FONU FONU2 Inc (PK)

 

 

 

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In our legacy retail business, our principal products are the comic books, toys, collectibles and estate sale items that we sell from our store in the Ft. Lauderdale, Florida area, on eBay. Experience and a very low overhead are FONU2's principal advantages in this area.  

Distribution Methods of the Products or Services

Upon release, our social commerce web-site and mobile application will be available and accessible through the internet and will be available through mobile app channels for iPhone and Android App distribution,

Sales Summary

The Company continues to operate its legacy business of selling comic books, toys and collectible items at its retail location at 331 East Commercial Blvd., Ft. Lauderdale, Florida, and through its web site Zaldiva.com and on eBay.  

COMPETITION, MARKETS AND REGULATION

Competition

The comic book and collectible retailing industry is no more or less competitive than any other mainstream retail business.  Our competitors include other brick-and-mortar and online retailers of comics, toys and collectibles.

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In terms of FONU2’s social media platform ad applications, if and when launched, will have significant competition.  Due to the nature of the internet, and e-commerce, we will be competing against companies ranging from start ups to well financed multi national conglomerates.  The e-commerce and social media industries are extremely competitive, with no assurances for success.

Markets

The Company’s target market is domestic users of e-commerce and social media.

Current Operational Status

The Company has made substantial progress over the last year in completing the social media e-commerce platform.  The Company’s comic business, Zaldiva Comics & Collectables, remains operational through its retail location.

The Company is actively engaged in the identification and acquisition of additional products, services, and/or companies.

Investment Company Act 1940

Although the Company will be subject to regulation under the Securities Act of 1933, as amended, and the 1934 Act, it believes that it will not be subject to regulation under the Investment Company Act of 1940 (the "1940 Act") insofar as it will not be engaged in the business of investing or trading in securities. The Company has obtained no formal determination from the SEC as to its status under the 1940 Act and, consequently, any violation of the 1940 Act would subject it to material adverse consequences. The Company believes that, currently, it is exempt under Regulation 3a-2 of the 1940 Act.

ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Effective as of March 1, 2013, the Company executed a lease on our retail location at 331 E. Commercial Blvd. in Ft. Lauderdale, Florida.  The lease is on a month-to-month basis, with monthly rent in the amount of $1,000.  

On March 1, 2015, the Company approved the change of its offices to 135 Goshen Rd. Ext., Suite 205, Rincon, GA 31326.

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ITEM 3. LEGAL PROCEEDINGS

FONU2 anticipates that it (including any future subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and FONU2 cannot assure that their ultimate disposition will not have a materially adverse effect on FONU2's business, financial condition, cash flows or results of operations. As of the filing of this document, except as indicated below, we are not a party to any pending legal proceedings, nor are we aware of any civil proceeding or government authority contemplating any legal proceeding.

On October 18, 2013, Summit Trading, a Bahamian company (“Summit”) filed a Demand for Arbitration with the American Arbitration Association (the “Demand”) in the State of Florida.  The Demand relates to a Consulting Agreement entered into by Summit and Cygnus Internet, Inc. (“Cygnus”) effective as of February 1, 2011, prior to the date of the Agreement and Plan of Reorganization by which the Company acquired the material assets of Cygnus.  In the Demand, Summit demanded the value of 10 percent of the issued and outstanding shares of FONU2, as well as punitive damages, interest and any other appropriate relief.  On September 26, 2014, all claims by Summit were denied under binding arbitration in favor of the Company.

ITEM 4. MINING SAFETY DISCLOSURE

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is a limited public trading market for the common stock. Our common stock is quoted on the OTC Bulletin Board under the symbol "FONU", with quotations that commenced in April 2003; however, the market for shares of our common stock is extremely limited.  No assurance can be given that the present limited market for our common stock will continue or will be maintained.

For any market that is maintained for our common stock, the resale of “restricted securities” pursuant to Rule 144 of the Commission by members of management or other persons may have a substantial adverse impact on any such public market. Present members of management have already satisfied the six month holding period of Rule 144 for public sales of a large portion of their holdings in our Company thereunder.

A minimum holding period of six months is required for resales under Rule 144. In addition, affiliates of the Company must comply with certain other requirements, including publicly available information concerning the Company; limitations on the volume of “restricted securities” which can be sold in any 90-day period; the requirement of unsolicited broker’s transactions; and the filing of a Notice of Sale on Form 144.

