U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarter ended March 31, 2010
[ ] 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 CORPORAITON
(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)
N/A
(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
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 whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [ ] No [ ]
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]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
State the number of shares of 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 May 14, 2010.
ITEM 1. FINANCIAL STATEMENTS.
The un-audited quarterly financial statements for the period ended March 31,
2010 immediately follow.
2
MASTERBEAT CORPORATION
BALANCE SHEETS
As of March 31, 2010 and December 31, 2009
(Unaudited) (Audited)
March 31, December 31,
2010 2009
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 6,261 $ 157,906
Accounts receivable, net 4,751 81,524
Prepaid expenses 65,000 25,000
------------ ------------
Total current assets 76,012 264,430
Fixed assets, net 86,318 95,848
Intangible asset, net 227,752 237,539
OTHER ASSETS
Security deposit 15,000 15,000
------------ ------------
Total Assets $ 405,082 $ 612,817
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 230,411 $ 256,134
Short-term notes payable - related party 100,000 200,000
------------ ------------
Total current liabilities 330,411 456,134
LONG TERM LIABILTIIES
Convertible notes payable 280,000 --
------------ ------------
Total Liabilities 610,411 456,134
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
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; 10,408,815 and 10,000,000 shares issued
and outstanding as of March 31, 2010 and December 31, 2009 1,041 1,000
Subscriptions receivable 0 75,000
Additional paid-in capital 2,935,818 2,636,342
Accumulated deficit (3,142,188) (2,555,659)
------------ ------------
Total Stockholders' Equity (Deficit) (205,329) 156,683
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 405,082 $ 612,817
============ ============
The accompanying notes are an integral part of these financial statements.
3
MASTERBEAT CORPORATION
STATEMENTS OF OPERATIONS AND DEFICIT
For the Three Months Ended March 31, 2010 and 2009 (Unaudited)
2010 2009
------------ ------------
REVENUE $ 203,425 $ 204,517
COST OF SALES 172,600 69,374
------------ ------------
GROSS PROFIT 30,825 135,143
------------ ------------
OPERATING EXPENSES
Depreciation and amortization 19,317 20,402
General and administrative 595,403 353,128
------------ ------------
Total Operating Expenses 614,720 373,530
------------ ------------
Net loss before income taxes (583,895) (238,387)
Income taxes (2,634) --
------------ ------------
Net Loss (586,529) (238,387)
Accumulated deficit, beginning of period (2,555,659) 212,597
------------ ------------
Accumulated deficit, end of period $ (3,142,188) $ (25,790)
============ ============
The accompanying notes are an integral part of these financial statements.
4
MASTERBEAT CORPORATION
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2010 and 2009 (Unaudited)
2010 2009
---------- ----------
OPERATING ACTIVITIES
Net loss $ (586,529) $ (238,387)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization and depreciation 19,317 20,402
Bad debt expense 2,967 --
Stock issued for services 121,550 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 76,773 (6,183)
Decrease (increase) in prepaid expenses (40,000) --
Increase (decrease) in accounts payable and accrued liabilities (25,723) (73,334)
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (431,645) (297,502)
---------- ----------
INVESTING ACTIVITIES
Acquisition of fixed assets -- (8,814)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES -- (8,814)
---------- ----------
FINANCING ACTIVITIES
Members' contributions -- 327,836
Proceeds from convertible note payable 280,000 --
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 280,000 327,836
---------- ----------
NET INCREASE (DECREASE) IN CASH DURING PERIOD (151,645) 21,520
CASH (OVERDRAFT), BEGINNING OF PERIOD 157,906 (13,503)
---------- ----------
CASH, END OF PERIOD $ 6,261 $ 8,017
========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
5
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
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 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
units in Masterbeat, LLC to the Company in exchange for the issuance of an
aggregate of 8,500,000 shares of the 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 acquire (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.
