WRIT WRIT Media Group Inc (PK)

ITEM 2.   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, 2016, 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

WRIT Media Group, Inc. (“we”, “us”, “our”, “WRIT”, or the “Company”) was incorporated as Writers’ Group Film Corp. 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 was launched to produce, acquire, license, and distribute music-related content in 3D and ultra-high definition (4K) for initial worldwide digital broadcast into digitally-enabled movie theaters. Through the distribution of music-related “alternative content,” the Company intends to present live concerts, music documentaries, and other music-related content at affordable prices, to a massive fan base worldwide in a cost-effective manner. The Company intends to shift its focus from 3D to developing ultra-high definition (4K) content for distribution in the Americas and Asia. In some cases, Front Row Networks will also sell merchandising and other products, bolstered by both in-theater and in-App advertising, tailored around each Artist and/or event, to maximize potential merchandising and sponsorship revenues.

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 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 were reflected in the consolidated financial statements for periods prior to the Share Exchange Agreement were 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 included 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.

While the core business of Front Row Networks remains the licensing, production, acquisition and distribution of music-related content and programming, the core business is dependent upon negotiating and financing projects with schedules that are solely determined by third parties, such as Artists and rights owners. In order to secure less cyclical entertainment product, the Company sought to license or purchase entertainment content that could be easily secured and distributed through the multiple distribution arrangements already established by the Company and via the rapidly growing marketplace represented by consumers of mobile, internet, and TV set-top devices. To reach this goal during the fiscal year, the Company set out to acquire exclusive branded content and entertainment programming, and achieved this goal through the acquisition of Amiga Games Inc.

On August 19, 2013, the Company completed an acquisition transaction through a share exchange with Amiga Games Inc., whereby WRIT acquired 100% of the issued and outstanding capital stock, assets, and trademarks of Amiga Games Inc. in exchange for 500,000 shares of the Common Stock of WRIT. As a result of the acquisition, Amiga Games Inc. became WRIT’s wholly-owned subsidiary.

Amiga Games Inc. licenses classic pre-Windows computer game libraries and adapts and republishes the most popular titles for smartphones, modern game consoles, PCs, tablets, and other television streaming devices. WRIT also established a new company, Retro Infinity Inc., to publish and brand games that were not originally released for Amiga brand computers. The two companies tap into the growing “retro gaming” marketplace, building on the “Amiga”, “Atari”, and “MS-DOS” brands, delivering retro-gaming titles adapted for modern devices as well as merchandise featuring brands and characters from the games.

During the 2014 fiscal year, Amiga Games Inc. and Retro Infinity Inc. entered several marketing and distribution agreements, including those with Microsoft Corporation and Roku Inc. Both agreements include minimum guarantees, defined as advances against future sales. Additionally, the Retro Infinity Inc. licensed dozens of classic games for distribution via the Windows 8, Roku player, iOS (Apple), and Android platforms. Although it was the Company’s strategic goal to distribute a broad range of video game titles on the Windows 8 and iOS platforms during the 4 ^th quarter of 2014, lack of operating capital caused the Company to temporarily halt software development funding, which delayed the Company’s overall gaming product release schedule. This temporary reduction in operating capital was due to mainly to regulatory delays encountered in structuring WRIT’s equity-line financing, and the Company’s difficulty in raising alternative investment capital, due to its sub-penny share price at the time.

On January 22, 2014, the Company changed the name of the corporation to WRIT Media Group, Inc., and authorized a 1 for 1,000 reverse split of the Company’s issued and outstanding shares of Common Stock. The name change was authorized to encompass the Company’s broadened activities, including additional business plans and models, and the acquisition and formation of new subsidiaries. The equity restructuring was authorized to achieve the following: (a) price per share -- the rollback will increase the price per share to above $0.01, sub-penny markets are getting harder to trade and next to impossible to finance; (b) funding -- with a sub penny share price the Company was unable to fund because of dilution, post rollback the share price should be well above $0.01 and allow management to close on numerous funding opportunities that have been presented; (c) larger potential audience -- with a higher share price the Company will have access to investors who do not trade sub penny stocks such as institutions and Europeans; (d) listing in Europe -- the Company will now be able to list its common shares for trading on a European Stock Exchange, as co-listings in Europe are not accepted with a sub penny share price; and (e) acquisitions -- the Company will be able to use common shares to acquire larger assets and other industry related companies. 