The following table sets forth the range of high and low sales prices for the Company's common stock for each of the fiscal quarters for the past year as reported on the OTC Markets' OTCQB and the OTC Bulletin Board. These prices represent inter-dealer prices without adjustments for mark-up, markdown, or commission and do not necessarily reflect actual transactions

		High		Low
Year Ended September 30, 2014
First quarter		$    .0547		$    .0031
Second quarter		.0364		.0059
Third quarter		.0150	.0041
Fourth quarter		.0112		.0030

Holders

As of May 13, 2015, we have approximately 916 shareholders of record of our common stock.

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Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us . Under Rule 144(k), a person who has not been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months, is entitled to sell shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144.

Dividend Policy

As of the filing of this Annual Report, we have not paid any dividends to shareholders. There are no restrictions which would limit our ability to pay dividends on common equity or that are likely to do so in the future. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend; we would not be able to pay our debts as they become due in the usual course of business; or our total assets would be less than the sum of the total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution

Recent Sales of Unregistered Securities

An aggregate of 16,977,930,591 pre-split shares (42,444,826 post-split shares) were issued upon conversion of Notes in the aggregate amount of $ 822,099 at an average conversion price of $0. 00005 per pre-split share ($0.0194 post-split shares).  The convertible debt was purchased by non-affiliated third parties who effected the foregoing conversions.

These shares were issued pursuant to the exemption from registration provided by Section 4(a)(1) of the Securities Act of 1933, as amended, and Rule 144 of the Securities and Exchange Commission.  Pursuant to certain covenants contained in their convertible notes, exclusive of Magna Equities II, LLC (“Magna”) at no time did the investors own more than 4.99% of the Company’s issued and outstanding common stock following any of the above-referenced conversions by such entities.  On October 21, 2014, Magna filed with the Securities and Exchange Commission a Schedule 13G disclosing its ownership of approximately 9.99% of the Company’s issued and outstanding common stock resulting from the above-referenced conversions by Magna.

Issuer Purchases of Equity Securities

FONU2 did not repurchase any shares of its common stock during the years ended September 30, 2014 or 2013.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein and “Forward Looking Statements” above.

PLAN OF OPERATIONS

Plan of Operations

The Company plans to continue regular operations of its Comic Book and Collectibles business.  The retail operation continues to operate at close to the break-even point. The Company plans to focus more efforts into expanding its market buy selling increased amounts of inventory through eBay.

The Company still believes that its Social Commerce website offers tremendous potential for future income.  However, the Company requires approximately $50,000 per month to sustain this operation.   The Company needs to raise approximately $600,000 or acquire a company with sufficient cash flow to provide this funding.

RESULTS OF OPERATIONS

For the year ended September 30, 2014, we earned revenues of $343,453. We spent $158,370 on cost of sales, earning a gross margin of $185,083. We had depreciation expense of $4,476, general and product development expenses of $431,993. We incurred $141,170 in compensation and $982,594 on professional fees, investment banking fees and the other professional services. We incurred general and administrative expenses of $113,614. We incurred an interest expense of $462,959, a gain on settlement of debt of $12,602 and a gain on derivative liability of $583,615. As a result, we had a net loss of $1,355,506 for the year ended September 30, 2014.

Comparatively, for the year ended September 30, 2013, we earned revenues of $282,009.  We spent $117,283 on cost of sales, earning a gross margin of $164,726. We recorded depreciation expense of $2,141 and product development expenses of $278,050. We incurred $551,648 on compensation and $494,318 on professional fees. We incurred general and administrative expenses of $164,234. We incurred interest expense of $191,853, a gain on settlement of debt of $118,551 and a loss on derivative liability of $303,973. As a result, we had a net loss of $1,702,940 for the year ended September 30, 2013.  The decrease in net loss between the year ended September 30, 2014 and 2013 is primarily due to reduced compensation and the gain on derivative liability.

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LIQUIDITY

The Company currently finances its operations through investment capital from a number of accredited investors.  The primary use of the funds is funding the Company’s operations. Over the next twelve months, the Company’s cash requirement for operations is expected to be approximately $750,000. This requirement is expected to be funded by investor capital.  There can be no assurance that we will be able to raise capital, if at all, upon terms acceptable to the Company. The Company currently has no agreements, arrangements or understandings with respect to obtaining the necessary capital and there can be no assurance that the Company will be able to raise the required funds .

.

The Company’s current and future sources of capital are from investors. If the Company was unsuccessful at raising additional capital this could lead to the Company’s termination of operations.

For the year ended September 30, 2014, we used cash in operations of $ 660,135 , consisting primarily of our net loss partially offset by a gain on derivative liability.  A further $4,919 was spent on fixed assets resulting in our net cash used in investing activities of $4,919.