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MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Regulation S-X
as promulgated by the Securities and Exchange Commission. Accordingly, these
financial statements do not include all disclosures required by generally
accepted accounting principles in the United States of America for complete
financial statements. These unaudited interim financial statements should be
read in conjunction with the audited financial statements and the notes thereto
included on Form 10-K for the period ended December 31, 2009. In the opinion of
management, the unaudited interim financial statements furnished herein include
all adjustments, all of which are of a normal recurring nature, necessary for a
fair statement of the results for the interim period presented. The results of
the three months ended March 31, 2010 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2010.
NOTE 3 - 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 $431,645 and $297,502 for the three months ended March 31, 2010 and March 31,
2009. For the three months ended March 31, 2010 and 2009, the Company incurred
net losses of $586,529 and $238,387, 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.
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MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS
In June 2009, the Financial Accounting Standards Board ("FASB") issued guidance
under Accounting Standards Codification ("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 adoption of this ASC
effective January 1, 2010 did not have a material impact on the Company's
financial statements.
In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-06
to amend ASC 820, Fair Value Measurements and Disclosures to improve disclosures
about fair value measurements. This ASU provides amendments that require new
disclosures regarding transfers in and out of Levels 1 and 2 and with respect to
various activities in Level 3 fair value measurements. The new disclosures and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009. The adoption of this
portion of the ASU effective January 1, 2010 did not have a material impact to
the Company's financial statements. The disclosures with respect to purchases,
sales, issuances and settlements in the roll forward of activity in Level 3 fair
value measurements are effective for fiscal years beginning after December 15,
2010. The Company does not anticipate that the adoption of these provisions of
the ASU will have a material effect on the financial statements.
In February 2010, the FASB issue ASU No. 2010-09 to amend ASC 855, Subsequent
Events with respect to certain recognition and disclosure requirements. The
amendments in this ASU are effective upon issuance. The adoption of this ASU
effective the current quarter ended March 31, 2010 did not have a material
impact on the Company's financial statements.
8
MASTERBEAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
NOTE 5 - COMMON STOCK
On March 23, 2010, the Company issued an aggregate of 135,135 shares of common
stock for cash totaling $75,000 ($0.555 per share) pursuant to the terms of two
Stock Subscription Agreements executed on December 16, 2009.
On March 23, 2010, the Company issued 93,500 shares of common stock in exchange
for services valued at $121,550 ($1.30 per share), which was expensed in the
current quarter ended March 31, 2010.
On March 23, 2010, the Company issued 180,180 shares of common stock to convert
$100,000 in principal due under a short-term note payable to a related party.
NOTE 6 - CONVERTIBLE DEBENTURE
On January 1, 2010, the Company issued a convertible promissory note in the
amount of $280,000 bearing interest at 14% per year. The principal amount along
with any unpaid interest is due on August 1, 2011. The principal amount of the
note is convertible to the Company's common stock on the basis of one share of
such stock for each $0.45 in principal amount. Interest expense under the note
for the three months ended March 31, 2010 was $9800.
NOTE 7 - SUBSEQUENT EVENT
The Company has evaluated subsequent events through May 6, 2010, the date its
financial statements were issued, and concluded there were no other events or
transactions occurring during this period that required recognition or
disclosure in its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. Some of the information
contained in this discussion and analysis or set forth elsewhere in this
Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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.
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
10
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 $431,645 and $297,502 for the three months ended March 31, 2010 and March 31,
2009 respectively and has an accumulated deficit of $3,142,188 as of March 31,
2010. For the three months ended March 31, 2010 and March 31, 2009, the Company
incurred net losses of $586,529 and $238,987, 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.
RESULTS OF OPERATION
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO MARCH 31, 2009
REVENUE
Our revenues for the three months ended March 31, 2010 and March 31, 2009 were
as follows:
Period Ended Period Ended
March 31, March 31, 2009 to 2010
2010 2009 % Change
-------- -------- --------
Revenue $203,425 $204,517 (0.5)%
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 three
months ended March 31, 2010 were $203,425. In total, revenue is unchanged in
comparison to the same period last year though we have realized increased ticket
agent revenue and revenue from card printing. Sponsorship revenues have almost
11
doubled the total compared to all of 2009. Management expects revenue to improve
in the subsequent quarters of 2010 as it continues to implement its business
strategy and operational plans.
