NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(1)
Summary of Accounting Policies, and Description of Business
This summary of significant accounting policies of MOREGAIN PICTURES, Inc. (the Company) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements.
(a) Organization and Description of Business
The Company was incorporated under the laws of the state of Minnesota on May 3, 1972. The Company was a franchisee of fast food restaurants in Milwaukee, Wisconsin until the franchised restaurants were sold in October 1998. After the sale, the Company has been engaged in searching for a merger candidate that would expand the Companys business plan.
Pursuant to the Articles of Incorporation of MOREGAIN PICTURES, INC., the Company is authorized to issue 780,000,000 common shares with $.001 par value. There were 7,180,199 and 7,180,199 shares of common stock issued and outstanding at June 30, 2018 and June 30, 2017, respectively.
On February 14, 2008, the Company entered into a Stock Purchase Agreement, subject to certain contingencies, with Michael Friess and Sanford Schwartz. On July 16, 2014, Mr. Friess and Mr. Schwartz purchased 3,638,748 shares of the Companys common stock (representing 80% of the then-to-be outstanding shares of the Companys common stock) for $20,000, resulting in a change in control of the Company. In connection with the purchase of the common stock, the current members of the Companys Board of Directors resigned and Mr. Friess and Mr. Schwartz were elected to the Companys Board of Directors. Further, Mr. Friess was appointed CEO of the Company, and Mr. Schwartz was appointed CFO and Secretary.
The Company held a shareholder meeting on November 25, 2014 to reincorporate the Company in the State of Nevada and amend the Articles of Incorporation to increase the authorized capital stock of the Company to eight hundred million (800,000,000) shares. The shares of common stock consist of 780,000,000 shares of common stock with full voting rights and a par value of $0.001 per share and 20,000,000 shares of preferred stock with a par value of $0.001 per share. The merger of the Minnesota Company into the Nevada Company was effective on December 23, 2014 and the Articles of Merger were filed on December 30, 2014.
The merger of the Minnesota Company into the Nevada Company was effective on December 23, 2014 and the Articles of Merger were filed on December 30, 2014.
All references in the accompanying financial statements to the number of shares authorized and outstanding have been retroactively adjusted to reflect the new capital structure and par values effective December 23, 2014.
In accordance with the Agreement and Plan of Merger, effective December 30, 2014, MOREGAIN PICTURES, INC. adopted the new capital structure which includes total authorized capital stock of 800,000,000 shares, of which 780,000,000 are common stock, with a par value of $.001 per share and 20,000,000 shares are preferred stock, with a par value of $.001 per share. The preferred stock may be issued from time to time in one or more series with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, and shall be stated in the resolutions adopted by the Companys board providing for the issuance of such preferred stock or series thereof. In addition, the issued and outstanding shares of our common stock automatically converted shares of MOREGAIN PICTURES, INC. (Minnesota) at a ratio of one (1) share of our currently outstanding common stock for one (1) share of MOREGAIN PICTURES, INC. (Nevada).
On July 20, 2015, Michael Friess and Sanford Schwartz (collectively, the Shareholders), former majority shareholders of the Company, entered into a Securities Purchase Agreement (the Purchase Agreement) with Billion Rewards, pursuant to which the Shareholders sold to Billion Rewards an aggregate of 3,638,748 shares of common stock, par value $.001 per share of the Company (the Majority Interests) for $300,000 (the Transaction), resulting in Billion Rewards owning approximately 80% of the then total outstanding shares of the Company, and a change in control of the Company.
21
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(1)
Summary of Accounting Policies, and Description of Business (Continued)
In connection with the Purchase Agreement, on July 20, 2015, Michael Friess, the Companys Chief Executive Officer, President of the Company resigned from all of his executive positions with the Company, Mr. Friess resigned as a director of the company on the tenth day after the mailing of the information statement on schedule 14f-1 to the shareholders of the Company. Sanford Schwartz, the Companys Chief Financial Officer, Secretary, Treasurer, and member of the Board resigned from all of his positions with the Company on July 20, 2015.