We received $ 416,500 on convertible notes, $25,000 on notes payable, $18,000 from related party and $ 130 ,000 from common and preferred stock issued for cash . , and $90,000 from Warrants that were exercised. We repaid $53,000 of convertible notes.  As a result we had cash provided by financing activities of $ 626,500 .

For the year ended September 30, 2013, we had cash used in operations of $489,141 and cash used in investing activities from the purchase of fixed assets of $3,000.

We received $105,000 from notes payable, $201,300 from related party, and $250,000 from common and preferred stock issued for cash. We repaid $13,000 to related party. As a result we had cash provided from financing activities of $543,300.  

Off - Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements as of September 30, 2014.

Capital Resources

The Company has common stock and preferred stock as our capital resources.

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In 2014 the Company had no material commitments for capital expenditures within the next year, however, the Company intended to incur significant expenses and capital expenditures as part of our business plan , which includes developing the social commerce application and ongoing maintenance. The Company is also considering several strategic acquisitions to facilitate the launching and marketing of the application .

Need for Additional Financing

 

The social commerce business currently has an incomplete web-site that requires between $400,000 to $1,000,000 in financing to complete the application and re-launch services. This requirement is expected to be funded by institutional investor capital.  The Company has had a number of high level discussions for these financing needs, however, there can be no assurance that we will be able to raise capital, if at all, upon terms acceptable to the Company.  The Company currently has no written agreements, arrangements or understandings with respect to obtaining the necessary capital and there can be no assurance that the Company will be able to raise the required funds.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FONU2's operations do not employ financial instruments or derivatives that are market sensitive. Short-term funds are held in non-interest bearing accounts and funds held for longer periods are placed in interest bearing accounts. Large amounts of funds, if available, will be distributed among multiple financial institutions to reduce risk of loss. Our cash holdings do not generate any significant interest income.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FONU2, Inc.

Index to

Financial Statements

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REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors and Stockholders

FonU2, Inc.

Rincon, Georgia

We have audited the accompanying balance sheets of FonU2 , Inc. (the “Company”) as of September 30, 2014 and September 30, 2013 and the related statements of operations, stockholders’ deficit , and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. 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 an 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 audits 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 FonU2 , Inc. as of September 30, 2014 and September 30, 2013 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements for September 30, 2014 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has negative operating cash flow and has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston , Texas

May 11 , 2015

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FONU2, INC.

Balance Sheets

The accompanying notes are an integral part of these financial statements.

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FONU2, INC.

Statements of Operations

The accompanying notes are an integral part of these financial statements.

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FONU2, INC.

Statements of Stockholders’ Deficit

The accompanying notes are an integral part of these financial statements.

Note: Subsequent to this report, on February 8^th, the Company did a 400:1 reverse stock split. All figures in the above table represent the share value at the time of the report.

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FONU2, INC.

Statements of Cash Flows

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FONU2, INC.

Statements of Cash Flows

The accompanying notes are an integral part of these financial statements.

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FONU2, INC.

Notes to the Financial Statements

For the Years Ended September 30, 2014 and 2013

1.

BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

FONU2, Inc. (“the Company”) was organized on August 26, 2009, under the laws of the State of Florida, as Cygnus Internet, Inc. The Company operates two business units; a comic book and collectibles retail business and a social commerce business currently under development.

Basis of Presentation

The Company prepares its financial statements on the accrual basis of accounting. Management believes that all adjustments necessary for a fair presentation of the results of the years ended September 30, 2014 and 2013 have been made. The Company currently does not have any subsidiaries.

Significant Accounting Policies

The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application.  The application of accounting principles requires the estimating, matching and timing of revenue and expense.  It is also necessary for management to determine, measure and allocate resources and obligations within the financial process according to those principles.  The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.

The financial statements and notes are representations of the Company’s management that is responsible for their integrity and objectivity.  Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud.  The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded  transactions are valid;  2) valid  transactions  are recorded;  and  3) transactions  are recorded in the proper  period in a timely  manner to produce financial  statements which present fairly the financial  condition,  results of operations  and cash  flows of the  Company for the  respective  periods  being presented.

Reverse-Merger Transaction

On December 2, 2011, the stockholders of Zaldiva, Inc., a Florida corporation (“Zaldiva”) approved Zaldiva’s change of domicile from the state of Florida to the state of Nevada.  The change of domicile was effectuated by merging Zaldiva into its newly-

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formed wholly-owned subsidiary, FONU2 Inc., a Nevada corporation formerly known as Zaldiva, Inc. (“FONU2”), with every share of Zaldiva’s common and preferred stock automatically being converted into one-half of one corresponding share of FONU2, and with all fractional shares that would otherwise result from such conversion being rounded up to the nearest whole share.  Zaldiva and FONU2 filed Articles of Merger in the States of Florida and Nevada on December 2, 2011.  The change of domicile and de facto reverse-split were effectuated on January 9, 2012.  

