U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2009
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the transition period from _____________ to _____________
Commission file number 333-144982
MASTERBEAT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 26-0252191
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
222 East 31st Street - Main Level, New York, New York 10016
(Address of Principal Executive Office) (Zip Code)
(212) 532-1813
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock par value $.001 per share
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
At the last business day of the Registrant's most recently completed second
quarter (June 30, 2009), there was no active trading market in Registrant's
Stock and therefore no market value has been computed.
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 10,408,815 shares of Common Stock as
of April 19, 2010.
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 12
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. RESERVED 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 21
Item 9A(T). Controls and Procedures 22
PART III
Item 10. Directors and Executive of the Registrant 23
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
Item 14. Principal Accounting Fees and Services 28
PART IV
Item 15. Exhibits, Financial Statement Schedules 28
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements about our business,
financial condition and prospects that reflect our management's assumptions and
beliefs based on information currently available. We can give no assurance that
the expectations indicated by such forward-looking statements will be realized.
If any of our assumptions should prove incorrect, or if any of the risks and
uncertainties underlying such expectations should materialize, our actual
results may differ materially from those indicated by the forward-looking
statements.
The key factors that are not within our control and that may have a direct
bearing on operating results include, but are not limited to, acceptance of our
services, our ability to expand our customer base, management's ability to raise
capital in the future, the retention of key employees and changes in the
regulation of our industry.
There may be other risks and circumstances that management may be unable to
predict. When used in this report, words such as, "believes," "expects,"
"intends," "plans," "anticipates," "estimates" and similar expressions are
intended to identify and qualify forward-looking statements, although there may
be certain forward-looking statements not accompanied by such expressions.
PART I
ITEM 1. BUSINESS
The Company was incorporated under the laws of the State of Delaware on May 17,
2007 as Green Mountain Recovery, Inc.
On December 29, 2009 we acquired 100% of the membership interests in Masterbeat,
LLC (Masterbeat) in exchange for the issuance of 8,500,000 shares of common
stock of the Company. This Share Exchange resulted in MASTERBEAT becoming a
wholly-owned subsidiary of the Registrant.
The Registrant intends to carries on the business of its wholly owned subsidiary
MASTERBEAT through its operating units Masterbeat.com; posterprintship.com; and
circuitticket.com as its sole line of business. Masterbeat.com is an online
digital music store offering millions of tracks for legal paid download.
Specializing in dance music, the website features hard-to-obtain remixes from
the major record labels (Universal Music Group, SONY BMG, Warner Music Group,
and EMI) as well as music from thousands of independent labels, worldwide.
Masterbeat.com also produces large scale dance events under its "powered by
Masterbeat.com" name. Posterprintship.com is a quick-turnaround online printing
store and circuitticket.com is an automated ticketing site, and an
event-planning concern.
ACCOUNTING TREATMENT; CHANGE OF CONTROL
The former Members of MASTERBEAT acquired a majority of issued and outstanding
common stock. Therefore although Masterbeat became a wholly owned subsidiary,
the transaction was accounted for as a recapitalization of Green Mountain
Recovery Inc. Green Mountain is deemed to be the accounting acquirer. We changed
our name to Masterbeat Corporation on December 30, 2009.
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DESCRIPTION OF OUR BUSINESS
MASTERBEAT is a digital music company. Though its website Masterbeat.com, the
Company makes dance music, remixes and electronica available to consumers on the
website.
The Company's signature web site is a digital music download store with the
domain name www.Masterbeat.com. The store provides customers around the world
with 24-7 access to the highest quality digital music files available.
Presently, the site differentiates itself from the competition by focusing on
dance music, a powerful vertical market with a loyal consumer following. The
Company has professional relationships with all four major record labels, as
well as thousands of independent labels. Masterbeat has over 4 million songs for
sale, and is currently the only digital service provider to carry "lossless"
(uncompressed, CD quality) files from Warner Music Group and Universal Music
Group.
MASTERBEAT produces several large scale dance events branded as "powered by
Masterbeat.com", further promoting recognition and loyalty while creating
additional revenue streams for the company. MASTERBEAT'S largest and most
popular event is produced annually in Los Angeles for New Year's Eve. Now in its
tenth year, the event features international superstar DJ's, performances and
concerts by live artists and had a global audience of over 5,000 at its December
31, 2008 event. Future events will be netcasted and/or broadcasted to further
monetize these projects.
An off-shoot of MASTERBEAT'S event marketing, www.posterprintshop.com was
conceived to reduce overhead for company dance events by printing all signage
and printed materials in-house. However, the site appealed to outside consumers
desirous of quick turnaround times, a simple user interface and experience, and
a courteous and responsive customer service department.
In order to reduce ticket fees and surcharges for its events, MASTERBEAT created
www.circuiticket.com, a full service ticketing site capable of sequencing,
tracking, printing, and delivering high quality ticket stubs for a wide array of
events, parties, festivals, concerts and other gatherings.
Both printship.com and circuitticket.com are available to and utilized by third
parties.
MARKET FOR PRODUCTS
In the past, the recorded music market has consisted of albums and single tracks
recordings distributed in traditional formats and sold in record stores. The
early 21st century ushered in licensed digital distribution services that
provide electronic files for use on computers, mp3 players, and cell phones.
Global spending on recorded music is estimated to be approximately $30 Billion
annually. Consumer demand for music is higher than ever. Total music consumption
in the US rose by one third between 2003 and 2007 and Nielsen Soundscan reported
overall sales at an all-time high in the US in 2008. Single track downloads
(Masterbeat.com's specialty) were up 24 percent in 2008 to 1.4 billion units
globally and continue to drive the online market.
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Masterbeat.com has formed partnerships across the music industry to drive
traffic to the site from various sources. Alliances with local, national,
internet and satellite radio stations allow us to post weekly `charts' and
playlists of top hits along with offerings from popular DJ's. These partners
drive traffic to the site as customers seek to purchase the latest and most
popular tracks. Goom Radio has expressed its intention to choose Masterbeat.com
to be its fulfillment partner in 2010 and this affiliation should drive
additional traffic to the Company's site for music purchase.
Masterbeat.com has also joined with LinkShare, the world's largest affiliate
program, to drive traffic to the site with banner and text links. A commission
is paid to affiliates who refer new and paying customers to the site.
Masterbeat.com also developed its own affiliate network and revenue sharing
platform as a competitive alternative to LinkShare.
Growth in digital distribution and mobile music will drive spending in the
recorded music market, offsetting further declines in spending on physical
formats. Digital distribution will be driven by rising broadband subscribership,
the launch of new services, content availability and attractive pricing.
Physical formats will face growing competition from licensed digital
distribution.
Digital distribution is enabling the possibility that virtually any track could
become available as a single available for licensed download where only a
fraction of songs are available as a single in physical format. As a result, the
digital market enjoys a competitive advantage over the physical market because
it provides greater access to songs and serves that market more efficiently.
Moreover, digital's price point is far more attractive than the price point for
physical delivery and still leaves room for price increases on digital product
while maintaining a substantial advantage compared with prices for physical
product.
DOWNLOAD MANAGER
Masterbeat.com's new cross-platform (Windows & Mac) "download manager" allows
one click downloads of all customer purchases on Masterbeat.com to a location of
the user's choice, and automatic adding to iTunes or Windows Media Player
libraries.
CUSTOMIZABLE PLAYER
A fully customizable player widget can be embedded on any web site including
MySpace, Facebook and the various other social networking sites. The player can
be easily rebranded, features a moving ticker and rotating advertising panels
(all customizable by partner). The widget can feature from 10 - 100 tracks with
preview ability. The player can be further customized and shared by users,
spreading across the web virally. The widget can also be linked to any
Masterbeat.com affiliate account to earn revenue for the partner and our site.
CUSTOMERS
The market for customers of Masterbeat.com can be divided into four primary
segments:
EXISTING CUSTOMER BASE: Masterbeat.com currently benefits from an established
base of over 100,000 customers. This existing base of customers has grown since
the start of MASTERBEAT in 1996 and consists of people who have purchased
MASTERBEAT CD's and attended MASTERBEAT events. Masterbeat.com has a
comprehensive mailing and email database of these customers and is able to
market to them directly, with permission.
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FITNESS PROFESSIONALS: Another important segment for dance music, and thus
Masterbeat.com, is the fitness professional. Fitness professionals include
spinning instructors, personal trainers, health clubs, etc. Fitness
professionals have proven to be a loyal customer of the traditional MASTERBEAT
CD series.
DANCE ENTHUSIASTS: This is the largest segment of potential customers for
Masterbeat.com. This segment consists of general consumers, from all walks of
life, all around the globe, that enjoy the dance genre as one of their primary
music listening choices. Just like "Pop", "Rap", and "Top 40"; the "Dance" genre
enjoys a large dedicated fan base that listens to dance radio stations and
purchases dance-oriented music on a regular basis.
MAINSTREAM MUSIC CONSUMER: This segment consists of the millions of general
music consumers around the world that purchase all formats and genres of music.
We expect to receive a fair percentage of customers from this segment as we
become the leader in the dance music niche.
COMPETITION
There is very strong competition in the music industry for the consumer dollar.
Consumers have varied tastes and interests in music, usually preferring only one
or two genres of music and favoring a certain medium and channel to obtain their
music. The Internet is dramatically changing the way the general consumer
purchases their music, as more and more look online. Brand recognition, ease of
use and accessibility are key to earning the consumer's business and keeping it.
Like many industries, it is possible for niche players to thrive in an industry
dominated by a few key companies. While sites such as iTunes may continue to
dominate the market for the general music consumer, a specialty site such as
Masterbeat.com can thrive and be extremely profitable catering to a special
audience and providing exclusive tracks and services not available elsewhere.
THE FOLLOWING ARE THE COMPANY'S PRESENT MAJOR COMPETITORS.
THE ITUNES MUSIC STORE is a US-based online digital media store operated by
Apple Inc. Opening on April 28, 2003, it is now is the number-one music vendor
in the United States and has sold several billion downloads since its inception.