COST OF SALES
Our cost of sales for the three months ended March 31, 2010 and March 31, 2009
were as follows:
Period Ended Period Ended
March 31, March 31, 2009 to 2010
2010 2009 % Change
-------- -------- --------
Cost of Sales $172,600 $ 69,374 148.8%
Cost of Sales for the three months ended March 31, 2010 increased 148.8%
compared to March 31, 2009. The increase the cost of sales was primarily due to
several recording label MRG (minimum revenue guarantee) contracts which were
paid during the first quarter.
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
three months ended March 31, 2010 and March 31, 2009:
For the Three Months Ended March 31,
---------------------------------------------------
2010 2009
---------------------- -----------------------
% of % of $ %
Amount Net Sales Amount Net Sales Change Change
------ --------- ------ --------- ------ ------
Net sales $203,425 100.0% $204,517 100.0% $ (1,092) (.5)%
Cost of sales 172,600 84.9% 69,374 33.9% 103,226 148.8%
-------- ------ -------- ------ --------- ------
Gross profit $ 30,825 15.1% $135,143 66.1% $(104,318) (77.2)%
======== ====== ======== ====== ========= ======
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Gross profit for the three months ended March 31, 2010 decreased $104,318
compared to the three months ended March 31, 2009 and gross profit as a
percentage of revenue decreased 77.2% for the three months ended March 31, 2010
compared to the three months ended March 31, 2009. Gross profit for the quarter
decreased significantly due to the cost of several recording label MRG contracts
incurred during the period.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2010 and March 31, 2009
were as follows:
For the Three Months Ended March 31,
---------------------------------------------------
2010 2009
---------------------- -----------------------
% of % of $ %
Amount Net Sales Amount Net Sales Change Change
------ --------- ------ --------- ------ ------
Depreciation and Amortization $ 19,317 9.5% $ 20,402 10.0% $ (1,085) (5.3)%
General and Administrative 595,403 292.7% 353,128 172.7% 242,275 68.6%
------- ----- ------- ----- ------- ----
Total Operating Expenses $614,720 302.2% $373,530 182.6% $241,190 64.6%
======== ===== ======== ===== ======== ====
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. The increase in general and
administrative expense was primarily attributable to legal, accounting and other
professional services required in preparation for the registration and initial
offering of the Company's common stock to the public.
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 three months ended March 31, 2010, the company
issued a convertible debenture in the amount of $280,000 which bears interest at
14% per annum. As of March 31, 2010, Masterbeat has a negative working capital
balance of $254,399. Current assets consist of $6,261 in cash and cash
equivalents and $69,751 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 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.
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OPERATING ACTIVITIES
The Company used cash flow in operating activities of $431,645 for the three
months ended March 31, 2010. This cash flow is primarily attributable to the net
loss of $586,529 and an increase in accounts receivable of $76,773.
FINANCING ACTIVITIES
The Company generated cash flow from financing activities of $280,000 for the
three months ended March 31, 2010. These additional cash resources are from the
issuance of a convertible debenture in the amount of $280,000. The debenture
bears interest at 14% per year and has a maturity date of August 1, 2011. The
principal amount of the debenture is convertible into the Company's common stock
on the basis of one share of stock per each $0.45 in principal amount.
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.
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.
14
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.
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
15
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.
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
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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 4. 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 Quarterly
Report on Form 10-Q. Based upon such evaluation, the Certifying Officer have
concluded that, as of the end of such period, March 31, 2010, 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.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in Masterbeat Corporations internal controls over
financial reporting during the quarter ended March 31, 2010, that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting subsequent to the date of management's last evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not currently involved in any legal proceedings and we are not
aware of any pending or potential legal actions.
ITEM 1A. RISK FACTORS.
NOT APPLICABLE
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no sales of unregistered securities during the period covered by this
report.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There were no defaults upon senior securities during the period covered by this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit No. Description
----------- -----------
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 18U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 See Exhibit 32.2
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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, thereunto duly authorized.
May 17, 2010 MASTERBEAT CORPORATION
/s/ Brett Henrichsen
------------------------------------
By: Brett Henrichsen
Chief Executive Officer and
Chief Financial Officer
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