On March 6, 2012, the Company executed an Agreement and Plan of Reorganization (the “Agreement”) with FONU2, and Jeffrey M. Pollitt, who is the Company’s Chief Executive Officer and the holder of approximately 37% of the Company’s outstanding shares of common stock.  Under the Agreement, FONU2 acquired all of the material assets of the Company in exchange for 53,411,262 “unregistered” and “restricted” shares of FONU2’s common stock, which represented approximately 85% of FONU2’s issued and outstanding common stock upon issuance, with such shares to be issued pro rata to the Company’s common stockholders.

 

The Agreement was accounted for as a reverse-merger recapitalization transaction, with FONU2 as the accounting acquirer, and Zaldiva as the legal acquirer.  The historical financial statements presented herein for the period prior to the merger date are those of FONU2.  

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Earnings (Loss) per Share

The Company computes net income (loss) per share in accordance with ASC 260 which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.  There are no such common stock equivalents outstanding as of September 30, 2014 and 2013.

Reclassification

Certain account totals and other figures from prior periods have been reclassified to conform to current period presentation.

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Comprehensive Income

ASC 220 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements.  For the years ended September 30, 2014 and 2013, the Company had no items of other comprehensive income.  Therefore, the net loss equals the comprehensive loss for the years then ended.

Emerging Growth Company Critical Accounting Policy Disclosure

The Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.   As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.     The Company may elect to take advantage of the benefits of this extended transition period in the future.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Property and Equipment

Property and equipment is recorded at cost.  Major additions and improvements are capitalized and depreciated over their estimated useful lives.  Depreciation of property and equipment is determined using the straight-line method over their useful lives, which ranges from three to five years.  Gains or losses on the sale or disposal of property and equipment are included in the statements of operations. Maintenance and repairs that do not extend the useful life of the assets are expensed as incurred.  

Inventory

The Company’s inventory consists of various comic books, toys, and other collectible items.  These items are purchased from external suppliers.  The inventory items are recorded and valued at cost. Management performs periodic reviews of its slow-moving inventory for possible impairment.  When slow-moving inventory is identified, its cost is also adjusted so as to represent the lower of cost or market at all times.

Revenue Recognition

The Company's revenues are generated from the sales of various comic books, toys, and other collectible items.  Sales are transacted primarily through the Company’s website, via credit card order; or through eBay, via Paypal or e-check transaction.  The Company follows guidance found in ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements.

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ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to merchandise sales when the following conditions are met:

a)

Persuasive evidence of an arrangement exists,

b)

Delivery has occurred or services have been rendered,

c)

The fee is fixed or determinable,

d)

Collectability is reasonably assured.  

Cost of Sales

When an inventory item is sold, the Company recognizes cost of sales expense for the value of the inventory item sold.  This value includes the purchase price of the inventory item, plus any expenditure on improvements to the inventory items.  Shipping costs are not included in cost of sales calculations.

Accounting Basis

The basis is accounting principles generally accepted in the United States of America.  The Company has adopted a September 30 fiscal year end.

 

Stock-Based Compensation.

The Company accounts for share-based compensation in accordance with Accounting Standards Codification subtopic 718-10, Stock Compensation (“ASC 718-10”). This requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

Research and Development.

Research and development cost are charged to operations as incurred.

Recent Accounting Pronouncements

The Company has evaluated recent accounting pronouncements and their adoption has not had nor is not expected to have a material impact on the Company’s financial position or statements.

2.

GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.  However, the Company has accumulated deficit of $40,401,033 as of September 30, 2014, and negative working capital of $474,110.  During the year ended September 30, 2014 the Company realized negative cash flows from operations totaling $ 660,135 .  The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These items raise substantial doubt about its ability to continue as a going concern.

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Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

3.

CONVERTIBLE NOTES PAYABLE

As of September 30, 2014 and September 30, 2013, the Company had net totals of $195,320 and $61,439 in outstanding convertible notes payable, respectively.

 

 

 

During 2011, the Company entered into two debt agreements for a total of $75,000.  The notes carry interest at 10% and are convertible into shares of the Company’ common stock at a discount of 30% to the market price of the Company’s common stock, however the conversion price can be no lower than $0.10 or higher than $0.50.  During the year ended September 30, 2013 the Company converted $25,000 of this debt into 243,055 shares of the Company’s common stock.  During the year ended September 30, 2014, the remaining principal of $50,000 and accrued interest of $12,500 was assigned to a new holder.