AMAZON MP3 is a digital music store owned and operated by amazon.com. At launch,
Amazon offered "over 2 million songs from more than 180,000 artists and over
20,000 labels, including EMI Music and Universal Music Group", to customers
located in the United States only. In December 2007 Warner Music Group announced
that it would offer its catalogue on Amazon MP3 and in January 2008, SONY BMG
followed suit. The current catalogue is 9.6 million songs.
NAPSTER, INC. is an online music store offering a variety of purchase and
subscription models. The service currently has a music catalogue of over
8,000,000 songs, making it one of the largest online music stores.
RHAPSODY an online music store run by RealNetworks and available in the US only.
Launched in December 2001, Rhapsody was the first music service to offer
streaming on-demand access to a large library of digital music. Rhapsody boasts
a catalogue of 5,000,000 songs.
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7DIGITAL a privately-held digital media delivery company based in the United
Kingdom, offering downloadable music, video and movies to customers primarily
within major European markets.
BEATPORT a US-based online music store located in Denver, Colorado that
specializes in electronic, dance and remixed music. Similar to Masterbeat,
Beatport offers new releases, classic and exclusive tracks, all of which are
categorized by genre, such as house, trance, and techno music. Beatport does not
sell content from any of the major record labels.
EMPLOYEES
As of April 9, 2010 we had a total of three full time employees.
ITEM 1A. RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING OUR
BUSINESS BEFORE PURCHASING ANY OF OUR SHARES OF COMMON STOCK. NO PURCHASE OF OUR
COMMON STOCK SHOULD BE MADE BY ANY PERSON WHO IS NOT IN A POSITION TO LOSE THE
ENTIRE AMOUNT OF HIS INVESTMENT. THE ORDER OF THE FOLLOWING RISK FACTORS IS
PRESENTED ARBITRARILY. YOU SHOULD NOT CONCLUDE THE SIGNIFICANCE OF A RISK FACTOR
BECAUSE OF THE ORDER OF PRESENTATION. OUR BUSINESS AND OPERATIONS COULD BE
SERIOUSLY HARMED AS A RESULT OF THESE RISKS.
WE HAVE A LIMITED OPERATING HISTORY WHICH LIMITS THE INFORMATION AVAILABLE TO
YOU TO EVALUATE OUR BUSINESS.
There is a limited operating and financial information to evaluate historical
performance and the Company's future prospects. Following the closing of the
Merger, we face the risks and difficulties of an early-stage company including
the uncertainties of market acceptance, competition, cost increases and delays
in achieving business objectives. There can be no assurance that the Company
will succeed in addressing any or all of these risks or that it will achieve
future profitability and the failure to do so would have a material adverse
effect on the Company's business, financial condition and operating results.
A GENERAL ECONOMIC DOWNTURN COULD RESULT IN CUSTOMERS NOT PURCHASING OUR
SERVICES.
Any decline in the general economy or concern about an imminent decline could
delay decisions by prospective customers to make initial evaluations of, or
investments, in the Company and its products. Any reduction of or delays in
expenditures could harm our business.
BECAUSE MASTERBEAT BECAME PUBLIC BY MEANS OF A "REVERSE MERGER" TRANSACTION, THE
COMPANY MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
There may be risks associated with MASTERBEAT'S becoming public through a
reverse merger transaction. Specifically, securities analysts of major brokerage
firms may not provide coverage of the Company since there is no incentive to
brokerage firms to recommend the purchase of the Company's common stock. No
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assurance can be given that brokerage firms will, in the future, want to conduct
any secondary offerings on behalf of the Company.
WE HAVE A LARGE NUMBER OF AUTHORIZED BUT UNISSUED COMMON STOCK.
Our Articles of Incorporation authorize the issuance of 80,000,000 shares of
common stock and 20,000,000 shares of preferred stock. We presently have
10,408,815 shares of common stock issued and outstanding. Our Board of Directors
has the power to issue any or all of such additional shares without stockholder
approval. We may issue shares for the purpose of raising additional capital.
Potential investors should be aware that any such stock issuance may result in a
reduction of the book value or market price of our common stock of the then
outstanding shares. Furthermore, if we issue additional shares, such issuance
will reduce the proportionate ownership and voting power of the other
stockholders, and any new issuance of shares may result in a change of our
control.
RESALE OF OUR SHARES MAY BE DIFFICULT BECAUSE THERE IS A LIMITED MARKET FOR OUR
SHARES. THIS MAY REDUCE OR LIMIT THE POTENTIAL VALUE OF OUR SHARES.
There is presently a limited public market for our shares of common stock and no
assurance that such a public market will continue in the future; that it will be
maintained or that it will be sufficiently active or liquid to allow
stockholders to easily dispose of their shares. The existence of a public market
with little or no activity or liquidity is likely to reduce or limit the
potential value of our shares.
COMPETITION MAY ADVERSELY IMPACT OUR FINANCIAL RESULTS.
The Company faces significant competition from companies such as Apple,
Amazon.com Napster.com, and Rhapsody.com which offer substantially similar
products and services which are better capitalized and have greater name
recognition. We expect our competitors will continue to leverage significant
financial resources to facilitate further growth.
TECHNOLOGY AND SERVICE LIMITATIONS MAY IMPACT REVENUES.
While the Company employs leading edge technology and is committed to the
continual development and deployment of new and improved technology, the
inability to respond quickly, to meet changing consumer demands or expand our
user base could result in significant reduction in our business operation.
CONTROL BY MANAGEMENT.
Management currently owns a majority of the Company's issued and outstanding
shares of common stock. The Company's Management will continue to be in a
position to elect all or a majority of the Company's directors, appoint its
officers, and control the Company's affairs and operations.
DEPENDENCE ON MANAGEMENT.
The Company's future success will be significantly dependent on the Company's
management team. The Company's success will be particularly dependent upon Brett
Henrichsen the Company's Chief Executive Officer. The Company does not presently
have key man life insurance for Mr. Henrichsen and his loss would likely have a
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materially adverse effect on our business. The Company will attempt to obtain
key man insurance for Mr. Henrichsen but there is no guarantee that we will be
able to obtain same or if we can obtain same that it will be at favorable rates.
NO DIVIDENDS.
The Company has not paid any dividends to date. For the foreseeable future it is
anticipated that earnings generated from operations of the Company will be used
to finance the growth of the Company. Therefore, it is not expected that cash
dividends will be paid to stockholders in the near future.
PENNY STOCK RULES: POSSIBLE INABILITY TO SELL IN THE SECONDARY MARKET.
Rule 3a51-1 of the Exchange Act defines a "penny stock" as an equity security
that is not, among other things: a) a reported security (i.e., listed on certain
national securities exchanges); b) a security registered or approved for
registration and traded on a national securities exchange that meets certain
guidelines, where the trade is effected through the facilities of that national
exchange; c) a security listed on NASDAQ; d) a security of an issuer that meets
certain minimum financial requirements, i.e., "net tangible assets" in excess of
$2,000,000 (if the issuer has been continuously operating for less than three
years) or $5,000,000 (if the issuer has been continuously operating for more
than three years), or "average revenue" of at least $6,000,000 for the last
three years); or e) a security with a price of at least $5.00 per share for the
transaction in question or that has a bid quotation (as defined in the Rule) of
at least $5.00 per share. Under Rule 3a51-1, if the Company's Common Stock sells
below $5.00 per share, the Company's Common Stock will fall within the
definition of "penny stock."
If the Company's Common Stock is deemed to be a penny stock, trading therein
will be subject to the requirements of Rule 15g-9 and Section 15(g) under the
Exchange Act. Rule 15g-9 imposes additional sales practice requirements on
broker-dealers who sell non-exempt securities to persons other than established
customers. For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Pursuant to Section
15(g) and related Rules, brokers and/or dealers, prior to effecting a
transaction in penny stock, will be required to provide investors with written
disclosure documents containing information concerning various aspects involved
in the market for penny stocks as well as specific information about the penny
stock and the transaction involving the purchase and sale of that stock, e.g.,
price quotes and broker-dealer and associated person compensation. Subsequent to
the transaction, the broker will be required to deliver monthly or quarterly
statements containing specific information about the penny stock. The foregoing
requirements will most likely negatively affect the ability of purchasers herein
to sell their shares in the secondary market.
POTENTIAL FUTURE SALES UNDER RULE 144 MAY DEPRESS THE MARKET PRICE FOR THE
COMMON STOCK.
Rule 144 permits the sale of shares without any quantity limitation by a person
who is not considered to be our affiliate and who has beneficially owned their
shares for a minimum period of six months. Therefore, the possible sale of our
currently outstanding shares pursuant to Rule 144 may, in the future, have a
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depressive effect on the price of our common stock in the over-the counter
market.
BECAUSE WE DO NOT HAVE AN AUDIT OR COMPENSATION COMMITTEE, SHAREHOLDERS WILL
HAVE TO RELY ON OUR CHIEF EXECUTIVE OFFICER AND SECRETARY, WHO AND NOT
INDEPENDENT, TO PERFORM THESE FUNCTIONS.
We do not have an audit or compensation committee. These functions are performed
by our Chief Executive Officer and Secretary. Thus, there is a potential
conflict of interest in that our Chief Executive Officer and Secretary have the
authority to determine issues concerning management compensation and audit
issues that may affect management decisions.
SHAREHOLDERS MAY BE DILUTED SIGNIFICANTLY THROUGH OUR EFFORTS TO OBTAIN
FINANCING AND SATISFY OBLIGATIONS THROUGH ISSUANCE OF ADDITIONAL SHARES OF OUR
COMMON STOCK.
We have no committed source of financing. Wherever possible, our board of
directors will attempt to use non-cash consideration to satisfy obligations. In
many instances, we believe that the non-cash consideration will consist of
shares of our stock. Our board of directors has authority, without action or
vote of the shareholders, to issue all or part of the authorized but unissued
common shares. In addition, we may attempt to raise capital by selling shares of
our common stock, possibly at a discount to market. These actions will result in
dilution of the ownership interests of existing shareholders, may further dilute
common stock book value, and that dilution may be material. Such issuances may
also serve to enhance existing management's ability to maintain control of the
Company because the shares may be issued to parties or entities committed to
supporting existing management.