On January 16, 2014 WRIT’s Equity Line Financing (“ELF”) agreement with Dutchess Opportunity Fund II, and its corresponding S1 registration statement, was declared effective by the SEC. The ELF agreement, executed in September 2013, allows but does not require WRIT to sell up to US$10,000,000 of common stock to Dutchess at a 5% discount to market price, during the 36 month term. Compared to the Company’s convertible debt financing, ELFs provide a lower discount to market that minimize dilution while increasing operating capital. This additional financing source allowed the company to reduce debt and reduce the balance of the more expensive convertible notes that were outstanding during the last quarter of the fiscal year.

On February 4, 2014 the Company completed its administrative and legal work with the Depository Trust & Clearing Corporation (“DTCC”) and the DTCC’s long-standing “Administrative Chill” on clearing WRIT stock certificates was removed. DTCC resumed accepting deposits of the Company’s common stock for book entry transfer services. As a result, shareholders with online brokerage accounts at firms such as Scottrade, ETRADE, TD Ameritrade and other full service brokerage firms are allowed to deposit new shares of WRIT’s common stock in the electronic system that controls clearance and settlement. The reinstatement of the DTC depository services is an instrumental and enormous accomplishment for WRIT, which greatly reduced the costs and expenses associated with private equity investments in the Company.

In September 2014 the Company launched two online point of sale platforms; www.RetroInfinity.com and www.AmigaGamesInc.com to market its “retro” gaming titles directly to consumers. Both sales platforms initially offer only downloads for windows based computers. The online store launch was completed in conjunction with an initial marketing program which featured NASCAR, the RWR Retro Infinity NASCAR race team, and the “Drive to Championship Weekend” branding program. In December 2014 the Company intended to launch additional titles on additional mobile platforms, such as Windows phone, iOS, and Android platforms, so that the video game titles can be downloaded as Apps on various mobile devices, the Company experienced additional financing delays which interrupted software development and caused the Company to reschedule the anticipated release on mobile platforms into 2015. The online store launch generated an increase in consumer traffic to the Company’s websites and created awareness in the Company’s product, but generated minimal sales, most consumers were interested only in the mobile versions of the gaming titles, which were not yet available.

The websites are currently being modified to accept payment for crowdfunding transactions, and we launched the Retro Infinity/Amiga Games crowdfunding platform, supported by a social marketing campaign, in the 3rd quarter of 2015. The initial campaign was not successful, so the Company is seeking additional financing from strategic partners that will allow the Company to resume and complete software development, and commence product marketing activities, or seeking to sell all or some of the video gaming assets.

On June 25, 2015, the Company authorized a 1 for 200 reverse split of the Company’s issued and outstanding shares of Common Stock. The equity restructuring was authorized to achieve the following: (a) price per share -- the rollback will increase the price per share to above $0.01, sub-penny markets are getting harder to trade and next to impossible to finance; (b) funding -- with a sub penny share price the Company was unable to fund because of dilution, post rollback the share price should be well above $0.01 and allow management to close on numerous funding opportunities that have been presented; (c) larger potential audience -- with a higher share price the Company will have access to investors who do not trade sub penny stocks such as institutions and Europeans; (d) listing in Europe -- the Company will now be able to list its common shares for trading on a European Stock Exchange, as co-listings in Europe are not accepted with a sub penny share price; and (e) acquisitions -- the Company will be able to use common shares to acquire larger assets and other industry related companies. 

On June 20, 2016, the Company issued 14,000,000 common shares to acquire 100% ownership interest in Pandora Venture Capital Corp. The transaction was accounted for as an asset acquisition. Pandora has developed business solutions for digital currency, blockchain technology, and digital currency trading. The assets include Pelecoin, a digital currency is a product which utilizes unique “value event” emission protocol and can be utilized with trade exchanges, loyalty rewards and a payment support platform, CrypFXPro, an online platform which allows investors to trade digital currencies similar to a stock exchange, and Pelecoin’s enterprise blockchain platform that enables institutions to design, deploy, and operate financial networks that can power assets in various markets. The 14,000,000 shares were valued using the $0.34 per share closing price on the acquisition date for total purchase price consideration of $4,760,000.