During 2013, $58,000 of notes payable that were previously not convertible became convertible.  The embedded conversion options in these notes are required to be classified as liabilities.  See Note 7. The note payable was due on February 2, 2013, and the Company incurred an additional $29,000 owed as part of the principal of the note due to being in default. During the year ended September 30, 2013, the lender converted $87,000 of the note payable. As of September 30, 2014 and September 30, 2013, the note had an outstanding principal of zero.

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On March 11, 2013 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $78,500.  A total of $23,500 of the proceeds was paid directly to the Company’s vendors by the lender. The principal accrues interest at a rate of eight percent per annum and is due in full on December 16, 2013.  The note is convertible at the option of the holder at any point at least 180 days from the note date at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion.  The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  During the year ended September 30, 2013 the lender converted $35,000 of the note principal into 417,224 shares of the Company’s common stock.  During the nine months ended June 30, 2014 the lender converted the remaining $43,500 note principal into 1,102,411 shares of the Company’s common stock.  As of September 30, 2014 and September 30, 2013 the note had an outstanding principal balance of $-0- and $43,500, respectively.  As of September 30, 2014 accrued interest on this note totaled $3,422.

On November 6, 2013 the Company entered into a convertible promissory note with an unrelated third party whereby the Company borrowed $128,500, with initial debt discount of $18,500.  The principal accrues interest at a rate of eight percent per annum and is due in full on August 8, 2014.  The note became convertible on May 5, 2014 at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion.  The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the derivative instrument should be classified as a liability once the conversion option becomes effective due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  During the year ended September 30, 2014 the lender converted $76,940 of the note principal into 15,415,891 shares of the Company’s common stock.  As of September 30, 2014 the remaining principal balance on this note was $51,560.

On November 13, 2013 the Company entered into a promissory note with an unrelated third party whereby the Company agreed to borrow a maximum of $300,000.  Each borrowing under the terms of the note, along with specific accrued interest is due two years from the date the specific funds are received by the Company. All borrowings under the terms of this note are subject to a 10% original issue discount such that the consideration due back to the lender is equal to cash proceeds actually received plus ten percent of the amount borrowed. Through June 30, 2014, the Company had borrowed $137,500, with initial debt discount of $12,500 pursuant to this promissory note. The note is exempt from interest for the 90 days after the note date; after 90 days the unpaid principal balance shall accrue interest at a rate of 12 percent per annum.  The note

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became convertible into shares of the Company’s common stock on May 12, 2014 at 60 percent of the lowest trade price in the 25 trading days previous to the conversion. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the derivative instrument should be classified as a liability once the conversion option becomes effective due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  During the year ended September 30, 2014 the lender converted $42,510 of the note principal into 9,700,000 shares of the Company’s common stock.  As of September 30, 2014 the remaining principal balance on this note was $94,990.

On April 11, 2014 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $103,000. The principal accrues interest at a rate of eight percent per annum and is due in full on April 11, 2015.  The note is convertible at the option of the holder at any point after the note date at a 40 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion.  The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the derivative instrument should be classified as a liability when the conversion option became effective after the note date due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  As of September 30, 2014 the principal balance on this note remained at $103,000.

On April 11, 2014 the Company assigned $50,000 of principal and $12,500 of interest to a new holder who issued a replacement note.  The principal accrues interest at a rate of eight percent per annum and is due in full on April 11, 2015.  The note is convertible at the option of the holder at any point after the note date at a 40 percent discount to the lowest closing price during the five day period prior to conversion. The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is substantial and the transaction should be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate. The Company analyzed the conversion option of the new debt for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the derivative instrument should be classified as a liability when the conversion option became effective after the note date due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  During the year ended September 30, 2014 the lender converted all $62,500 of the note principal, along with $ 515 in accrued interest, into 9,674,997 shares of the Company’s common stock.  As of September 30, 2014 the remaining principal balance on this note was $-0-

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On January 24, 2014 the Company entered into a Securities Purchase Agreement with an unrelated third-party entity in connection with a convertible note whereby the Company borrowed $78,500.  The note principal bears interest at a rate of eight percent per annum and will accrue interest at a rate of 22 percent per annum should the Company default.  The note principal and any unpaid accrued interest is due in full on or before October 28, 2014.  The note is convertible at the option of the holder at any point at least 180 days from the note date at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion.  As of September 30, 2014 accrued interest on this note totaled $4,284.