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND
DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR
COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE
RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.
Our articles of incorporation and applicable Delaware law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on our behalf. We will also bear the expenses of such litigation
for any of our directors, officers, employees, or agents, upon such person's
promise to repay us. Therefore if it is ultimately determined that any such
person shall not have been entitled to indemnification, this indemnification
policy could result in substantial expenditures by us which we will be unable to
recoup.
OUR BOARD OF DIRECTORS HAS THE AUTHORITY, WITHOUT STOCKHOLDER APPROVAL, TO ISSUE
PREFERRED STOCK WITH TERMS THAT MAY NOT BE BENEFICIAL TO COMMON STOCKHOLDERS AND
WITH THE ABILITY TO AFFECT ADVERSELY STOCKHOLDER VOTING POWER AND PERPETUATE
THEIR CONTROL OVER THE COMPANY.
Our certificate of incorporation authorizes the issuance of up to 20,000,000
shares of preferred stock, par value $ .0001 per share.
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Our board of directors is entitled to authorize the issuance of up to 20,000,000
shares of preferred stock in one or more series with such limitations and
restrictions as may be determined in its sole discretion, with no further
authorization by security holders required for the issuance thereof.
The issuance of preferred stock could adversely affect the voting power and
other rights of the holders of common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or
prevent a change in control of the Company or make removal of management more
difficult. As a result, the board of directors' ability to issue preferred stock
may discourage the potential hostility of an acquirer, possibly resulting in
beneficial negotiations. Negotiating with an unfriendly acquirer may result in,
among other things, terms more favorable to us and our stockholders. Conversely,
the issuance of preferred stock may adversely affect any market price of, and
the voting and other rights of the holders of the common stock. We presently
have no plans to issue any preferred stock.
THE ABILITY OF OUR TWO PRINCIPAL OFFICERS TO CONTROL OUR BUSINESS MAY LIMIT OR
ELIMINATE MINORITY SHAREHOLDERS' ABILITY TO INFLUENCE CORPORATE AFFAIRS.
Two principal officers beneficially own approximately 70% of our outstanding
common stock. Because of this beneficial stock ownership, they are in a position
to continue to elect our board of directors, decide all matters requiring
stockholder approval and determine our policies. Their interests may differ from
the interests of other shareholders with respect to the issuance of shares,
business transactions with or sales to other companies, selection of officers
and directors and other business decisions. The minority shareholders would have
no way of overriding their decisions. This level of control may also have an
adverse impact on the market value of our shares because they may institute or
undertake transactions, policies or programs that result in losses, may not take
any steps to increase our visibility in the financial community and/or may sell
sufficient numbers of shares to significantly decrease our price per share.
BECAUSE WE ARE NOT SUBJECT TO COMPLIANCE WITH RULES REQUIRING THE ADOPTION OF
CERTAIN CORPORATE GOVERNANCE MEASURES, OUR STOCKHOLDERS HAVE LIMITED PROTECTIONS
AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market,
as a result of Sarbanes-Oxley, require the implementation of various measures
relating to corporate governance. These measures are designed to enhance the
integrity of corporate management and the securities markets and apply to
securities which are listed on those exchanges or the Nasdaq Stock Market.
Because we are not presently required to comply with many of the corporate
governance provisions and because we chose to avoid incurring the substantial
additional costs associated with such compliance any sooner than necessary, we
have not yet adopted these measures.
Until we comply with such corporate governance measures, regardless of whether
such compliance is required, the absence of such standards of corporate
governance may leave our stockholders without protections against interested
director transactions, conflicts of interest and similar matters and investors
may be reluctant to provide us with funds necessary to expand our operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2. PROPERTIES
The Company's offices are located at 222 East 31st Street, Main Level, New York,
New York 10016 and 6121 Santa Monica Blvd., Studio A, Hollywood, California
91038. The Company's main office is at 222 East 31st Street, New York, NY in the
suite of Jon Biondo, the Company's Secretary and a member of the Board and is
provided without charge. The Company's office in Hollywood, California is in the
third year of a five year lease at an annual base rental of $114,000.00.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings and no such proceedings are
known to be contemplated.
ITEM 4. RESERVED
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER'S PURCHASES OF EQUITY SECURITIES
A limited public trading market currently exists for the Company's securities
which are presently traded on the over-the-counter bulletin board ("OTCBB")
under the symbol MSTO. Our common shares initially began trading on the OTC
Bulleting Board on January 5, 2010. The high and low closing prices of the first
quarter of 2010 are $3.00 and $.885 respectively as reported by the quotation
services operated by the OTC Bulletin Board. All quotations for the OTC Bulletin
Board reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.
On April 19, 2010 the closing bid price of our common stock as reported on the
OTC Bulleting Board was $.28 per share.
There is no assurance that such market will continue, or that a shareholder will
be able to liquidate his or her investment.
RECENT SALES OF UNREGISTERED SECURITIES
On March 23, 2010, the Company issued 408,815 shares of restricted stock as
follows:
(a) 135,135 restricted shares to two accredited investors in consideration
of payment of the aggregate sum of $75,000 pursuant to subscription agreements
entered into on December 16, 2009.
12
(b) 93,500 restricted shares valued at $1.30 per share for aggregate
consideration of $121,500 to five persons in consideration for services
rendered.
(c) 180,180 restricted shares valued at $.555 per shares in consideration
of the cancellation of all principal and accrued interest due and owing on a
promissory note in the principal amount of $100,000.
TRANSFER AGENT AND REGISTRAR
Action Stock Transfer Corp. 7069 South Highland Drive, Suite 300, Salt Lake
City, Utah 84121, telephone number (801) 274-1088.
DIVIDENDS. The Registrant has not declared or paid any cash dividends on its
common stock since inception. There are no restrictions on the common stock that
limit our ability of us to pay dividends if declared by the Board of Directors.
The holders of common stock are entitled to receive dividends when and if
declared by the Board of Directors, out of funds legally available therefore and
to share pro-rata in any distribution to the stockholders. Generally, the
Registrant is not able to pay dividends if after payment of the dividends, it
would be unable to pay its liabilities as they become due or if the value of the
Registrant's assets, after payment of the liabilities, is less than the
aggregate of the Registrant's liabilities and stated capital of all classes
EQUITY COMPENSATION PLAN INFORMATION
As of April 9, 2010 and as of December 31, 2009, the end of our most recent
fiscal year, we did not have any equity compensation plan.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, our financial statements and notes related
thereto, and other more detailed financial information appearing elsewhere in
this Current Report on Form 10-K. Consequently, you should read the following
discussion and analysis of our financial condition and results of operations
together with such financial statements and other financial data included
elsewhere in this Current Report on Form 10-K. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Current Report on
Form 10-K, including information with respect to our plans and strategy for our
business and includes forward-looking statements that involve risks and
uncertainties. You should review the "Risk Factors" section of this Current
Report on Form 10-K for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including
additional factors that could materially affect our financial results, is
included herein and in our other filings with the SEC.
13
OVERVIEW
Masterbeat Corporation ("Masterbeat" or the "Company") was incorporated in the
state of Delaware on May 17, 2007 as Green Mountain Recovery, Inc. On December
18, 2009, the Company entered into the Exchange Agreement with Masterbeat, LLC
and its members. Pursuant to the terms of the Exchange Agreement, the members
agreed to transfer all of the issued and outstanding limited liability company
units in Masterbeat, LLC to the Company in exchange for the issuance of an
aggregate of 8,500,000 shares of the Registrant's common stock to the members,
thereby causing Masterbeat, LLC to become wholly-owned subsidiary of the
Company. Pursuant to the provisions of the Share Exchange, the principals of
Company cancelled 1,000,000 shares of common stock owned by them and executed a
lock-up leak-out agreement with respect to their remaining shares which
agreement provides for the release of an aggregate of 100,000 shares per month
commencing 90 days from the closing date. Upon the closing of the Share Exchange
on December 29, 2009, the Members of Masterbeat, LLC delivered all of their
membership interests in Masterbeat, LLC to the Registrant in exchange for
8,500,000 shares of common stock of the Registrant. The Share Exchange resulted
in Masterbeat, LLC, becoming a wholly-owned subsidiary of the Company. The
transactions contemplated by the Exchange Agreement are being accounted for as a
"reverse acquisition," whereby Masterbeat, LLC is deemed to be the accounting
acquirer (legal acquiree) and Masterbeat Corporation to be the accounting
acquiree (legal acquirer).
Immediately following the closing of the Share Exchange Agreement, the combined
company changed its name to Masterbeat Corporation. The Masterbeat, LLC was
dissolved but its business will carry on through its operating units,
Masterbeat.com, posterprintship.com and circuitticket.com. Masterbeat.com is an
online digital music store specializing in "Hip-Hop", dance and electronica
music. The website features hard-to-obtain remixes from major record labels as
well as music from independent labels worldwide. Masterbeat.com also produces
large scale dance events under its "Powered by Masterbeat.com" name.
Posterprintshop.com is a quick-turnaround online printing store that provides
photo enlargement services and the printing of posters, signs and banners.
Circuitticket.com is a full service ticketing site capable of sequencing,
tracking, printing and delivering high quality ticket stubs for a wide array of
events, parties, festivals, concerts and other gatherings.
GOING CONCERN
Our financial statements have been prepared on the basis of accounting
principles applicable to a going concern. As a result, they do not include
adjustments that would be necessary if we were unable to continue as a going
concern and would therefore be obligated to realize assets and discharge our
liabilities other than in the normal course of operations. As reflected in the
accompanying financial statements, the Company has used cash flows in operations
of $1,254,127 and $1,004,889 for the years ended December 31, 2009 and December
31, 2008 respectively and has an accumulated deficit of $2,555,659 as of
December 31, 2009. For the years December 31, 2009 and 2008, the Company
incurred net losses of $1,298,220 and $1,257,439, respectively. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. Management
believes that actions presently being taken to raise capital will provide the
opportunity for the Company to continue as a going concern.