In the three month period ending June 30, 2017, the Company generated $64,985 in revenue from the launch of its Pelecoin product. We believe WRIT is well positioned to benefit from the developing market and growth in digital currency trading platforms and products, and block chain technology applications, and intend to continue to look for opportunities to explore business relationships with entities that have the resources to offer financing, licensing, distribution and marketing of WRIT’s product.

Results of Operations

Three Months Ended June 30, 2017 and 2016

Revenues. Revenues of $64,985 and $0 were recognized for the three months ended June 30, 2017 and 2016.

Cost of Services. Cost of services sold of $52,513 and $0 were recognized for the three months ended June 30, 2017 and 2016.

Amortization expense . We incurred $126,140 amortization expense for the three months ended June 30, 2017 and $0 for the same period in 2016. The increase in amortization expense is mainly related to the amortization of intangible assets during the period.

Gross Loss . As a result of the foregoing factors, we generated a gross profit of $113,668 for the three months ended June 30, 2017, and we generated a gross profit of $0 for the same period in 2016.

Operating Costs and Expenses

Wages and benefits. Wages and benefits expenses of $105,000 increased by $15,000 and 17% for the three months ended June 30, 2017 as compared to the same period in 2016. The increase is mainly due to an annual increase in wages and benefit expenses.

Audit and accounting. Audit and accounting expenses of $12,500 increased $12,500 and 100% for the three months ended June 30, 2017 as compared to the same period in 2016. The decrease in the audit and accounting expense is mainly related to the timing and Company’s accrual of accounting expenses.

Legal Fee . Legal fee expenses of $31,644 increased $30,084 and 1920% for the three months ended June 30, 2017 as compared to the same period in 2016. The increase in legal fee expense is mainly related to an increase in litigation costs.

Other general and administrative expenses . Other general and administrative expenses $62,871 increased by $50,377 and 403% for the three months ended June 30, 2017 as compared to the same period in 2016. Those expenses consist primarily of company’s business development, consulting fees and other expenses incurred in connection with general operations. The decrease is mainly related to a decrease in the consulting fees related to gaming software business development.

Loss from operations . Our loss from operations was $199,543 for the three months ended June 30, 2017 and $104,054 for the same period in 2016.

Interest expense . We incurred $17,924 interest expense for the three months ended June 30, 2017 and $16,283 for the same period in 2016. The increase in interest expense is mainly related to the increase in notes payable.

Net income or loss . As a result of the foregoing factors, we generated a net loss of $343,607 for the three months ended June 30, 2017, and we generated a net loss of $120,337 for the same period in 2016.

Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $4,221,040 at June 30, 2017 that includes the net loss of $343,607 for the three months ended June 30, 2017. The Company also had a working capital deficiency of $1,049,532 as of June 30, 2017. 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 June 30, 2017 and March 31, 2017, we have $13,162 and $8,112 cash and cash equivalents, respectively. To date, we have financed our operations primarily through cash flows from borrowings from third and related parties.

Operating activities

Net Cash used in operating activities of $80,200 for the three months ended June 30, 2017 reflected our net loss of $343,607, adjusted for $3,510 for amortization of debt discount, $126,140 for amortization of intangible assets, an increase in accrued liabilities of $69,875, and an increase in accounts payable of $63,882.

Net Cash used in operating activities of $24,749 for the three months ended June 30, 2016 reflected our net loss of $120,337, adjusted for $4,475 for amortization of debt discount, and an increase in accrued liabilities of $101,808. There was a decrease in accounts payable of $10,695.

Financing activities

Net cash provided by financing activities of $85,250 for the three months ended June 30, 2017 includes proceeds from shares issued for cash of $55,250, funds of $30,000 borrowed on notes payable, advances from related party of $23,767, and repayment of related party advances of $23,767.

Net cash provided by financing activities of $24,749 for the three months ended June 30, 2016 includes advances from related party of $17,232, proceeds from shares issued for cash of $2,517, and funds of $5,000 borrowed from third party.

Loan Commitments

Borrowings from Related Parties

During the year period ended June 30, 2016, $23,767 was advanced by Eric Mitchell and the advance is due on demand with 0% interest. As of June 30, 2017 in total $23,767 in advances were repaid by the Company to Mr. Mitchell and the balance due is $0.

Borrowings from Third Parties

Bluway Marketing, LLC

On April 16, 2017, the Company borrowed $60,000 from Bluway Marketing, LLC, of which $30,000 was expenses paid directly on behalf of Company. The maturity date of this note is April 17, 2019 and this loan bears an interest rate of 0% per annum from the issuance date. The note is still outstanding as of June 30, 2017.