During the year ended September 30, 2013 the Company recorded a debt discount totaling $168,902 relating to the derivative features and original issue discounts of the convertible debts. Of this amount, $136,841 was amortized to interest expense during the year ended September 30, 2013, leaving total unamortized debt discounts of $32,061 as of September 30, 2013.  During the year ended September 30, 2014, the Company recorded additional debt discounts totaling $ 485,795 , and amortized a total $416, 126 to interest expense, leaving total unamortized debt discounts of $132,730 as of September 30, 2014.

4.

NOTES PAYABLE

As of September 30, 2014 and September 30, 2013, the Company had total of $ 44 ,000 and $19,000 in outstanding notes payable respectively.

On May 1, 2012 the Company entered into a loan agreement with an unrelated third party. The note principal bears interest at a rate of 10 percent per annum and due on demand. At September 30, 2014 and 2013, the entire $19,000 principal balance remained outstanding, along with $3,800 in accrued interest.

On June 12, 2013 the Company entered into a convertible promissory note with an unrelated third party, wherein the Company borrowed $53,000.  $3,000 of the proceeds was paid directly to the Company’s vendors by the lender.  The principal accrues interest at a rate of eight percent per annum and is due in full on March 14, 2014.  The note is convertible at the option of the holder at any point at least 180 days from the note date at

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a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion.  The note will accrue interest at a rate of 22 percent per annum should the Company default. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the derivative instrument should be classified as a liability when the conversion option became effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  As of September 30, 2013 the principal balance on this note remained at $53,000.  The note became convertible on December 19, 2013.  The Company recognized an initial derivative liability in the amount of $30,769 pursuant to the debt discount on the note.  On December 20, 2013 the Company paid the note principal, along with all accrued interest, down to zero.  In satisfying the note, the Company recognized a loss on derivative liability in the amount of $9,088 and amortized $7,125 of the debt discount to interest expense.  The remaining $23,644 debt discount was closed to interest and the $39,857 derivative liability was closed to additional paid-in capital.

On August 26, 2014 the Company entered into a $25,000 convertible debenture note agreement with an unrelated third party.  The note accrues interest at a rate of 12 percent per annum and is due on August 25, 2017.  Pursuant to the terms of the note, the principal can be converted into shares of the Company’s common stock, at the option of the lender, at any time after six months and up to one year from the note date at a 20 percent discount to the market price of the shares.  The discount will be 25 percent if converted between one and two years, and will be 30 percent if converted after two years.  The maximum conversion price will be $0.50 per share.  As of September 30, 2014, accrued interest on the note totaled $288.

 5.

RELATED PARTY NOTES PAYABLE

During the period ended September 30, 2013 the Company borrowed an aggregate amount of $13,000 from its CMO, Niccole Leigh. The Company repaid this amount in full during the period.

During the period ended September 30, 2013 the Company borrowed an aggregate amount of $188,300 from its former CEO, Jeff Pollitt. The note is unsecured, bears no interest and is due on demand.  

On October 14, 2013 the Company converted the $188,300 note payable due to its former CEO, along with accrued interest of $7,419 and accrued wages payable totaling $86,000, into 2,400,000 shares of the Company’s common stock.  Pursuant to this transaction, the liabilities were considered fully satisfied, and the Company recognized a $5,719 gain on settlement of debts.

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On August 5, 2014 the Company borrowed $18,000 from a related party (former CEO Robert Lees) in the form of a note payable.  The note accrues interest at a rate of 12 percent per annum, is unsecured, and is due on demand.

As of September 30, 2014 and 2013, the Company had $18,000 and $188,300, respectively, in outstanding related party payables.

6.

FAIR VALUE MEASUREMENTS

As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1    –

Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2     -

Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

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Level 3     –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as September 30, 2014 and 2013

September 30, 2014

September 30, 2013

7.

DERIVATIVE INSTRUMENTS

During 2013, the Company issued debt instruments that were convertible into common stock at a 42 percent discount to the average of the three lowest closing prices during the ten day period prior to conversion. During the year ended September 30, 2014 the Company issued additional debt instruments under the same terms, as well as additional debt instruments convertible into common stock at a 40% discount to the lowest trading price in the 25 trading days previous to conversion, 60% discount to the average of the three lowest closing prices during the ten day period prior to conversion.  The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities. A debt discount of $168,902 was recorded as a result of these derivative liabilities, $136,841 of which was amortized into interest expense for the year ended September 30, 2013.  During the period ended September 30, 2014, debt discount of $ 485,795 was recorded as a result of new derivative liabilities, $416, 126 of which was amortized into interest expense for the period ending September 30, 2014.  