14
RESULTS OF OPERATION
RESULTS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO DECEMBER 31, 2008
REVENUE
Our revenues for the years ended December 31, 2009 and December 31, 2008
were as follows:
Period Ended Period Ended
December 31, December 31, 2008 to 2009
2009 2008 % Change
---------- ---------- --------
Revenue $1,104,897 $ 643,631 71.7%
Our revenue is derived primarily from online music download services
specializing in "Hip-Hop", dance and electronic music. The Company also hosts
parties and events, provides disc jockey services, acts as ticket agent for
events hosted by others and operates a website that provides photo enlargement
services and the printing of posters, signs and banners. Revenues for the year
ended December 31, 2009 were $1,104,897. This increase of $461,266 from the
Company's revenues generated for the year ended December 31, 2008 is primarily
attributable to increased sales in all 3 operating units. Music downloads from
the Masterbeat.com digital music store and sales volume from Posterprintshop.com
for posters and photo enlargement services have increased significantly during
the 2009. Revenue from Circuitticket.com in 2009 has also shown solid
improvements over the prior year. Management believes this revenue growth will
continue into 2010 as it continues to implement its business strategy and
operational plans.
COST OF SALES
Our cost of sales for the years ended December 31, 2009 and December 31, 2008
were as follows:
Period Ended Period Ended
December 31, December 31, 2008 to 2009
2009 2008 % Change
---------- ---------- --------
Cost of Sales $ 723,306 $ 243,561 197.0%
15
Cost of Sales for year ended December 31, 2009 increased 197.0% from fiscal
2008. The increase in cost of sales was due to primarily to increased sales
volume. Additional supplies, materials and other production costs were required
to support the increased business volume of Posterprintshop.com and
Masterbeat.com. We also had a significant increase in advertising costs and
promotional expenses in 2009.
GROSS PROFIT
Gross profit is defined as net sales less cost of sales. Cost of sales consists
of product costs, cost of commissions and cost of services.
The following table presents net sales, cost of sales and gross profit for the
years ended December 31, 2009 and December 31, 2008:
For the Period Ended December 31,
--------------------------------------------------
2009 2008
--------------------- ----------------------
% of % of
Amount Net Sales Amount Net Sales $ Change % Change
------ --------- ------ --------- -------- --------
Net sales $1,104,897 100.0% $ 643,631 100.0% $ 461,266 71.7%
Cost of sales 723,306 65.5% 243,561 37.8% 479,745 197.0%
---------- ------ ---------- ------ ----------
Gross profit $ 381,591 34.5% $ 400,070 62.2% $ (18,479 -4.6%
========== ====== ========== ====== ==========
Gross profit for the year ended December 31, 2009 decreased $18,479 compared to
the year ended December 31, 2008, and gross profit as a percentage of revenue
decreased 4.6% for the year ended December 31, 2009 compared to the year ended
December 31, 2008. The decrease in the gross profit margin was due to increased
expenses resulting from a higher volume of audio downloads and services as well
as increased photo enlargement and printing services. We also had a significant
increase in the cost of advertising and promotion during 2009.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2009 and December 31, 2008
were as follows:
16
For the Period Ended December 31,
--------------------------------------------------
2009 2008
--------------------- ----------------------
% of % of
Amount Net Sales Amount Net Sales $ Change % Change
------ --------- ------ --------- -------- --------
Depreciation and Amortization $ 81,610 7.4% $ 80,423 12.5% $ 1,187 1.5%
General and Administrative 1,582,193 143.2% 1,564,490 243.1% 17,703 1.1%
---------- ----- ---------- ----- -------
Total Operating Expenses $1,663,803 150.6% $1,644,913 258.7% $18,890 1.1%
========== ===== ========== ===== =======
General and administrative expenses consist primarily of salaries and benefits
for our executive and administrative personnel, facilities costs, advertising
expense and fees for outside consulting services. Our operating expenses
remained stable over the past year compared to 2008 and we expect that this
trend will continue in 2010.
PROVISION FOR INCOME TAXES
For the Period Ended December 31,
--------------------------------------------------
2009 2008
--------------------- ----------------------
% of % of
Amount Net Sales Amount Net Sales $ Change % Change
------ --------- ------ --------- -------- --------
Income Taxes $16,008 1.4% $12,596 1.9% $ 3,412 27.1%
LIQUIDITY AND CAPITAL RESOURCES
Since Masterbeat's inception, it has financed operations primarily through the
contributions and investments from its members and shareholders, and through
short term borrowings. During the year ended December 31, 2009, Members'
Contributions were $967,306 and Stock Subscriptions totaling $75,000 were
received. $200,000 was also provided by related party notes. As of December 31,
2009, Masterbeat has a negative working capital balance of $197,704. Current
assets consist of $157,906 in cash and cash equivalents and $106,524 in accounts
receivable and prepaid assets. We estimate that our existing cash, combined with
additional capital that will be raised through selling additional shares or new
short term borrowings, will be sufficient to fund current operations. Despite
this prior funding, there can be no assurance that we will be successful in
raising additional capital, if required. If we are not able to secure additional
17
funding, the implementation of our business plan may be impaired. There can be
no assurance that such additional financing will be available to us on
acceptable terms or at all. As a public entity, we may issue shares of our
common stock and preferred stock in private or public offerings to obtain
financing or capital in order to improve our performance and growth.
In December 2009, the Company issued two promissory notes to related parties
totaling $200,000. On April 5, 2010 one of these notes in the amount of $100,000
was converted into 180,180 shares of the Company's common stock in full
satisfaction of the note. The 2nd note in the amount of $100,000 is due on June
1, 2010.
OPERATING ACTIVITIES
The Company used cash flow in operating activities of $1,254,127 for the year
ended December 31, 2009. This cash flow is primarily attributable to a net loss
of $1,298,220, increases in accounts receivable and prepaid expenses of $16,974
and $25,000 respectively.
INVESTING ACTIVITIES
The Company generated a deficit in cash flow from investing activities of
$16,770 for the year ended December 31, 2009. This deficit is primarily
attributable to acquisition of computer related assets to upgrade the technology
infrastructure to support the audio download website.
FINANCING ACTIVITIES
The Company generated cash flow from financing activities of $1,442,306 for the
year ended December 31, 2009. This additional cash is primarily attributable to
member contributions of $967,306, short term borrowings of $200,000, proceeds
from the reverse merger of $200,000 and proceeds from stock subscriptions in the
amount of $75,000.
OFF-BALANCE SHEET ARRANGEMENTS
None
CRITICAL ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less. At various times during the fiscal year, the
Company's cash and cash equivalents in bank balances may exceed the Federally
insured limits.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally accepted
accounting principles 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 statement. Actual
results could differ from those estimates.
18
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalent, accounts receivable, other
assets, accounts payable and other liabilities approximate their fair value
because of the short maturity of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist mainly of unprocessed credit card sales from music
downloads, event ticket sales and online poster sales. The Company establishes
an allowance for uncollectable accounts receivable based on the age of
outstanding invoices and management's evaluation of the collectability of
outstanding balances.
FIXED ASSETS
Fixed assets, consisting mainly of computer equipment, software and office
equipment and furniture, are stated at cost, net of accumulated depreciation
which is calculated using the straight-line method over the estimated useful
lives generally ranging from 5 to 7 years.
LONG-LIVED ASSETS
FASB ASC 360-10 (Prior Authoritative Literature: Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets), requires that we evaluate our long-lived assets for
financial impairment on a regular basis. We evaluate the recoverability of
long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. If such evaluations indicate that the future discounted cash flows of
certain long-lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values. The useful lives
assigned to the Company's internal-use website were based on management's
assessment of when standard maintenance and software updates would no longer
allow the website to perform at a level consistent with market expectations and
competitor's offerings.
REVENUE RECOGNITION
We recognize revenue when persuasive evidence of an arrangement exists, the fee
is fixed or determinable, collectability is reasonably assured and delivery has
occurred. Revenues transacted from on-line platforms relating to audio download
and poster printing services are recognized at the point of sale.
Agent revenues are recognized in accordance with FASB ASC 605-45 (Prior
authoritative literature: EITF 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent"). Agent revenues are derived from ticket sales where we
are not the merchant of record and where the prices of our services are fixed at
the point of sale. Agent revenue is comprised of service fees and customer
processing fees and are reported at the net amounts received, without any
associated cost of revenue.
19
Amounts billed to customers in sales transactions related to shipping and
handling are classified as revenue in accordance with FASB ASC 605-45 (Prior
authoritative literature EITF 00-10, "ACCOUNTING FOR SHIPPING AND HANDLING FEES
AND COSTS"). The actual cost to the Company is recognized as an operating
expense.
SHIPPING AND HANDLING COSTS
The Company includes its shipping and handling costs in selling, general and
administrative expenses.
RECENT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 805 (Prior authoritative literature:
Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business
Combinations, which replaces SFAS No. 141). ASC 805 establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. The
statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. ASC 805
is effective for calendar year companies on January 1, 2009. The Company has
adopted this ASC effective January 1, 2009.
In March 2008, the FASB issued ASC 815-10 (Prior authoritative literature: SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities, and
amendment of SFAS No. 133). This statement will require additional disclosures
about how and why we use derivative financial instruments, how derivative
instruments and related hedged items are accounted for under ASC 815 (Prior
authoritative literature: SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended and interpreted), and how derivative
instruments and related hedged items affect our financial position, results of
operations, and cash flows. ASC 815-10 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008;
however early adoption is encouraged, as are comparative disclosures for earlier
periods. The Company adopted this ASC effective January 1, 2009 which did not
have a material impact on its financial statements.
In April 2008, the FASB issued ASC 350-30 (Prior authoritative literature: FASB
Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets). ASC 350-30 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350 (Prior authoritative literature: SFAS
No. 142, "Goodwill and Other Intangible Assets") and also requires expanded
disclosure related to the determination of intangible asset useful lives. ASC
350-30 is effective for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company adopted this ASC effective January 1, 2009;
see Note 6 for information regarding useful lives of the Company's intangible
assets.
In May 2009, the FASB issued FASB ASC 855-10 (prior authoritative literature,
SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 established general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. FASB ASC 855-10
is effective for interim or annual financial periods ending after June 15, 2009.