Also effective on July 20, 2015, Ningdi Chen was appointed as the Chief Executive Officer, Chief Financial Officer, President, Treasurer, Secretary and Director of the Board.
On May 20, 2016, the Board of Directors of Aladdin International Inc. (Company) accepted the resignation of Mr. Kai Ming Zhao as the Chief Executive Officer, Chief Financial Officer, President, Secretary, and Treasurer of the Company, effective immediately after the election of Mr. Qinghua Chen to the Board of Directors as described below and the filing of this Form 8-K. Mr. Zhous resignation as an officer does not result from any disagreement with the Company, its management, or the Board of Directors, on any matter relating to the Companys operations, policies or practices.
On March 20, 2018, the Company entered into certain consulting agreement with Shilong Film Investment Inc. (Shilong), a California corporation that engages in film production investment in Hollywood, Hong Kong, ND China. Pursuant to the Agreement, Shilong agreed to provide the Company with strategy to promote growth, advisory service with respect to business development, marketing efforts to increase awareness for the Companys corporate image. In considering for the services, the Company agreed to issue Shilong warrants to purchase an aggregate of 3,000,000 shares of the Companys common stock, exercisable for five (5) years from the date of issuance at an exercise price of $0.15 per share.
On March 21, 2018, Billion Rewards Development Limited, a British Virgin Islands corporation, the then majority shareholder of the Company entered into a Securities Purchase Agreement with Moregain Capital Group, a Nevada Corporation, pursuant to which Moregain Capital Group LLC purchased from Billion Rewards Development Limited, an aggregate of 6,270,512 shares of Common Stock of the Company, which represent 87.33% of the issued and outstanding shares of Common Stock, for the purchase price of $180,000.
In connection with the Securities Purchase Agreements, on March 23, 2018, Mr. Qinghua Chen resigned from all office positions and director of the Company, effective immediately. Mr. Michael D. Antonovich was appointed as the Chairman of the Board, Lianne Hermann as the Chief Financial Officer and Sherwood Wu as an Independent Director of the Board, all effective on March 23, 2018.
On March 23, 2018, Board of Directors of the Registrant approved 2018 Performance Boost Stock Option Plan in order to retain and recruit certain selected employees, consultants, and directors. In the same day, stock options to purchase a total of 2,000,000 shares of common stock were granted to certain employees, consultants, and directors exercisable at $0.15 per share, the closing price on March 22, 2018, following a 10-year vesting schedule starting 12-months from the commencement date of March 23, 2018.
On March 23, 2018, the Board and the majority shareholder of the Company approved the name change to Moregain Pictures, Inc. in connection with the Companys focus in developing motion picture, entertainment and media business. The name change took effect on September 18, 2018.
On May 15, 2018, Ms. Lianne Herrmann tendered her resignation as Chief Financial Officer and Treasurer of the Company, effective immediately. On May 18, 2018, the Board of Directors of the Company appointed Richard Pao as the Chief Financial Officer and Treasurer, and Jesse Weiner as General Counsel, effective immediately.
22
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(1)
Summary of Accounting Policies, and Description of Business (Continued)
(b) Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, "Compensation Stock Compensation." FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees", which requires that such equity instruments are recorded at their fair value on the measurement date, with the measurement of such compensation being subject to periodic adjustment as the underlying equity instruments vest
.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(d) Per Share Information
Earnings (loss) per share of common stock is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is not shown for periods in which the Company incurs a loss because it would be anti-dilutive.
(e) Basis of Presentation - Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has no business operations and has recurring losses, which raise substantial doubt about its ability to continue as a going concern.
In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations. The financial statements do not include any adjustments relative to the recoverability of assets and classification of liabilities that might be necessary should the company be able to continue as a going concern. The Company has financed its operations primarily through the sale of stock and advances from related parties. There is no assurance there will be future sales of stock or that these advances will continue in the future.