During 2013, certain notes payable were converted resulting in settlement of the related derivative liabilities.  The Company re-measured the embedded conversion options at fair value on the date of settlement and recorded these amounts to additional paid-in capital.

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The following table summarizes the changes in the derivative liabilities during the period ended September 30, 2014:

Balance as of September 30, 2012		$	-
Additions due to new convertible debt and warrants issued			900,933
Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt			(221,200)
Change in fair value			289,942
Balance as of September 30, 2013		$	969,675
Additions due to new convertible debt and warrants issued			485,795
Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt			( 623,975 )
Change in fair value			( 583,615 )
Balance as of September 30, 2014		$	247,880

During the period ended September 30, 2013, the loss on derivative of $303,973 in the statement of operations consisted of a loss on the change in fair value of $289,942 noted above and a loss of $14,031, which was the amount by which the derivative liabilities exceeded the principal of the related party payable on the date the notes were issued.

The Company uses the Black Scholes Option Pricing Model to value its derivatives based upon the following assumptions: 2014: dividend yield of -0-%, volatility of 174-449%, risk free rate of 0.11-0.18% and an expected term of 0.25 to one year; 2013: dividend yield of -0-%, volatility of 86-693%, risk free rate of 0. 12 -0.18% and an expected term of 0.25 to one year .

8.

COMMON STOCK

During the year ended September 30, 2013 the Company issued 10,581,515 shares of common stock for services valued at $474,301.

On February 27, 2013, Jeff Pollitt, the Company’s CEO, resigned his position with the Company.  Pursuant to this resignation, Mr. Pollitt returned 15,000,000 of his 22,796,962 shares of the Company’s common back to the Company.  The 15,000,000 shares were cancelled by the Company immediately upon receipt.

 

During the year ended September 30, 2013 the Company issued 10,003,111 for the conversion of notes payable and other debts in the amount of $214,259.

  

During the year ended September 30, 2013 the Company issued 6,250,000 shares of common stock for cash proceeds of $250,000. 6,250,000 warrants were issued with the common shares, which can be exercised at a price of $0.04 per share. These warrants qualify for derivative accounting, see note 7.

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During the year ended September 30, 2013 the Company issued 1,500,000 shares of common stock for prepaid services valued at fair market value of $255,000. The consulting services will be provided for one year commencing 8/1/2013.

During the year ended September 30, 2014 the Company issued 3,250,000 shares of common stock for cash proceeds of $130,000.  The Company issued an additional 2,250,000 shares of common stock upon the exercise of warrants at $0.04 per share, resulting in cash proceeds in the amount of $90,000.

During the year ended September 30, 2014 the Company issued an aggregate of 35,893 ,299 shares of common stock for the conversion of $225,965 notes payable and 2,400,000 shares of common stock for the conversion of other debts totaling $ 276,000. The conversion rates ranged from $0.0013 to $0.0677. The Company recorded a gain on the conversion of other debts of $5,719.  

On January 30, 2014 the Company entered into an agreement with an unrelated public relations firm.  Pursuant to the agreement, the firm will provide public relations services for the Company for a term of six months.  As payment for these services, the Company issued 500,000 shares of common stock valued at fair market value of $24,600 on the agreement date, and issued an additional 700,000 shares on May 2, 2014 at fair market value of $41,930 at the beginning of month four of the agreement term.

On April 4, 2014 the Company issued 6,625,000 shares of common stock to various individuals as consideration for services rendered. These shares had a fair market value of $463,750.  In addition, the Company agreed to issue an aggregate of 385,000 shares of common stock per quarter to various individuals as compensation for services to be rendered.

On April 15, 2014 the Company executed an engagement letter with a non-related third party entity to provide certain services in relation to a public offering of the Company’s common stock.  Pursuant to the agreement, the firm will provide services for the Company for a term of one year.  As payment for these services, the Company issued 823,723 shares of common stock valued at fair market value of $50,000 on the agreement date.

On April 22, 2014 the Company issued 226,152 shares of common stock to settle accounts payable from legal and professional services rendered .  The fair value of the shares issued is $14,338, no gain or loss was recorded on the settlement of accounts payable .  

On April 22, 2014 the Company issued 732,314 shares of common stock with a fair value of $51,262 for consulting services rendered.

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On April 25, 2014 the Company issued 75,643 shares of common stock with a fair value of  $5,000 for professional fees rendered .

On August 25, 2014 the Company issued 4,000,000 shares of common stock to a third party consulting entity as payment for a one-year consulting services contract.  The shares were valued at $0.0033 per share, being the market value of the shares on the date of issuance which is $13,200 .