The Company adopted this ASC effective the current quarter ended September 30,
2009; see Note 8 for a discussion of subsequent events through March 17, 2010.
20
In June 2009, the FASB issued FASB ASC 105-10 (prior authoritative literature,
SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles--a replacement of SFAS No. 162). FASB
ASC 105-10 replaces SFAS 162 and establishes the FASB Accounting Standards
Codification as the source of authoritative accounting principles recognized by
the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. FASB ASC 105-10 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. As such, the Company is required to adopt this standard in
the current period. Adoption of FASB ASC 105-10 did not have a significant
effect on the Company's financial statements.
In June 2009, the FASB issued guidance under ASC 860 (Prior authoritative
literature: SFAS No. 166, "Accounting for Transfers of Financial Assets"), which
will require more information about transfer of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
"qualifying special-purpose entity", changes the requirements for derecognizing
financial assets and requires additional disclosures. This ASC will be effective
for fiscal years beginning after November 15, 2009. The Company will adopt the
provision of this ASC effective January 1, 2010 and is currently evaluation the
impact, if any, on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited consolidated financial statements as of December
31, 2009 and 2008 begin on F-1 of the Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) Resignation of Previous Independent Registered Public Accounting Firm On
December 29, 2009 in connection with the closing of the reverse merger, the
Board of Directors engaged EFP Rotenberg ("Rotenberg") as an independent
auditor. On and effective February 26, 2010, Rotenberg resigned as our
independent auditor. Rotenberg's resignation was due to the change in services
they were engaged to provide from independent audit services to internal
accounting and bookkeeping services.
There were no disagreements with Rotenberg on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure that would have caused Rotenberg to make references in any report to
such disagreements.
21
Since Rotenberg had originally been engaged as our independent auditors on
December 29, 2009 they had not previously issued any reports on the Company's
financial statements.
There were no disagreements with our prior auditors Li & Company on any matter
of accounting principles or practices; financial statement disclosure or
auditing scope or procedure that would have caused Li & Company to make
references in any report to such agreements.
(b) Engagement of New Independent Registered Public Accounting Firm On February
26, 2010, concurrent with Rotenberg's resignation as our independent auditor,
our board elected to appoint Lake & Associates (Lake) as our independent
auditor.
During the fiscal years ended December 31, 2009 and 2008 and from January 1,
2010 to February 26, 2010, neither the Company nor anyone acting on its behalf
consulted Lake with respect to (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements, and
neither a written report was provided to the Company nor oral advice was
provided that Lake concluded was an important factor considered by the Company
in reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement or reportable
event set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K.
Prior to our engaging Lake they did not provide our company with either written
or oral advice that was an important factor considered by our company in
reaching a decision to retain Lake& Associates as our auditors.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer
("Certifying Officer"), has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the fiscal period covered by this Annual Report
on Form 10-K. Based upon such evaluation, the Certifying Officer have concluded
that, as of the end of such period, December 31, 2009, the Company's disclosure
controls and procedures were not effective to ensure that information required
to be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and is accumulated and communicated to management,
including our Certifying Officer, to allow timely decisions regarding such
disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) for the Company. The Company
maintains processes designed by, or under the supervision of the Company's
management, including but not limited to the Company's Chief Executive Officer,
or persons performing similar functions, and effected by the Company's board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles including policies and procedures that: (i) pertain to the
22
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and disposition of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the issuer are
being made only in accordance with authorization of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, 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 has conducted an evaluation of the Company's internal control over
financial reporting using the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission as a basis
to evaluate effectiveness and determined that internal control over financial
reporting was effective as of the end of the fiscal year ended December 31,
2009. Based upon that evaluation, the Company's Chief Executive concluded that
the Company's internal control over financial reporting is not effective due to
the material weakness noted below. A material weakness is a control deficiency,
or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the
Company's annual or interim financial statements will not be prevented or
detected on a timely basis. The following material weakness has been identified.
The Company did not have sufficient segregation of duties to support its
internal control over financial reporting.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Our internal control over financial reporting was not subject to
attestation by the company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
company to provide only management's report in this annual report.
There were no changes in the Company's internal control over financial reporting
that occurred during the last fiscal quarter, that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The respective positions and ages of the directors and executive officers of the
Company as of April 9, 2010 are shown in the following tables. Each director of
the Registrant has been elected to hold office until the next annual meeting of
stockholders and thereafter until his successor is elected and has qualified.
Vacancies in the existing Board of Directors of the Registrant are filled by
23
majority vote of the remaining Directors. There are no agreements or
understandings for any officer or director to resign at the request of another
person, and no officer or director is acting on behalf of or will act at the
direction of any other person.
Name Age Position
---- --- --------
Dick Wingate 57 Chairman of the Board
Brett Henrichsen 38 Chief Executive Officer, Director
Theodore S. Green 57 Director
Jon Biondo 37 Secretary, Director
DICK WINGATE
With more than three decades of experience in the music and interactive media
industries, Dick Wingate recently became Head of East Coast Client Relations for
TAG Strategic, LLC a digital entertainment consulting firm, where he consults
with new clients in business development, content licensing and distribution
strategy.
Prior to his affiliation with TAG Strategic, he served as President, Media
Development & Chief Content Officer for Nellymoser Inc., a leading provider of
rich media mobile services, overseeing content, licensing and business
development strategies, and worked closely with major media companies and
wireless service providers such as ABC, Sony/BMG, Warner Music, AT&T, Virgin
Mobile and MTV. As CCO, Mr. Wingate was also responsible for direct licensing of
content and for content partnerships and programming for Nellymoser's music
services.
Mr. Wingate has also served as President, Content & Programming for Digital
Transaction Machines, Inc., an interactive systems provider for in-store
delivery of digital products for clients including McDonald's and 7-Eleven and
his in depth experience in the recording industry includes positions as SVP,
Marketing, Arista Records (BMG); SVP, A&R PolyGram Records; Director of Talent
Acquisition, Epic Records; and Director of Product Management, Columbia Records.
Mr. Wingate is a featured speaker at numerous industry events, and he is a
member of the National Academy of Recording Arts and Sciences and an advisory
board member of numerous companies.
Mr. Wingate obtained a BA in communication from Brown University in 1974.
We believe Mr. Wingate is qualified to be a director of the Company due to his
many years of experience in and knowledge of the music industry.
BRETT HENRICHSEN
Brett Henrichsen is an internationally celebrated club dj and is the founder of
the Masterbeat brand and co-founder of Masterbeat.com. Brett is one of a select
group of Billboard reporting DJ's.
While a marketing specialist and systems engineer at IBM, Mr. Henrichsen devised
and created a CD compilation series in an effort to provide the dance music
consuming public with previously unavailable promotional remixes. The popularity
of the Masterbeat compilation series allowed Mr. Henrichsen to start an
24
independent record label, Trax Recording, which produced several Billboard
chart-topping hits. Simultaneously with the success of these CD compilations,
Mr. Henrichsen worked in the international DJ community, performing in
stadium-sized events including Carnival in Rio de Janeiro, and Mardi Gras in
Sydney. Mr. Henrichsen holds residencies at several prominent dance clubs in New
York, San Francisco and Los Angeles.
Mr. Henrichsen obtained a BS in Business Administration from the University of
Utah in 1994.
We believe Mr. Henrichsen is qualified to be a director of the Company as a
co-founder of the Company and due to his many years of experience in the music
industry and his understanding of the Company's products and markets.
THEODORE (TED) S. GREEN
Ted Green is currently a Director of China MediaExpress, a publicly traded
company that operates the largest television advertising network on inter-city
express buses in China. From 2003 to 2006, Mr. Green was the CEO and Co-Owner of
Anchor Bay Entertainment, which at such time was the subsidiary of IDT
Entertainment, Inc. that focused on the production, marketing and distribution
of various media. Prior to that, in 2001, Mr. Green established Greenlight
Consulting Inc., a project-based consulting practice focused on the media and
entertainment industry. Greenlight Consultant's clients include Sony Music and
Vivendi-Universal as well as numerous other regional media organizations. Prior
to founding Greenlight Consulting, in 2000, Mr. Green was President and Chief
Operating Officer of MaMaMedia, Inc., an Internet company that created
activity-based learning products for children and their families. From 1992 to
2000, Mr. Green was the founder and President of Sony Wonder, the division of
Sony BMG Music Entertainment responsible for the production and distribution of
media geared toward youthful audiences and also for all home video distribution.
Mr. Green was responsible for all creative, production, operations, finance,
marketing and business efforts. Beginning in 1989, Mr. Green was the Executive
Vice President of Administration and Operations for ATCO Records, a music
industry label co-owned with The Warner Music Group.
Mr. Green obtained a BS from Cornell University in 1974 and received his JD from
Columbia University School of Law in 1977.
We believe Mr. Green is qualified to be a director of the Company due to his
many years experience in the entertainment and record industries.
JON BIONDO
Jon Biondo is one of the co-founders of Masterbeat.com. Mr. Biondo is the
President of the Biondo Law Firm, P.C., a boutique trusts and estates law firm,
wealth management company, and full-service real estate brokerage firm in
Manhattan.
In the mid-nineties, Mr. Biondo served in the chambers of Southern District
Federal Judge Harold Baer, New York State Supreme Court Justice Walter
Schackman, and in the criminal division of the United States Attorney's Office
in Manhattan. From 1998-2001 Mr. Biondo served as Associate General Counsel,
Director of Corporate Communications, and Co-Director of Internet Operations at
Income Tax Preparation firm Gilman & Ciocia.
25
Mr. Biondo recently co-founded Youth of Malawi, a 501(c)(3) corporation
dedicated to enriching the lives of orphans in East Africa. Mr. Biondo served as
the pro bono counsel for the United Nations Youth Symphony Orchestra. Mr. Biondo
plays host each year to the "Fire Island Dance Festival", the star-studded
signature event of the "Broadway Cares" organization, which has raised tens of
millions of dollars in the fight against HIV and AIDS.
Mr. Biondo received his BA in French from Tufts University in 1993 and his law
degree from Fordham in 1997.