Along with the promissory note, the Company issued warrants to purchase 1,650,000 shares of common stock. The warrants expire on April 17, 2019 and have an exercise price of $0.05. The warrants do not entitle the holder to any voting rights or other rights as a shareholder of the Company. As of June 30, 2017, the warrants remain un-exercised.

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:

Revenue Recognition:

The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104 for revenue recognition and Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” Accordingly, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured.

Transaction Verification Services

Revenue earned from Pelecoin processing activities (“Transaction Verification Services”), commonly termed ‘mining’ activities, is recognized at the fair value of the bitcoins received as consideration on the date of actual receipt. The Company generates revenue by performing computer processing activities for Pelecoin generation. In the digital-currency industry such activity is generally referred to as Transaction Verification Services or Pelecoin mining. The Company receives consideration for performing such transaction verification activities in the form of Pelecoins. Revenue is recorded upon the actual receipt of Pelecoins.

Expenses consist of utilities paid to cover our electric costs, rent for our facility and personnel to run our facility. The expenses related to our Transaction Verification Services activities are affected by the level of activities and not the ultimate generation of bitcoins. The Company expenses these costs as they are incurred.

Long Lived Assets

In accordance with ASC 360 “Property Plant and Equipment,” the Company reviews the carrying value of intangibles subject to amortization and long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Intangible Assets

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Software technology intangible assets with determinable lives are amortized over periods generally ranging from 3 to 5 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

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.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly 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 June 30, 2017.

We have noted the following material weaknesses in our control environment: 

1. Material weaknesses 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) and insufficient documentation and communication of our accounting policies and procedures as of June 30, 2017.

2. Material weaknesses in the staffing of our financial accounting department. Management had engaged an outside consultant 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. Material weaknesses 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.

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.

LEGAL PROCEEDINGS

On July 21, 2016, Magna Equities II, LLC and Hanover Holdings I, LLC (collectively as “Magna”) filed a Summons with Notice of Appearance against the Company, and its former and current transfer agents (collectively as the “Parties”), in the Supreme Court of the State of New York, County of New York. The litigation is in its preliminary stages, the Company has not yet been served, and discovery has not yet commenced. Magna’s allegations against the Parties, which are briefly outlined in the summons, are to recover monetary damages related to Magna’s loan to the Company which has a principal balance equal to $85,750. Magna alleges breach of contract, breach of implied covenant of good faith and fair dealing, conversion and negligence against the Parties and seeks relief in excess of $1,500,000. Although the company has reason to believe that it will prevail on the merits of a summary judgment, the litigation could have a lengthy duration, and the ultimate outcome cannot be predicted at this time.

On July 27, 2016, Mr. George Sharp filed suit against the Company in the Superior Court of California, County of San Diego. Sharp had previously filed a similar lawsuit in 2011 which was dismissed on February 16, 2012, and included a settlement agreement signed by Sharp which was filed with the Superior Court of California, County of Los Angeles (Case Number: BC461550) Sharp alleges misrepresentation and violation of the Unfair Business Practices Act, and seeks unspecified damages. On February 28, 2017, the Company’s offer to compromise was accepted by Mr. Sharp and the litigation was settled in the amount of $20,000, of which $10,000 will be paid by the Company, and $10,000 will be paid by Eric Mitchell, CEO of the Company. Additionally, the Company needs to indemnify officers for any loss in lawsuits, therefore, the Company assumed $20,000 liability. As of June 30, 2017, $20,000 has been paid and the settlement obligation of $0 is recorded on book as liability.

On August 17, 2016, KBM Worldwide Inc. (“KBM”) filed a Summons in a Civil Action against the Company in the United States District Court for the Eastern District of New York. The litigation is in its preliminary stages, the Company has filed an answer to the complaint and a first counterclaim against the plaintiffs on November 1, 2016. KBM’s allegations which are briefly outlined in the summons, are to recover monetary damages related to KBM’s loans to the Company which have a principal balance equal to $142,765. KBM seeks equitable and injunctive relief against the Parties in excess of $142,765. Although the company has reason to believe that it will prevail on the merits of its case against the plaintiff, the litigation could have a lengthy duration, and the ultimate outcome cannot be predicted at this time.

Exhibits.

Consolidated Financial statements are included in the body of this report.