain Series B preferred stock holders converted 8,500 such shares into 17,000,000 common shares.
On July 7, 2011, the Company modified the February 3, 2011 Share Exchange Agreement and agreed to assume $100,000 in new debt which is shown as a reduction of our Paid-In Capital. The note was converted into 10,000 shares of Series B Preferred Stock during the fiscal year ended March 31, 2012.
Shares issued for services
On September 14, 2011, the Company issued 2.75 million common shares to a consulting company for services fair valuedat $26,675.
On December 2, 2011, the Company issued 44.5 million common shares to its employees and various consulting companies with fair value totaling $151,300.
In February, 2012, a shareholder of the Company transferred 10 million shares to another individual for settling a lawsuit and valued at $69,000.
Shares issued for convertible notes
During the year ended March 31, 2012, $2,178 of convertible debts were converted into 217.8 million common shares. See Note 6.
NOTE 11 - CONCENTRATION
For the fiscal year ended March 31, 2012, 100% of the Company’s revenue is generated from license fees from two customers, Anvil International and 3D Conversion Rights. In the 2011 fiscal year, 100% of revenues was from one different customer.
NOTE 12 - INCOME TAXES
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has netlosses of $12,680 and $8,942 as of March 31, 2012 and 2011. The following table shows the net deferred tax benefit:
Pursuant to ASC 740, the Company is required to compute tax assetbenefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financialstatements because the Company cannot be assured it is more likely-than-not it will utilize the net operating losses carried forward infuture years which will start to expire in the year of 2031.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
We have had no changes in or disagreements with our accountants on accounting and financial disclosures.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
(A) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the CEO and CFO concluded that, because of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2012. The Company has taken the steps described below to remediate such material weaknesses.
(B) Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed 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 ("GAAP"). The Company’s internal controls over financial reporting include policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’ assets that could have a material effect on our financial statements. Under the supervision and with the participation of our management, including our CEO, we evaluated the effectiveness of our internal control over financial reporting as of March 31, 2012. In its evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and the criteria described above, management has concluded that, as of March 31, 2012, our internal control over financial reporting was not effective. We have noted the following deficiencies in our control environment:
1. Deficiencies in Our Control Environment. Our control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. This material weakness exists because of the aggregate effect of multiple deficiencies in internal control which affect our control environment, including: a) the lack of an effective risk assessment process for the identification of fraud risks; b) the lack of an internal audit function or other effective mechanism for ongoing monitoring of the effectiveness of internal controls; c) deficiencies in our accounting system and controls which resulted in the theft by former CEO; d) and insufficient documentation and communication of our accounting policies and procedures as of March 31, 2012.
2. Deficiencies in the staffing of our financial accounting department. Management had engaged an outside CPA to assist in the financial reporting. However, the number of qualified accounting personnel with experience in public company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.
3. Deficiencies in Segregation of Duties. The limited number of qualified accounting personnel results in an inability to have independent review and approval of financial accounting entries. Furthermore, management and financial accounting personnel have wide-spread access to create and post entries in our financial accounting system. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to insufficient segregation of duties. Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, 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. Management is still determining additional measures to remediate deficiencies related to staffing.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting. This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company is not an "accelerated filer" for the fiscal year ended March 31, 2012 because it is qualified as a "small business issuer". Hence, under current law, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not apply to the Company. This Annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
Other than the Form 8-Ks filed during the fourth quarter, we have no other information that we would have been required to disclose in a report on Form 8-K during a fourth quarter of the year covered by this Form 10K.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The members of our Board of Directors serve until the next annual meeting of the stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Information as to the directors and executive officers of the Company is as follows:
John Diaz, Chief Executive Officer. From his start as a non-paid stage manager at the original Woodstock, John Diaz has enjoyed a nearly 40 year career in music & video production and distribution. With the advent of new distribution platforms for music in the early 1980’s, like the dawn of MTV and the explosion of music videos as a medium and art form, John established himself as one of the leading producers of music videos & events for broadcast throughout the 90’s. Mr. Diaz has produced domestic and international TV for some of the largest music events in history, including specials with Bob Dylan, Bruce Springsteen, Sting, The Rolling Stones and many others. Turning to the Internet as an emerging content distribution technology in the 90’s, he was part of the forefront of today’s digital media. Mr. Diaz has focused his energies on bringing music and other digital content distribution to the Internet, first as a founding employee of mp3.com, then as EVP of Vivendi/Universal’s Internet arm, VUNET.
Eric Mitchell, Chief Financial Officer. Eric Mitchell has over 20 years of financial, business development, and strategic planning experience in the motion picture industry. Mr. Mitchell’s acquisition and financial talents helped Sony Pictures’ Tri-Star division acquire theatrical distribution rights to such hits as Cliffhanger, Sniper, Threesome, and Weekend at Bernie’s 2. Mitchell assisted Tri-Star in acquiring multi-picture distribution rights with Carolco Pictures; the deal generated $250 million in profit for the studio and led to such hits as LA Story, Universal Soldier, The Doors, Total Recall, Basic Instinct and Terminator 2. As an advisor to Ascendant Pictures and VIP Media Fund, the largest German tax fund, Eric participated in placing over $500 million dollars in production financing into 46 feature films. Mr. Mitchell is a graduate of Carnegie Mellon University and received his M.S. in Management from the Massachusetts Institute of Technology’s Sloan School.
Wendy Haviland, Secretary. Wendy Haviland has over 15 years of investor relations and business development experience.