We believe Mr. Biondo is qualified to be a director of the Company as a
co-founder of the Company and due to his business and legal experiences.
There are no agreement or understanding for any of our Executive Officers or
Directors to resign at the request of another person, and no Officer or Director
is acting on behalf of nor will any of them act at the direction of any other
person.
BOARD COMMITTEES
We have yet to establish an audit committee or compensation committee due to our
relatively small size but intend to do so in the future.
CODE OF ETHICS
We have not yet adopted a code of ethics but intend to do so in the near future.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The Registrant's executive officers were not paid any salary or compensation for
services they provide as executive officers of the Registrant for fiscal years
ended 2009 and 2008.
EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with its executive
officers.
STOCK OPTION PLANS
No member of Registrant's management has been granted any stock option or stock
appreciation right.
DIRECTOR COMPENSATION
The Registrant's directors are not paid any salary as compensation for services
they provide as directors of the Registrant.
DIRECTOR AGREEMENTS
The Company has not entered into directors agreements with its directors.
26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 9, 2010, the ownership of each
executive officer and director of the Registrant, and of all executive officers
and directors of the Registrant as a group, and of each person known by the
Registrant to be a beneficial owner of 5% or more of its common stock. Except as
otherwise noted, each person listed below is a sole beneficial owner of the
shares and has sole investment and voting power as to such shares. No person
listed below has any options, warrants or other right to acquire additional
securities of the Registrant except as may be otherwise noted.
Name and Address Shares of Common Stock Percent of
of Beneficial Owner Beneficially Owned Class
------------------- ------------------ -----
Jon C. Biondo(1) 3,677,100 35.33%
c/o The Biondo Law Firm, P.C.
222 East 31st Street
New York, NY 10016
Brett C. Henrichsen 2,649,620 25.46%
6121 Santa Monica Blvd.
Studio A
Hollywood, CA 90038
Ryan Coutu 736,015 7.07%
c/o The Biondo Law Firm, P.C.
222 East 31st Street - Main Level
New York, NY 10016
Joseph Levi(2) 647,000 6.22%
1576 E. 21st Street
Brooklyn, NY 11210
Eduard Korsinsky(2) 647,000 6.33%
1669 E. 18th Street
Brooklyn, NY 11229
All Directors, Executive Officers
and 5% Shareholders (5 persons) 8,356,735 80.29%
----------
(1) Does not include an aggregate of 723,435 shares held by three Trusts of
which Mr. Biondo is the sole Trustee.
(2) Messrs Levi and Korsinsky's shares are held in the name of John B. Lowy PC,
Escrow Account pursuant to the term of a Lock-up/Leakout Agreement between
the shareholders and the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 2009, the Company entered into a consulting agreement with TAG
Strategic LLC pursuant to which TAG is to provide services to the Company for
successive six month renewable terms at compensation of $10,000 per month. Dick
Wingate, Chairman of the Company's Board of Directors is a principal of TAG
Strategic LLC.
27
On December 15, 2009 the Company entered into a short-term lending arrangements
with the mother of Jon Biondo, a shareholder and Board Member. The note payable
provided $100,000 for 41 days maturing on January 25, 2010 and paid 15%
interest. There is no penalty or premium for prepayment of this obligation. This
note was converted into 180,180 shares of commons stock of the Company on March
23, 2010.
On December 15, 2009 the Company entered into a short-term lending arrangement
with Jon Biondo, a shareholder, Board Member and Secretary of the Company. The
note payable provides $100,000 for 168 days maturing on June 1, 2010 and pays
15% interest. There is no penalty or premium for prepayment of this obligation.
Other than as stated above, there were no material transactions, or series of
similar transactions, during our Company's last fiscal year, or any currently
proposed transactions, or series of similar transactions, to which our Company
was or is to be a party, in which the amount involved exceeded the lesser of
$120,000 or one percent of the average of the small business issuer's total
assets at year-end for the last three completed fiscal years and in which any
director, executive officer or any security holder who is known to us to own of
record or beneficially more than five percent of any class of our common stock,
or any member of the immediate family of any of the foregoing persons, had an
interest.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ALL OTHER FEES
Lake and Associates CPAs LLC billed the Company $17,500 for services relating to
the audits of the fiscal years ended 2009 and 2008. Other than the foregoing,
Lake and Associates did not bill the company for any products and services
during the fiscal years ended 2009 and 2008.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit No. Description
3.1(a) Certificate of Incorporation (incorporated by reference from
Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission on July 31, 2007).
3.1(b) Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Department of State on December 30, 2010
(incrorporated by reference from Form 8-K filed with the
Securities and Exchange Commission on January 6, 2010.
3.2 Bylaws (incorporated by reference from Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
July 31, 2007).
10.3 Form of Lockup/Leakout Agreement between the Company and its prior
officers and directors. (Incorporated by reference from Form 8-K
filed with the Securities and Exchange Commission on January 6,
2010.)
31.1 Certification pursuant to Rule 13a-14(a) or 15d-14(a)under the
Securities Exchange Act of 1934, as amended.
31.2 See Exhibit 31.1
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 See Exhibit 32.1
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MASTERBEAT CORPORATION
Date: April 22, 2010
/s/ Brett Henrichsen
---------------------------------------------
By: Brett Henrichsen, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 22, 2010
/s/ Brett Henrichsen
---------------------------------------------
Brett Henrichsen, Director
Date: April 22, 2010
/s/ Jon Biondo
---------------------------------------------
Jon Biondo, Director
Date: April 22, 2010
/s/ Dick Wingate
---------------------------------------------
Dick Wingate, Director
29
[LAKE & ASSOCIATES, CPA'S LOGO]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Masterbeat Corporation
We have audited the accompanying balance sheets of Masterbeat Corporation as of
December 31, 2009 and 2008, and the related statements of income, stockholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 2009. Masterbeat Corporation's management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Masterbeat Corporation as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed further in Note 4, the
Company has incurred a significant loss. The Company's viability is dependent
upon its ability to obtain future financing and the success of its future
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to these matters is
also described in Note 4. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Lake & Associates CPA's LLC
---------------------------------------
Lake & Associates CPA's LLC
Schaumburg, Illinois
April 9, 2010
1905 Wright Boulevard 20283 State Road 7,Suite 300
Schaumburg, IL 60193 Boca Raton, Florida 33498
Phone: 847.524.0800 Phone:866.982.9874
Fax: 847.524.1655 Fax: 561.982.7985
F-1
MASTERBEAT CORPORATION
BALANCE SHEETS
as of December 31, 2009 and 2008
Audited Audited
2009 2008
----------- -----------
Assets
Current assets
Cash $ 157,906 $ --
Accounts receivable, net of allowance of $318 and $20,875
as of December 31, 2009 and 2008 81,524 64,550
Prepaid expenses 25,000 --
----------- -----------
Total current assets 264,430 64,550
Fixed assets, net 95,848 121,541
Intangible asset, net 237,539 276,686
Other assets
Security deposit 15,000 15,000
----------- -----------
Total Assets $ 612,817 $ 477,777
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Bank overdraft $ -- $ 13,503
Accounts payable and accrued liabilities 256,134 251,677
Short-term notes payable - related party 200,000 --
----------- -----------
Total Liabilities 456,134 265,180
Stockholders' Equity
Preferred stock: $.0001 par value; 20,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock: $.0001 par value; 80,000,000 shares
authorized; 10,000,000 and 2,500,000 shares issued and
outstanding as of December 31, 2009 and 2008 $ 1,000 $ 250
Subscriptions receivable 75,000 --
Additional paid-in capital 2,636,342 1,469,786
Accumulated deficit (2,555,659) (1,257,439)
----------- -----------
Total Stockholders' Equity 156,683 212,597
----------- -----------
Total Liabilities and Stockholders' Equity $ 612,817 $ 477,777
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
MASTERBEAT CORPORATION
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2009 and 2008
Audited Audited
2009 2008
----------- -----------
REVENUE $ 1,104,897 $ 643,631
----------- -----------
COST OF SALES 723,306 243,561
----------- -----------
GROSS PROFIT 381,591 400,070
----------- -----------
OPERATING EXPENSES
Depreciation and amortization 81,610 80,423
General and administrative 1,582,193 1,564,490
----------- -----------
Total Operating Expenses 1,663,803 1,644,913
----------- -----------
Net loss before income taxes (1,282,212) (1,244,843)
----------- -----------
Income taxes (16,008) (12,596)
----------- -----------
Net Loss $(1,298,220) $(1,257,439)
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
MASTERBEAT CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2009 and 2008
Common Stock
$.0001 Par value Additional LLC Total
------------------ paid-in Members' Subscriptions Accumulated Stockholders'
Shares Amount capital Interest Receivable Deficit Equity
------ ------ ------- -------- ---------- ------- ------
Balance as of December 31, 2007 2,500,000 $ -- $ -- $ -- $ -- $ -- $ --
LLC members' contributions -- -- -- 1,470,036 -- -- 1,470,036
Members' interest transferred to
additional paid-in capital and -- 250 1,469,786 (1,470,036) -- -- --
share par value
Net loss, December 31, 2008 -- -- -- -- -- (1,257,439) (1,257,439)
---------- ------- ----------- ----------- ----------- ----------- -----------
Balance as of December 31, 2008 2,500,000 $ 250 $ 1,469,786 $ -- $ -- $(1,257,439) $ 212,597
Recapitalization of company in 7,500,000 750 1,166,556 -- -- -- 1,167,306
reverse merger
Subscriptions receivable -- -- -- -- 75,000 -- 75,000
Net loss, December 31, 2009 -- -- -- -- -- (1,298,220) (1,298,220)
---------- ------- ----------- ----------- ----------- ----------- -----------
Balance as of December 31, 2009 10,000,000 $ 1,000 $ 2,636,342 $ -- $ 75,000 $(2,555,659) $ 156,683
========== ======= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
MASTERBEAT CORPORATION
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2009 and 2008
2009 2008
----------- -----------
OPERATING ACTIVITIES
Net loss $(1,298,220) $(1,257,439)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization and depreciation 81,610 80,423
Changes in operating assets and liabilities:
Increase in accounts receivable (16,974) (64,550)
Increease in prepaid expenses (25,000) --
Increase in deposits -- (15,000)
Increase in accounts payable and accrued liabilities 4,457 251,677
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,254,127) (1,004,889)
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets (16,770) (166,150)
Investment in intangible asset -- (312,500)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (16,770) (478,650)
----------- -----------
FINANCING ACTIVITIES
Members' contribution in recapitalization 1,167,306 1,470,036
Short-term borrowings-related party 200,000 --
Proceeds from stock subscriptions 75,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,442,306 1,470,036
----------- -----------
NET DECREASE IN CASH DURING YEAR 171,409 (13,503)
CASH (OVERDRAFT), BEGINNING OF YEAR (13,503) --
----------- -----------
CASH (OVERDRAFT), END OF YEAR $ 157,906 $ (13,503)
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Masterbeat Corporation ("Masterbeat" or the "Company") was incorporated in the
state of Delaware on May 17, 2007 as Green Mountain Recovery, Inc. On December
18, 2009, Masterbeat Corporation entered into a Share Exchange Agreement (the
"Exchange Agreement") with Masterbeat, LLC, formerly a California Limited
Liability company. Pursuant to the terms of the Share Exchange Agreement, the
members of Masterbeat, LLC agreed to transfer all of the issued and outstanding
limited liability units in Masterbeat, LLC to the Company in exchange for the
issuance of an aggregate of 8,500,000 shares of Company's common stock, thereby
causing Masterbeat, LLC to become a wholly-owned subsidiary of the Company.
