NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, Math and Science competency competition referred to as the Primary Olympiad.
2. Summary of Significant Accounting Policies
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”) using the accrual basis of accounting. Outlined below are those policies considered particularly significant.
Going Concern
The accompanying consolidated 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, as of March 31, 2014 has incurred cumulative net losses of $749,335 since inception and has a working capital deficit of $208,380. The Company currently has limited liquidity, and does not yet have enough revenues sufficient to cover operating costs over an extended period of time. These factors cause substantial doubt about the Company's ability to continue as a going concern. 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 consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
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.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
As of March 31, 2014 and 2013, the Company' s cash was considered a level 1 instrument and at March 31, 2013 the derivative liability was considered a level 2 instrument. See Note 3 for valuation techniques and assumptions used for the derivative liability. The Company does not have any level 3 instruments.
Principles of Consolidation
The consolidated 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 income 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 no common stock equivalents as of March 31, 2014 and 2013.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Accounts Receivable
Accounts receivable are reported net of allowance for expected losses. It represents the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expects to collect are charged to operations in the year in which those differences are determined, with an offsetting entry to a valuation allowance. As of March 31, 2014 and 2013, there have been no such charges.
Revenue Recognition
The Company recognizes revenues from (1) consulting, educational and text message marketing services and (2) sponsored competition entry fees when (a) persuasive evidence that an agreement exists; (b) the products or services has been delivered or completed; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured. Revenues from consulting, educational and marketing services are generally recognized when the services have been performed as long as the other criteria have been met. Revenues from educational sponsored events, such as our English Olympiad, are recognized when the event has taken place. Revenues from the resale of educational materials are recognized when shipped to the customer and all other tests of revenue recognition disclosed above are met. As of March 31, 2014 and 2013, we have no deferred revenues or costs related to our annual English Olympiad our competition took place in January and February and all previously deferred revenues and costs were recognized.
Comprehensive Income (Loss)
The Company recorded other comprehensive income (loss) for the year ended March 31, 2014 and 2013 of ($519) and $1,378, respectively, as the result of currency translation adjustments.
Derivative Financial Instruments
The provisions of ASC 815 - “Derivatives and Hedging” applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined ASC 815 and to any freestanding financial instruments that are potentially settled in an entity's own common stock. The guidance impacts the Company's consolidated financial statements and position due to embedded conversion feature on a note payable in which the conversion price resets at current market prices.
Convertible Debt
If a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred.
Income Taxes
The Company follows ASC 740, Income Taxes for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Income tax expense at statutory rate
|
|
|
(21,891
|
)
|
|
|
(127,642
|
)
|
|
Permanent differences
|
|
|
(194
|
)
|
|
|
76,081
|
|
|
Valuation allowance
|
|
|
22,085
|
|
|
|
51,561
|
|
|
Income tax expense per books
|
|
|
-
|
|
|
|
-
|
|
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets consist of the following components as of:
|
|
|
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
NOL carryover
|
|
|
112,219
|
|
|
|
99,965
|
|
|
Accrued liabilities
|
|
|
73,704
|
|
|
|
63,873
|
|
|
Valuation allowance
|
|
|
(185,923
|
)
|
|
|
(163,838
|
)
|
|
Net deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
During the years ended March 31, 2014 and 2013, the valuation allowance increased by $22,085 and $51,561, respectively. At March 31, 2014, the Company had approximately $353,000 of federal and state gross net operating losses available. The net operating loss carry forward, if not utilized, will begin to expire in 2032 for federal purposes and 2022 for state purposes.
Based on the available objective evidence, including the Company’s limited operating history and current liabilities in excess of assets, management believes it is more likely than not that the net deferred tax assets at March 31, 2014, will not be fully realizable. Due to the uncertainty surrounding realization of the deferred tax asset, the Company has provided a full valuation allowance against its net deferred tax assets at March 31, 2014.