Management has opted to commence filing with the Securities and Exchange Commission (SEC) and then to seek a business combination. Management believes that this plan provides an opportunity for the Company to continue as a going concern.
(f) Recent Accounting Pronouncements
There were various accounting standards and interpretations issued during 2018 and 2017, none of which are expected to a have a material impact on the Companys financial position, operations or cash flows.
(g) Risks and Uncertainties
The Company is subject to substantial business risks and uncertainties inherent in starting a new business. There is no assurance that the Company will be able to complete a business combination.
23
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(1)
Summary of Accounting Policies, and Description of Business (Continued)
(h) Cash and Cash Equivalents
The Company considers cash and cash equivalents to consist of cash on hand and demand deposits in banks with an initial maturity of 90 days or less.
(i) Furniture and equipment
Furniture and equipment are stated at cost and are depreciated over the assets estimated useful lives ranging from three to seven years using the straight-line method of depreciation as follows:
|
|
Furniture
|
7 years
|
Equipment
|
3 - 5 years
|
Depreciation expense totaled $554 for the both years ended June 30, 2018 and 2017, respectively. Repairs and maintenance are charged to expense as incurred and expenditures for additions and improvements are capitalized.
(j) Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ASC Subtopic 825-10 ("ASC 825-10"), "Disclosures About Fair Value of Financial Instruments." ASC 825-10 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Company's cash, cash equivalents, accounts payable, and related party notes payable approximate their estimated fair values due to their short-term maturities.
(j) Income Taxes
The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) ASC 740, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, the effect of net operating losses, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
(k) Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. At June 30, 2018 and June 30, 2017, the Company had no amounts of cash or cash equivalents in financial institutions in excess of amounts insured by agencies of the U.S. Government.
(l) Reclassification
Certain amounts previously reported have been reclassified to conform to current presentation.
(m) Related Party Debt - Convertible Note
The Company occasionally obtains financing from related parties in the form of notes payable which are convertible into shares of the Companys common stock. The Company accounts for convertible notes and debt issuance costs associated with convertible notes following the guidance set forth in ASC 470-20,
Debt with Conversion and Other Options;
ASC 480,
Distinguishing Liabilities from Equity;
ASC 815-40,
Derivatives and Hedging Contracts in Entitys Own Equity;
EITF 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock; and
ASU 2015-03,
InterestImputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.
24
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(1)
Summary of Accounting Policies, and Description of Business (Continued)
The terms of such convertible notes payable are analyzed by management to determine their accounting treatment, including determining whether conversion features are required to be bifurcated and treated as a discount, allocation of fair value of the issuance to the debt instrument and any beneficial conversion features, and the applicable classification of the convertible notes payable as debt, equity or mezzanine temporary equity.
The intrinsic value of the embedded conversion feature of related party convertible notes payable are included in the discount to notes payable, which is accreted to interest expense over the expected term of the note using the effective interest method. The Companys management also estimates the total fair value of any beneficial conversion feature in allocating debt proceeds. The proceeds allocated to the beneficial conversion feature are determined by taking the estimated fair value of shares issuable under the convertible notes less the fair value of the number of shares that would be issued if the conversion rate equaled the fair value of the Companys common stock as of the date of issuance.
(n) Related Party Debt Non-Convertible Note
The Company occasionally obtains financing from related parties in the form of notes payable. The Company accounts for such notes following the guidance set forth in ASC 470, Debt, and ASU 2015-03,
InterestImputation of Interest (Subtopic 835-30) simplifying the Presentation of Debt Issuance Costs.
(o) Operating Leases
The Company accounts for operating leases in accordance with ASC 840, Leases, SFAS No. 13,
“
Accounting for Leases
,
”
and Financial Accounting Standards Board (
“
FASB
”
) Technical Bulletin 88
−
1,
“
Issues Relating to Accounting for Leases
.
”
Accordingly, rent expense under operating leases for the Companys administrative office is recognized on a straight-line basis over the original term of each lease, inclusive of predetermined rent escalations or modifications.