The stock exchange transaction has been accounted for as a reverse acquisition
and recapitalization of Masterbeat Corporation whereby Masterbeat, LLC is deemed
to be the accounting acquirer (legal acquiree) and Masterbeat Corporation to be
the accounting acquiree (legal acquirer). The accompanying consolidated
financial statements are in substance those of Masterbeat, LLC with the assets
and liabilities, and revenues and expenses, of Masterbeat Corporation being
included effective from the date of stock exchange transaction. Masterbeat
Corporation is deemed to be a continuation of the business of Masterbeat, LLC.
Accordingly, the accompanying consolidated financial statements include the
following:
(1) the balance sheet consists of the net assets of the accounting
acquirer at historical cost;
(2) the financial position, results of operations, and cash flows of the
acquirer for all periods presented as if the recapitalization had
occurred at the beginning of the earliest period presented.
Immediately following the closing of the Share Exchange Agreement, the combined
company changed its name to Masterbeat Corporation. The Masterbeat, LLC was
dissolved but its business will carry on through its operating units,
Masterbeat.com, posterprintship.com and circuitticket.com.
Masterbeat.com is an online digital music store specializing in "Hip-Hop", dance
and electronica music. The website features hard-to-obtain remixes from major
record labels as well as music from independent labels worldwide. Masterbeat.com
also produces large scale dance events under its "Powered by Masterbeat.com"
name. Posterprintshop.com is a quick-turnaround online printing store that
provides photo enlargement services and the printing of posters, signs and
banners. Circuitticket.com is a full service ticketing site capable of
sequencing, tracking, printing and delivering high quality ticket stubs for a
wide array of events, parties, festivals, concerts and other gatherings.
F-6
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The accompanying financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States.
USE OF ESTIMATES:
The presentation of financial statements in conformity with generally accepted
accounting principles 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 statement. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less. At various times during the fiscal year, the
Company's cash and cash equivalents in bank balances may exceed the federally
insured limits.
ACCOUNTS RECEIVABLE:
Accounts receivable consist mainly of unprocessed credit card sales from music
downloads, event ticket sales and online poster sales. The Company establishes
an allowance for uncollectable accounts receivable based on the age of
outstanding invoices and management's evaluation of the collectability of
outstanding balances.
FIXED ASSETS:
Fixed assets, consisting mainly of computer equipment, software and office
equipment and furniture, are stated at cost, net of accumulated depreciation
which is calculated using the straight-line method over the estimated useful
lives generally ranging from 5 to 7 years.
WEB SITE DEVELOPMENT COSTS:
(Included in ASC 350 "Intangibles -- Goodwill and Other", previously SOP 98-01,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and EITF 00-02, "Accounting for Web Site Development Costs)
The Company has incurred internal web site development costs during the
development, implementation and operational stages of its web site. Specific
activities include initial planning and research, coordination of design,
engineering, integration and design modifications, web site customizing and
revisions, etc. These costs were expensed or capitalized in accordance with ASC
350-40 and ASC 350-50.
The useful life assigned to the Company's internal-use website was based on
management's assessment regarding the technology, obsolescence and the ability
F-7
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
of standard maintenance and software updates to enable the website to perform at
a level consistent with market expectations and competitor's offerings.
LONG-LIVED ASSETS:
(Included in ASC 360 "Property, Plant and Equipment", previously SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets)
In accordance with ASC 360-10 we evaluate our long-lived assets for financial
impairment on a regular basis. We evaluate the recoverability of long-lived
assets not held for sale by measuring the carrying amount of the assets against
the estimated undiscounted future cash flows associated with them. If such
evaluations indicate that the future discounted cash flows of certain long-lived
assets are not sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair values.
REVENUE RECOGNITION:
(Included in Accounting Standards Codification ("ASC") 650 "Revenue Recognition"
The Company recognizes revenue based on Account Standards Codification ("ASC")
605 "Revenue Recognition" which contains Securities and Exchange Commission
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements'
and No. 104, "Revenue Recognition". In all cases, revenue is recognized only
when the price is fixed or determinable, persuasive evidence of an arrangement
exists, the service is performed and collectability of the resulting receivable
is reasonably assured. Revenues transacted from on-line platforms relating to
audio download and poster printing services are recognized at the point of sale.
Agent revenues are recognized in accordance with ASC 605-45 (Previously EITF
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent"). Agent
revenues are derived from ticket sales where we are not the merchant of record
and where the prices of our services are fixed at the point of sale. Agent
revenue is comprised of service fees and customer processing fees and is
reported at the net amounts received, without any associated cost of revenue.
Amounts billed to customers in sales transactions related to shipping and
handling are classified as revenue in accordance with ASC 605-45 (Previously
EITF 00-10, "Accounting for Shipping and Handling Fees and Costs"). The actual
cost to the Company is recognized as an operating expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash and cash equivalent, accounts receivable, other
assets, accounts payable and other liabilities approximate their fair value due
to the relatively short period to maturity of these instruments.
F-8
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
ADVERTISING COSTS:
Advertising costs are generally expensed as incurred and are included in selling
and marketing expenses in the accompanying statement of operations. During the
years ended December 31, 2009 and 2008, $171,058 and $219,296 of advertising
costs were incurred, respectively.
INCOME TAXES:
Until the merger on December 18, 2009, the company was organized as a Limited
Liability Company (LLC) and was treated as a partnership for federal and state
income tax purposes. Accordingly, all income and expenses flowed through to the
individual members' income tax returns. However, the Company was also subject to
a California minimum annual tax of $800 and an annual LLC fee based on gross
receipts. The LLC fees amounted to $16,008 and $12,596 for the years ended
December 31, 2009 and 2008, respectively. Since the company operated as a LLC
for the majority of the tax year ended December 31, 2009, its Federal and State
tax returns as a LLC.
Going forward, the merged entity will account for income taxes based on
Accounting Standards Codification ("ASC") 740 Income Taxes which was previously
Statement of Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("Statement 109").
Under ASC 740, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under ASC 740, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities are comprised of operating expenses
recognized in the Company's statements of income and stockholders' equity
(deficit) that remained unpaid at the Company's year-end financial reporting
date. The amounts reported in the balance sheet have payment terms of 12 months
or less.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 805 (Previously Statement of Financial
Accounting Standards ("SFAS") No. 141(R), Business Combinations, which replaces
SFAS No. 141). ASC 805 establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. The statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. ASC 805 is effective for calendar year
companies on January 1, 2009. We do not anticipate that the adoption of ASC 805
F-9
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
will have a material effect on accounting for business combinations once
adopted, but the effect is dependent upon acquisitions at that time.
In March 2008, the FASB issued ASC 815-10 (Previously SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, and amendment of SFAS No.
133). This statement will require additional disclosures about how and why we
use derivative financial instruments, how derivative instruments and related
hedged items are accounted for under ASC 815 (Previously SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended and
interpreted), and how derivative instruments and related hedged items affect our
financial position, results of operations, and cash flows. ASC 815-10 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008; however early adoption is encouraged, as are
comparative disclosures for earlier periods. We do not believe that the adoption
of ASC 815-10 will have a material impact on our financial statements.
In April 2008, the FASB issued ASC 350-30 (Previously FASB Staff Position No.
142-3, Determination of the Useful Life of Intangible Assets). ASC 350-30 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under ASC 350 (Previously SFAS No. 142, "Goodwill and Other Intangible Assets")
and also requires expanded disclosure related to the determination of intangible
asset useful lives. ASC 350-30 is effective for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. We do not believe the adoption
of ASC 350-30 will have a material impact on our financial statements.
In May 2009, the FASB issued FASB ASC 855-10 (Previously SFAS No. 165,
"Subsequent Events"). ASC 855-10 established general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued. FASB ASC 855-10 is effective for interim or
annual financial periods ending after June 15, 2009. We do not believe the
adoption of ASC 350-30 will have a material impact on our financial statements.
RECENT ACCOUNTING LITERATURE - FASB ACCOUNTING STANDARDS CODIFICATION
(Accounting Standards Update ("ASU") No. 2009-01)
In June 2009, FASB approved the FASB Accounting Standards Codification ("the
Codification") as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
("SEC"), have been superseded by the Codification. All other non-grandfathered,
non-SEC accounting literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead introduced a
new structure that combines all authoritative standards into a comprehensive,
topically organized online database. The Codification is effective for interim
or annual periods ending after September 15, 2009, and impacts the Company's
F-10
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
financial statements as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. There have
been no changes to the content of the Company's financial statements or
disclosures as a result of implementing the Codification during the year ended
December 31, 2009.