The Company files income tax returns in the Indian jurisdiction only. Income tax returns filed for fiscal years 2010 and earlier are not subject to examination by U.S. federal state tax authorities. Income tax returns for fiscal years 2010 through 2014 remain open to examination by tax authorities in India. The Company believes that it has made adequate provisions for all income tax uncertainties pertaining to these open tax years.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Stock-based Compensation
As of March 31, 2014, the Company has not issued any share-based payments to its employees or third-party consultants. The Company will account for stock options issued to employees and consultants under Accounting Standards Codification (“ASC”) 718 “Compensation-Stock Compensation”. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite vesting period.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company will measure compensation expense for its non-employee stock-based compensation under ASC 505 “Equity”. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
Concentration of Risks
During the year ended March 31, 2014, two customers accounted for 80% of revenues, and one customer accounted for 100% of accounts receivable. During the year ended March 31, 2013 one customer accounted for 36% of revenues. Management believes the loss of these customers would not have a material impact on the Company’s financial position, results of operations, and cash flows.
Foreign Exchange
The consolidated financial statements are presented in United States Dollars, (“USD”), the reporting currency. The functional currency for the financial statements is Indian Rupees and in accordance with ASC Topic 830, "Foreign Currency Matters", foreign denominated monetary assets and liabilities are translated to their USD equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses were translated at the prevailing rate of exchange at the date of the transaction. Related translation adjustments are reported as a separate component of stockholder’s deficit, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
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 incurred interest at 8.0% per annum and was due on November 30, 2012. . During the year ended March 31, 2013, the holder converted $15,600 into 9,750,000 shares of common stock and repaid the remaining balance of $11,900 and accrued interest thereon in full satisfaction of the 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 incurred interest at 8% per annum and is due on February 22, 2013. In February 2013, the Company repaid the note and accrued interest totaling $29,195 in full satisfaction of the note.
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 incurred interest at 8.0% per annum and was due on June 13, 2013. During the year ended March 31, 2013, the holder converted $5,400 into 5,400,000 shares of common stock. During the year ended March 31, 2014, the holder converted $4,400 into 5,365,854 shares of common stock and the remaining $22,700 in principal plus accrued interest was repaid.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes were convertible into common shares after six months and the conversion price was calculated by multiplying 51% (49% discount to market) by the lowest closing bid price during the 30 days prior to the conversion date. The notes were used to fund operations.
Since the notes were only convertible after six months, the Company accounted for the derivative liability upon the note becoming convertible if not extinguished. Derivative accounting applied upon the conversion feature being available to the holder, as it was variable and did not have a floor as to the number of common shares in which could be converted.
In addition, the fees paid to the lender for the notes totaled, $7,500, were accounted for as an on issuance discount resulting in a $7,500 discount to the convertible notes. The discounts were fully amortized to interest expense during the year ended March 31, 2013.
Derivative Liabilities
Commencing August 28, 2012, November 18, 2012 and March 11, 2013, the Company's $27,500, $27,500 and $32,500 convertible notes issued on February 28, 2012, May 18, 2012 and September 11, 2012, respectively were 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 each note upon the initial date the note became convertible. 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.
Note Issued February 28, 2012
On August 28, 2012, the Company recorded the fair market value of the derivative liability of $60,941, resulting in a full discount to the note. The discount has been amortized over the term of the note. During the year ended March 31, 2013, $27,500 of the discount was amortized to interest expense, with no remaining unamortized discount.
During the year ended March 31, 2013, 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. On November 29, 2012, the Company repaid the remaining $11,900 of the note’s principal. The derivative liability of $26,969 associated with the extinguished principal was credit to additional paid-in capital.
Based on this revaluation of the derivative liability at each quarters end and the revaluation of derivative liabilities measured during the period immediately before extinguishment of associated convertible note, the Company recognized a loss in fair value of derivative liability of $98,363 during the year ended March 31, 2013 which includes the day one charge, revalue at dates of conversion and repayment, and the marking to fair value at each quarter end in which the note was outstanding. See the table below for the range of inputs used to determine the value of the derivatively liability using the Black-Scholes pricing model.