Our officers and directors may be deemed promoters of the Company as those terms are defined by the Securities Act of 1933, as amended. All directors hold office until the next annual stockholders' meeting or until their death, resignation, retirement, removal, disqualification, or until their successors have been elected and qualified. Our officers serve at the will of the Board of Directors.
There are no agreements or understandings for any officer or director of the Company to resign at the request of another person and none of the officers or directors is acting on behalf of or will act at the direction of any other person.
We have checked the box provided on the cover page of this Form to indicate that there is no disclosure in this form of reporting person delinquencies in response to Item 405 of Regulation S-K.
Audit Committee.
Our board of directors has not established an audit committee. In addition, we do not have any other compensation or executive or similar committees. We will not, in all likelihood, establish an audit committee until such time as the Company generates a positive cash flow of which there can be no assurance. We recognize that an audit committee, when established, will play a critical role in our financial reporting system by overseeing and monitoring management's and the independent auditors' participation in the financial reporting process. At such time as we establish an audit committee, its additional disclosures with our auditors and management may promote investor confidence in the integrity of the financial reporting process.
Until such time as an audit committee has been established, the full board of directors will undertake those tasks normally associated with an audit committee to include, but not by way of limitation, the (i) review and discussion of the audited financial statements with management, and (ii) discussions with the independent auditors the matters required to be discussed by the Statement On Auditing Standards No. 61 and No. 90, as may be modified or supplemented.
Code of Ethics.
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The code of ethics will be posted on the investor relations section of the Company's website. At such time as we have posted the code of ethics on our website, we intend to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the code of ethics by posting such information on the website.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
DIRECTOR COMPENSATION
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
(a) Security Ownership of Certain Beneficial Owners.
(b) Security Ownership of Management.
The following table sets forth the security and beneficial ownership for each class of equity securities of the Company owned beneficially and of record by all directors and officers of the Company, and any holder of more than 5% of each class of stock.
(c) Ownership and Change in Control.
Each of the security ownership by the beneficial owners and by management is also the owner of record for the like number of shares.
There are currently no arrangements that would result in a change in our control.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
At March 31, 2011, the Company has a receivable from Mr. John Diaz, the CEO and major shareholder of the Company of $13,708. This borrowing bears no interest and is repayable on demand. During the fiscal year ended March 31, 2012, Mr. Diaz repaid $13,500, leaving a balance of $208 due to the Company as of March 31, 2012.
Mr. Eric Mitchell, the CFO of the Company, borrowed $1,000 from the Company in June 2011. Mr. Mitchell repaid $500 of his borrowings from the Company on January 17, 2002 and repaid the remaining $500 on February 16, 2012.
The Company and 3D Conversion Rights, a company wholly owned by Mr. John Diaz, the CEO and major shareholder of the Company entered into an exclusive license agreement on March 25, 2012. Based on the terms of this license agreement, 3D Conversion Rights agreed to pay to the Company an aggregate amount of $225,000 as the license fee, which included a payment of $46,800 in certified funds before June 30, 2012. As of March 31, 2012, the Company has a receivable from 3D Conversion Rights in the amount of $46,800.
The Company entered into a loan agreement with Mrs. Nancy Louise Jones, wife of Mr. John Diaz, the CEO and major shareholder of the Company, on November 26, 2010, to borrow $60,562 with maturity date at September 1, 2012. This loan bears no interest before default, however, interest is payable after default with interest on overdue principal at a monthly rate of 0.5% compounded monthly.
On January 11, 2011, the Company entered into a loan agreement with 3D Conversion Rights LLC, a company owned by Mr. John Diaz, the CEO and major shareholder of the Company, to borrow $60,000 for seven months and later extended to 12 months with maturity date at February 1, 2012. This loan bears no interest before default, however, interest is payable after default with interest on overdue principal at a monthly rate of 0.5% compounded monthly.
In March 2011, the Company entered into a loan agreement with 3D Conversion Rights LLC, a company owned by Mr. John Diaz, the CEO and major shareholder of the Company, to borrow $117,600 for twelve months with maturity date at April 4, 2012. This loan bears no interest before default, however, interest is payable after default with interest on overdue principal at a monthly rate of 0.5% compounded monthly.
As of March 31, 2012, these two loans with an aggregate amount of $177,600 along with accrued interest of $600 were cancelled as a portion of the license fee that 3D Conversion Rights paid to the Company in exchange for the exclusive right and license to distribute, transmit, display, exhibit, project, license, simulcast, perform and otherwise exploit certain 2D and 3D completed motion pictures owned by the Company, throughout Spain and Portugal for three years.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit and Non-Audit Fees
Pre-Approval of Services by the Independent Auditor
The Board of Directors has established policies and procedures for the approval and pre-approval of audit services and permitted non-audit services. The Board has the responsibility to engage and terminate the Company's independent registered public accountants, to pre-approve their performance of audit services and permitted non-audit services and to review with the Company's independent registered public accountants their fees and plans for all auditing services. All services provided by and fees paid to MaloneBailey LLP were pre-approved by the Board of Directors.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
We are a reporting company pursuant to the requirements of the 1934 Act and we file quarterly, annual and other reports with the Securities and Exchange Commission. The reports and other information filed by us will be available for inspection and copying at the public reference facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material may be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.
The following documents are filed as part of this report, except for those documents designated by an asterisk (*), which have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 17 C.F.R. 230.411, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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.
Date: July 12, 2012
By:
/s/ John Diaz
John Diaz
President and Sole Director