(2)
Income Taxes
Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Companys deferred tax assets consist entirely of the benefit from net operating loss (NOL) carry forwards. The net operating loss carry forward if not used, will expire in various years through 2037, and is severely restricted as per the Internal Revenue code due to the change in ownership. The Companys deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operating loss carry forwards. Net operating loss carry forwards may be further limited by other provisions of the tax laws. With few exceptions, our income tax returns are no longer subject to Federal tax examinations by tax authorities for years before June 30, 2014.
The Companys estimated deferred tax assets, valuation allowance, and change in valuation allowance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
Estimated NOL Carry-forward
|
|
NOL Expires
|
|
Estimated Tax Benefit from NOL
|
|
Valuation Allowance
|
|
Change in Valuation Allowance
|
|
Net Tax Benefit
|
June 30, 2018
|
|
$623,679
|
|
Various
|
|
$130,973
|
|
$130,973
|
|
$33,185
|
|
|
June 30, 2017
|
|
$528,585
|
|
Various
|
|
$ 97,788
|
|
$ 97,788
|
|
$11,997
|
|
|
Income taxes at the statutory rate are reconciled to the Companys actual income taxes as follows:
|
|
|
|
|
2018
|
|
2017
|
Income tax benefit at statutory rate resulting from net operating loss carry-forward
|
(21.0)%
|
|
(34)%
|
State tax (benefit) net of Federal benefit
|
(3.5)%
|
|
(3.5)%
|
Deferred income tax valuation allowance
|
24.5%
|
|
37.5%
|
Actual tax rate
|
|
|
|
25
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(3)
Related Party Transactions
Currently, the Company uses the offices of its President for its minimal office facility needs for no consideration. No provision for these costs has been provided since it has been determined that they are immaterial.
On October 23, 2015, the Company and Billion Rewards Development (Billion Rewards), a British Virgin Island corporation whose beneficial owner is Mr. Shi Jianxiang, entered into a Loan Agreement (October Loan Agreement), whereby Billion Rewards agreed to provide a loan in the amount of $200,000 (the October Loan) to the Company with an original maturity date of April 30, 2017 extended to January 31, 2017 and bearing no interest. Under the October Loan Agreement, if the Company conducted an offering for a total amount of $2,000,000 (the Offering) on or before February 28, 2017, the October Loan would be automatically converted into shares of common stock, par value $.001 per share of the Company at the conversion price equal to the purchase price in the Offering. In addition, pursuant to the October Loan Agreement, Billion Rewards would be entitled to convert any portion or all of the October Loan into shares of Common Stock of the Company, at the conversion price of volume weighted average price of the Common Stock as reported by Bloomberg for twenty trading days prior to such conversion. The Company has estimated the intrinsic value of this embedded conversion feature and recorded it as a discount to related party convertible debt of $8,059 and amortized it fully as of June 30, 2017. On November 5, 2015 the Company received the October Loan in the amount of $200,000. On May 5, 2017 the Company and Billion Rewards entered into an amendment agreement (Amendment No 1 to October Loan Agreement), whereby Billion Rewards agreed to modify and amend the October Loan to make it nonconvertible and to extend the due date from April 30, 2017 to January 31, 2017 and bearing no interest.
On January 7, 2016 the Company and Billion Rewards entered into a loan agreement (January Loan Agreement), whereby Billion Rewards agreed to provide a loan in the amount of $100,000 (the January Loan) to the Company with the maturity date of January 31, 2017 and bearing no interest.
On May 19, 2016 the Company and Billion Rewards entered into a loan agreement (June Loan Agreement), whereby Billion Rewards agreed to provide a loan in the amount of $43,840 (the June Loan) to the Company with the maturity date of April 30, 2017 and bearing no interest.
The Company occasionally incurs expenses that are paid by related parties. Otherwise, the expenses paid by the related parties were reimbursed in time. Qinghua Chen paid for various company expenses of $4,549 and was reimbursed for all expenses. Thus nothing payable was due to Mr. Chen as of June 30, 2018. As of June 30, 2018, there is no payable due to related parties.