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Issued May 18, 2012
On November 18, 2012, the Company recorded the fair market value of the derivative liability of $74,193, resulting in a full discount to the note. The discount has been amortized over the term of the note. During the year ended March 31, 2013, $27,500 of the discount was amortized to interest expense, with no remaining unamortized discount.
The note was paid in February 2013, and the derivative liability was revalued at $26,422 and reclassed to additional paid in capital. Based on the revaluation of the derivative liability as of the date of extinguishment, the Company recognized a gain in fair value of derivative liability of $1,078 during the year ended March 31, 2013 which includes the day one charge. See the table below for the range of inputs used to determine the value of the derivatively liability using the Black-Scholes pricing model.
Note Issued September 11, 2012
On March 11, 2013, the Company recorded the fair market value of the derivative liability of $47,885, resulting in a full discount to the note. The discount is being amortized over the term of the note. During the years ended March 31, 2014 and 2013, $21,667 and $10,833, respectively, of the discount was amortized to interest expense with no remaining unamortized discount.
During the year ended March 31, 2013, the holder of the convertible notes converted $5,400 of principal into common stock. The derivative liability of $7,722 associated with the converted principal was credited to additional paid-in capital at the time of conversion.
Based on the revaluation of the derivative liability as of March 31, 2013, the Company recognized a loss in fair value of derivative liability of $23,704 during the year ended March 31, 2013, which includes the day one charge.
During the year ended March 31, 2014, the holder of the convertible notes converted $4,400 of principal into common stock and was repaid the remaining balance of $22,700. The derivative liability of $26,318 associated with the converted and paid principal was credited to additional paid-in capital at the time of conversion and payment. Based on the revaluation of the derivative liability as of date of conversion/payment, the Company recognized a gain on the change in fair value of derivative liability of $22,164 during the year ended March 31, 2014.
See the table below for the range of inputs used to determine the value of the derivative liability using the Black-Scholes pricing model.
|
|
|
Range of Inputs
|
|
|
Range of Inputs
|
|
|
|
|
Used During
|
|
|
Used During
|
|
|
|
|
the Year Ended
|
|
|
the Year Ended
|
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Expected life (years)
|
|
|
0.01
|
|
|
|
0.01 - 0.26
|
|
|
Risk-free interest rate
|
|
|
0.05
|
%
|
|
|
0.02 - 0.17
|
%
|
|
Expected volatility
|
|
|
399
|
%
|
|
|
221.2 - 465.2
|
%
|
FIREFISH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Long-term Debt
On December 8, 2012 the Company borrowed $11,993 from an individual under a long-term note. Under the terms of the note agreement, the note incured zero percent interest and could not be called prior to April 2, 2014. In April 2013, the note was repaid.
5. Stockholders' Deficit
On April 5, 2012, the Company amended the articles of incorporation to increase the number of authorized shares from 100,000,000 to 1,000,000,000 shares. In addition, effective April 18, 2012, the Company enacted a forward stock split of 10 to 1 shares. All share and per share amounts included herein have been changed to reflect this forward stock split.
In February 2013, the Company sold 3,300,000 shares of common stock at $0.01 to a third party for net proceeds of $32,970.
In June 2013, the Company sold 5,000,000 shares of common stock at $0.01 to a third party for proceeds of $50,000.
See Note 3 for discussion regarding the issuance of common stock on the conversion of note payable.
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 March 31, 2014 and 2013, included within accounts payable and accrued expenses - related parties is accrued salary and payroll taxes due under the agreement of $188,985 and $151,766, respectively.
In addition, from time to time the Company's Chief Executive Officer makes payments in connection with the Company's operations. These advances do not incur interest and are due on demand. As of March 31, 2014 and 2013, the Chief Executive Officer was owed $12,536 and $732, respectively.
7. Subsequent Events
The Company has evaluated events subsequent to March 31, 2014 and has determined that no events, other than those disclosed above, have occurred that would materially affect the consolidated financial statements above.