NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business
Firefish, Inc. (the “Company”) was incorporated in the State of Nevada on April 29, 2008 (“Inception”). The Company’s primary operations are in India.
The Company offers mobile and internet marketing services to retailers. The Company also offers educational services to young learners and young adults. On an annual basis, in January and February the Company hosts an English competency competition referred to as the English Olympiad. As of September 30, 2012, the Company deferred revenues and costs related to the English Olympiad of $50,525 and $10,057, respectively. The revenues and costs will be recognized when the English Olympiad has been completed.
2. Summary of Significant Accounting Policies
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. The Company, however, has incurred net losses of approximately $524,000 since inception and has a working capital deficit of approximately $163,000. The Company currently has limited liquidity, and does not yet have enough revenues sufficient to cover operating costs over an extended period of time. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Management anticipates that the Company will be dependent, for the foreseeable future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Basis of Presentation
The accounting policies of the Company are in accordance with the accounting principles generally accepted in the United States of America and are presented in United States dollars (“USD”). Outlined below are those policies considered particularly significant. The accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of September 30, 2012, and the results of its operations and cash flows for the three and six months ended September 30, 2012 and 2011. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission. The Company believes that the disclosures in the unaudited consolidated financial statements are adequate to make the information presented not misleading. The operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. For further information, refer to the financial statements and notes included in the Company’s Form 10-K for the year ended March 31, 2012.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.
Principles of Consolidation
The financial statements include the accounts of the Company and its wholly owned subsidiary Firefish Networks Private Limited, an entity formed under the laws of the nation of India. All significant intercompany transactions have been eliminated in the consolidation.
Basic Loss per Common Share
Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are 7,437,500 and 133,334 common stock equivalents outstanding as of September 30, 2012 and 2011, respectively, which are excluded because they are considered anti-dilutive.
Concentration of Risks
During the six months ended September 30, 2012 and 2011, one customer accounted for 78.9% and 54.2% of revenues, respectively. As of September 30, 3012, one customer accounted for 93.9% of accounts receivable. Management believes the loss of this customer would not have a material impact on the Company’s financial position, results of operations, and cash flows.
3. Convertible Notes
On February 28, 2012, the Company borrowed $27,500, of which $25,000 in proceeds were received, under a short-term convertible note with a third party. Under the terms of the agreement, the note incurs interest at 8% per annum and is due on November 30, 2012. During the six months ended September 30, 2012, the holder converted $15,600 into 9,750,000 shares of common stock. As of September 30, 2012, a balance of $11,900 remains on the convertible note.
On May 18, 2012, the Company borrowed $27,500, of which $25,000 in proceeds were received, under a short-term convertible note with a third party. Under the terms of the agreement, the note incurs interest at 8% per annum and is due on February 22, 2013.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On September 11, 2012, the Company borrowed $32,500, of which $30,000 in proceeds were, received, under a short-term convertible note with a third party. Under the terms of the agreement, the note incurs interest at 8% per annum and is due on June 13, 2013.
The notes are convertible into common shares after six months and the conversion price is calculated by multiplying 51% (49% discount to market) by the lowest closing bid price during the 30 days prior to the conversion date.
Since the conversion features are only convertible after six months, there are no derivative liabilities at the notes inception. However, the Company accounts for the derivative liabilities upon the passage of time and the notes becoming convertible, if not extinguished, as defined above. Derivative accounting applies upon the conversion feature being available to the holder as it is variable and does not have a floor as to the number of common shares in which could be converted. See Note 4 below for additional information.
In addition, the fees paid to the lender, $2,500 for each note totaling $7,500, were accounted for as an on issuance discount resulting in a $7,500 discount. The discount is being amortized over the term of the notes. During the six months ended September 30, 2012, $4,250 of the discount as amortized to interest expense. As of September 30, 2012, a discount of $3,250 remained and will be fully amortized during the year ended March 31, 2013.
4. Derivative Liabilities
Commencing August 28, 2012, the Company's $27,500 convertible note issued on February 28, 2012 was convertible into common stock. The Company determined that since the conversion price was variable and does not contain a floor, the conversion feature represented a derivative liability.
The Company calculated the derivative liability using the Black-Scholes pricing model for the note upon the initial conversion date and recorded the fair market value of the derivative liability of $60,941. Resulting in a full discount to the note, with the excess fair value of the derivative liability over the convertible note of $33,441 charged immediately to expense. The discount is being amortized over the term of the notes. During the six months ended September 30, 2012, $19,567 of the discount was amortized to interest expense. As of September 30, 2012, a discount of $7,933 remained and will be fully amortized during the year ended March 31, 2013.
Upon conversion of all or a portion of the convertible note, the derivative liability associated with the principal converted is valued immediately before conversion using the Black-Scholes model. The change in fair value of the derivative liability associated with the principal converted is recorded as a gain/loss on fair value of derivative liability in the accompanying statement of operation, with the remaining value of that portion of the derivative liability written off with a corresponding credit to additional paid-in capital. During the six months ended September 30, 2012, the holder of the convertible notes converted $15,600 of principal into common stock. The derivative liability of $98,894 associated with the converted principal was credited to additional paid-in capital at the time of conversion.
The derivative liability associated with the convertible note was $14,194 as of September 30, 2012. Based on this revaluation at quarter end and the revaluation of derivative liabilities measured during the period immediately before extinguishment of associated convertible note, the Company recognized a gain in fair value of derivative liability of $85,588 during the six months ended September 30, 2012 which includes the day one charge, revalue at dates of conversion and the marking to fair value at September 30, 2012.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the six months ended September 30, 2012, the following range of inputs was used to determine the value of the derivative liability using the Black-Scholes pricing model:
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September 30,
2012
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Annual dividend yield
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-
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Expected life (years)
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0.17 - 0.26
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Risk-free interest rate
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0.17
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%
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Expected volatility
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229.90
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%
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5. Common Stock
Under the initial terms of an agreement with Genesis Venture Fund India, LLP (“Genesis”), a related party due to significant holdings of the Company’s common stock, 1,333,340 warrants were due to expire on June 29, 2010. On June 29, 2010, the Company extended the expiration date of warrants to purchase 1,333,340 shares of common stock until August 15, 2011. On August 1, 2011, the Company extended the expiration date of warrants to purchase 1,333,340 shares of common stock until October 15, 2011. On December 21, 2011, the Company further extended the expiration date of the warrants to purchase 1,333,340 shares of common stock until March 31, 2012 for consideration of $2,000. The warrants expired without exercise on March 31, 2012.
See Note 3 for discussion regarding convertible notes payable converted into common stock.
6. Related Party Transactions
The Company has an at-will employment agreement with its Chief Executive Officer. Under the terms of the agreement the Chief Executive Officer is paid a salary of $5,000 per month plus taxes. As of September 30, 2012, included within accounts payable and accrued expenses - related parties are accrued salary and payroll taxes due under the agreement of $124,160.
On April 15, 2011, the Company entered into a consulting agreement with Aero Financial, Inc (“Aero”), a significant shareholder of the Company. Under the terms of the agreement the Company is to perform services related to business plan development, capital raising and overall management of one of Aero’s business ventures. Under the terms of the agreement, the Company was to be paid $10,000 per month for the term beginning April 1, 2011 through termination of December 31, 2011. On May 31, 2011, the agreement was terminated by the Company. The $20,000 received under the agreement has been classified as other income on the accompanying statement of operations and comprehensive loss due to the consulting services provided not being one of the Company’s primary lines of operation.
7. Subsequent Events
Management has assessed subsequent events through the date of issuance of these consolidated financial statements.