On June 3, 2017, Billion Rewards and the Company entered in a Debt Conversion Agreement (the "Agreement") pursuant to which Billion Rewards converted certain outstanding promissory notes (the "Notes") in the aggregate principal amount of $343,840 into shares of the Companys Common Stock. The conversion price of the Notes was $0.131 per share and the market price was $0.201 per share, resulting in a $185,145 discount, which was recorded as loss on extinguishment of debt in the statement of operations. In accordance with the terms of the Agreement, the Notes were converted into 2,631,764 shares of Common Stock and the Notes were cancelled. As a result of such conversion and issuance of Common Stock, the Companys issued and outstanding Common Stock totaled 7,180,199 shares as of June 3, 2017. Billion Rewards beneficially owns 6,270,512 shares of Common Stock, which represents 87.3% of the total outstanding shares of the Companys Common Stock as of June 30, 2018.
Currently, the Company uses the office of Moregain Capital Group, its major shareholder for its minimal office facility needs for no consideration. No provision for these costs has been provided since it has been determined that they are immaterial.
26
MOREGAIN PICTURES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2018
(4)
Commitments and Contingencies
Operating Lease
The Company entered into a non-cancelable operating sub-lease for office space on December 22, 2015 for a term that expires August 18, 2017 and paid $116,523 to the landlord of which $63,558 was a security deposit and $52,965 for five months prepaid rent of which all has been expensed as of June 30, 2017. Total rent expensed for the years ended June 30, 2018 and 2017 was $0 and $8,957, respectively. The sub-lease was for an 18-month period and commenced on February 7, 2017. On January 24, 2017, the Company has terminated the lease and in March 2017 received $59,905 as a partial return of the security deposit.
(5)
Warrants
The warrants issued by the Company are classified as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further adjustments are made.
For stock warrants paid in consideration of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of FASB ASC 505-50,
Equity-Based Payments to Non-Employees
.
On March 20, 2018, the Company entered into a one-year consulting agreement with Shilong Film Investment, Inc. for business development and marketing services to the Company (the (former) General Counsel (now CEO) of Moregain Capital Group is married to the President of Shilong Film Investment, Inc.). In consideration for the services, the Company agreed to issue warrants to purchase an aggregate of 3,000,000 shares of Companys common stock, exercisable for five years from the date of issuance at an exercise price of $0.15 per share (the Warrants). The Company classified the Warrants as equity. Using the Black-Scholes-Merton pricing model, the Company determined the aggregate value of the Warrants to be approximately $600,000. This amount will be recognized over the one-year term of the consulting agreement. The warrants have a cashless exercise feature. For the quarter ended June 30, 2018, the Company recognized approximately $166,000 in marketing expenses as a result of the consulting agreement.
|
|
|
|
|
|
|
2018
|
|
Risk-Free Interest Rate
|
|
|
2.69
|
%
|
Expected Life (years)
|
|
|
5
|
|
Expected Volatility
|
|
|
467
|
%
|
Expected Dividend Yield
|
|
|
0
|
%
|
A summary of the Companys warrant activity and related information for the nine months ended June 30, 2018 are shown below:
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding, July 1, 2017
|
|
|
|
|
|
$
|
|
|
Issued
|
|
|
3,000,000
|
|
|
|
0.15
|
|
Expired
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2018
|
|
|
3,000,000
|
|
|
|
0.15
|
|
Exercisable, June 30, 2018
|
|
|
3,000,000
|
|
|
$
|
0.15
|
|
(6)
Note Payable
On January 10, 2018 the Company entered into a loan agreement with Michael Wu, an unaffiliated third party, whereby Michael Wu agreed to provide an unsecured loan in the amount of $70,000 (the January 10th Loan) to the Company with the maturity date of June 30, 2018 and bearing no interest. The loan was extended to December 31, 2018.
27