As a result of the Company's implementation of the Codification during the year
ended December 31, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current year financial statements,
the Company will provide reference to both new and old guidance to assist in
understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification. The adoption of FASB ASC 105-10 did not have a
significant effect on the Company's consolidated financial statements.
In June 2009, the FASB issued guidance under ASC 860 (Prior authoritative
literature: SFAS No. 166, "Accounting for Transfers of Financial Assets"), which
will require more information about transfer of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
"qualifying special-purpose entity", changes the requirements for derecognizing
financial assets and requires additional disclosures. This ASC will be effective
for fiscal years beginning after November 15, 2009. The Company will adopt the
provision of this ASC effective January 1, 2010 and is currently evaluation the
impact, if any, on its financial statements.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
LEASES:
The Company has entered into a property lease agreement to lease office space in
a City of Los Angeles, California office complex. The lease term expires after
five years and each year's base rent is increased by the consumer price index
for Urban Wage Earners and Clerical Workers for Los Angeles, Riverside and
Orange County per the Consumer Price Index of the Bureau of Labor Statistics of
the U.S. Department of Labor. In addition to base rent the company is charged
common area maintenance (CAM) which varies on a month to month basis. Management
estimates the monthly CAM expense to be $2,100. The Company also rents parking
spaces from the lessor at a monthly cost of $510. Management estimates future
minimum lease payments for the remaining years under lease to approximate the
annual expense incurred for the years ended December 31, 2009 and 2008, subject
to increases in the base rent based on consumer price index adjustments.
F-11
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
The following schedule of future estimated rental payments required under the
lease as of December 31, 2009:
Year Ending December 31, Amount
------------------------ ------
2010 $ 95,038
2011 $ 95,038
2012 $ 95,038
2013 $ 95,038
---- ---------
Total: $ 380,152
=========
The total property lease expense for the years ended December 31, 2009 and 2008
amounted to $95,038 and $111,719, respectively.
CONTINGENCIES:
From time to time, the Company may become involved in litigation matters arising
in the ordinary course of business.
NOTE 4 - GOING CONCERN
Our financial statements have been prepared on the basis of accounting
principles applicable to a going concern. As a result, they do not include
adjustments that would be necessary if we were unable to continue as a going
concern and would therefore be obligated to realize assets and discharge our
liabilities other than in the normal course of operations. As reflected in the
accompanying financial statements, the Company has used cash flows in operations
of $1,254,127 and $1,004,889 for the years ended December 31, 2009 and December
31, 2008 respectively and has an accumulated deficit of $2,555,659 as of
December 31, 2009. For the years December 31, 2009 and 2008, the Company
incurred net losses of $1,298,220 and $1,257,439, respectively. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. Management
believes that actions presently being taken to raise capital will provide the
opportunity for the Company to continue as a going concern.
F-12
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
NOTE 5 - FIXED ASSETS
Fixed assets at December 31, 2009 and 2008 consisted of the following:
2009 2008
--------- ---------
Computer Equipment $ 75,355 $ 58,585
Software 49,282 49,282
Office Equipment and Furniture 58,283 58,283
--------- ---------
182,920 166,150
Less: Accumulated depreciation (87,072) (44,609)
--------- ---------
$ 95,848 $ 121,541
========= =========
Depreciation expense for the years ended December 31, 2009 and 2008 amounted to
$42,463 and $44,609, respectively.
NOTE 6 - INTANGIBLE ASSET
The Company engaged an independent third party to develop a website providing
consumers the ability to purchase and download audio tracks or albums. The
website offers a "consumer friendly" platform that provides a customer with a
full range of services including the ability to preview tracks before buying
them, read reviews, view top sellers and obtain information about live events on
the horizon. The website was further developed to communicate with the Company's
internal accounting software and the Company's external credit card processor
making the point of sale process completely automated.
In accordance with ASC 350-40 (Previously SOP 98-01, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use") and ASC 350-50
(Previously EITF 00-02, "Accounting for Web Site Development Costs"), management
grouped the costs incurred at each stage of the development and determined the
useful life to amortize the costs over. Through December 31, 2008, management
determined that an aggregate $312,500 of the costs incurred in the development
and enhancement of its internal-use website should be capitalized. The Company
has classified $78,971 of the capitalized amount as being "software related"
with a useful life of 5 years, $183,529 as "hardware related" with a useful life
of 10 years and $50,000 as being significant improvements with a useful life of
10 years.
The Company's website was launched in January of 2008 and final delivery of
source fields and project assets were obtained during the 1st Quarter of 2008.
For ease of financial reporting, the Company began amortizing the capitalized
costs as of January 1, 2008. The $50,000 allocated to significant improvements
F-13
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
was completed on September 1, 2008. The Company will amortize capitalized costs
using the straight-line method over the useful life of the asset.
The following table summarizes the allocation of capitalized costs, the useful
life estimation and the amount amortized as of December 31, 2009:
Gross Amount Useful Completion Accumulated Net Amount
Capitalized Life Date Amortization Capitalized
----------- ----- ---- ------------ -----------
Software Costs $ 78,971 5 yrs January 1, 2008 $ 31,588 $ 47,383
Hardware Costs 183,529 10 yrs January 1, 2008 36,706 146,823
Improvements 50,000 10 yrs September 1, 2008 6,667 43,333
---------- -------- --------
Total $312,500 $ 74,961 $237,539
========== ======== ========
NOTE 7 - EVALUATION OF LONG-LIVED ASSET
In accordance with FASB ASC 360-10, "Accounting for the Impairment or Disposal
of Long-Lived Assets", Management evaluates the recoverability of long-lived
assets on an annual basis. No impairment adjustments were determined necessary
as of December 31, 2009.
NOTE 8 - NOTES PAYABLE-RELATED PARTY
On December 15, 2009 the Company entered into short-term lending arrangements
with the mother of Jon Biondo, its shareholder and Board Member. The note
payable provides $100,000 for 41 days maturing on January 25, 2010 and pays 15%
interest. There is no penalty or premium for prepayment of this obligation. In
the event that the holder of this note does not receive full amount due on or
before the maturity date, interest will continue to accrue at the rate of 15%
per annum compounded annually. Additionally a late charge of 5% of the overdue
payment shall be paid. This note shall be governed in accordance with the laws
of the State of New York.
On December 15, 2009 the Company entered into short-term lending arrangements
with Jon Biondo, its shareholder and Board Member. The note payable provides
$100,000 for 168 days maturing on June 1, 2010 and pays 15% interest. There is
no penalty or premium for prepayment of this obligation. In the event that the
holder of this note does not receive full amount due on or before the maturity
date, interest will continue to accrue at the rate of 15% per annum compounded
annually. Additionally a late charge of 5% of the overdue payment shall be paid.
This note shall be governed in accordance with the laws of the State of New
York.
F-14
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
NOTE 9 - STOCKHOLDERS EQUITY
(A) Stock Issued in Share Exchange
On December 18, 2009 the Company issued 8,500,000 shares of common stock in
consideration as part of the share exchange agreement between the Company and
Masterbeat, LLC. (See Note 1)
NOTE 10 - STOCK SUBSCRIPTION
On December 16, 2010 a stock subscription agreement was executed between the
Company and David Matusz, an accredited investor, for Common Stock, $.0001 par
value, in consideration of payment of $50,000. The number of shares will be
determined and calculated by dividing the purchase price by the Contract's
Average Per Share Price. The Contract's Average Per Share Price is one half the
average of the daily closing per share price of the company stock on the Over
The Counter Bulletin Board for the first thirty trading days of the Company's
stock commencing on the first trading date following the closing of the reverse
merger between the Company and Masterbeat, LLC. The transaction will be
consummated upon the delivery of the shares to the subscriber. The share offered
are "restricted shares" under the Securities Act of 1933 and cannot be resold
publically except in compliance with Rule 144 or unless subsequently registered.
On December 16, 2010 a stock subscription agreement was executed between the
Company and Sean O'Keefe, an accredited investor, for Common Stock, $.0001 par
value, in consideration of payment of $25,000. The number of shares will be
determined and calculated by dividing the purchase price by the Contract's
Average Per Share Price. The Contract's Average Per Share Price is one half the
average of the daily closing per share price of the company stock on the Over
The Counter Bulletin Board for the first thirty trading days of the Company's
stock commencing on the first trading date following the closing of the reverse
merger between the Company and Masterbeat, LLC. The transaction will be
consummated upon the delivery of the shares to the subscriber. The share offered
are "restricted shares" under the Securities Act of 1933 and cannot be resold
publically except in compliance with Rule 144 or unless subsequently registered.
F-15
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009
NOTE 11 - SUBSEQUENT EVENTS
(Included in Accounting Standards Codification ("ASC") 855 "Subsequent Events",
previously SFAS No. 165 "Subsequent Events")
SFAS No. 165 established general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before the financial
statements are issued or available to be issued ("subsequent events"). An entity
is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
financial statements are issued. SFAS No. 165 does not apply to subsequent
events or transactions that are within the scope of other GAAP and did not
result in significant changes in the subsequent events reported by the Company.
SFAS No. 165 became effective for interim or annual periods ending after June
15, 2009 and did not impact the Company's financial statements.
The Company has evaluated subsequent events through April 9, 2010, the date its
financial statements were issued.
COMMON STOCK ISSUED FOR CASH - STOCK SUBSCRIPTION
On March 23, 2010, the Company issued 135,135 shares of common stock for cash of
$75,000 ($0.555 per share) pursuant to the Stock Subscription Agreements dated
December 16, 2010. (See Note 10)
COMMON STOCK ISSUED FOR SERVICES
On March 23, 2010, the Company issued 93,500 shares of common stock for in
exchange for services valued at $121,550 ($1.30 per share).
COMMON STOCK ISSUED FOR DEBT
On April 5, 2010, an agreement was executed between Masterbeat Corporation and
Kathryn Travis with respect to the Promissory Note dated December 15, 2009. This
agreement provides for the conversion of the Promissory Note into 180,180 shares
of common stock of Masterbeat Corporation at the price of $0.555 per share in
full consideration of all principal and interest due on the note.
F-16