On September 30, 2014 the Company issued an aggregate of 385,000 shares of common stock with a fair market value of $501, to various third parties as payment for consulting and administrative services rendered.

  9.

WARRANTS

A summary of the status of the Company’s options and warrants as of September 30, 2014 and 2013 and changes during the periods ended September 30, 2014 and 2013 is presented below:

Description		Warrant Shares				Exercise Price				Value if Exercised
Outstanding at 9/30/12			-				-				-
Granted			6,250,000			$	0.04			$	1,062,500
Exercised			-				-				-
Cancelled			-				-				-
Expired			-				-				-
Outstanding at 9/30/13			6,250,000				0.04				1,062,500
Granted			-				-				-
Exercised			2,250,000				0.04				90,000
Cancelled			-				-				-
Expired			4,000,000				0.04				160,000
Outstanding at 9/30/14			-			$	-			$	-

 

The warrants granted during the year ended September 30, 2013 were granted in connection with the a private placement offering whereby the Company is authorized to issue up to 6,500,000 units, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price of $0.04 per share.  The units were sold for $0.04 per unit, resulting in total cash proceeds of $250,000.  The warrants were valued using the Black-Scholes Options Pricing Model using the following assumptions: dividend yield of -0-%, volatility of 86-693%, risk free rate of 0.12-0.18% and an expected term of 0.25 to one year.

During the year ended September 30, 2014 2,250,000 warrants were exercised at $0.04 per share, resulting in cash proceeds in the amount of $90,000. Additionally during the year ended September 30, 2014 4,000,000 warrants expired.

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  10.

INCOME TAXES

The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 39% to net the loss before provision for income taxes for the following reasons:

		September 30,			September 30,
		2014			2013
Income tax expense at statutory rate		$	(460,534)		$	(579,000)
Common stock issued for services			246,533			161,262
Amortization			141,483			46,526
Impairment expense			2,557			-
Change in valuation allowance			69,962			371,211
Income tax expense per books		$	-		$	-

Net deferred tax assets consist of the following components as of:

	September 30,			September 30
	2014			2013
NOL carryover	$	(876,534)		$	$        (416,000)
Valuation allowance		876,534			416,000
Net deferred tax asset	$	-		$	-

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $2, 500,000 for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years.

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11 .

SUBSEQUENT EVENTS

On October 1, 2014 Robert Lees resigned as President and CEO and Roger Miguel who had served as Chief Operating Officer was appointed President and CEO.  Robert Lees remained in the company and on the Board of Directors.

On October 3, 2014 Robert Lees resigned as CFO and as Director.  Roger Miguel assumed the role of Interim CFO.  The Board of Director position was left vacant.

On November 10, 2014 the Company entered into an Independent Contractor Agreement with a third party, pursuant to which the Company issued 17,500,000 shares of common stock as an initial payment.

Subsequent to September 30, 2014 the Company issued an aggregate of 16,977,930,591 pre-split shares (42,444,826 post-split) shares of common stock upon conversion of debts in the amount of $ 822,099 .

 The following resolution was duly adopted by the Board of Directors of the Company effective as of December 5, 2014: pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation, as amended, of the Company, which authorizes the issuance of up to twenty million (20,000,000) shares of preferred stock, par value $0.001 per share, and by the bylaws of the Company.

It was resolved that pursuant to authority expressly granted to and vested in the Board of Directors of the Company by the Company's Articles of Incorporation, the Board of Directors hereby creates a series of preferred stock, herein designated and authorized as the Series B Convertible Preferred Stock, par value $0.01 per share, which shall consist of Two Million Five Hundred Thousand (2,500,000) of the twenty million (20,000,000) shares of preferred stock which the Company now has authority to issue, and the Board of Directors hereby fixes the powers, designations and preferences and the relative, participating, optional and other special rights of the shares of each such class and series, and the qualifications, limitations and restrictions thereof  . . The Series B Convertible Preferred Stock shall be entitled to vote on all matters submitted to for a vote to holder of Common stock as if they held five hundred shares of Common stock for each share of Series B Preferred stock. The conversion price of the Series B Convertible Preferred Stock is $0.10 per share.

On December 3, 2014 the Company issued an aggregate of 770,000 shares of common stock to various individuals as compensation for services rendered. This payment was for the first two quarters.  Subsequently this program was terminated.

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On December 8, 2014, the Company entered into a purchase agreement with Studioplex City, LLC, (”SC”) a Georgia based limited liability company and Jake Shapiro (“Shapiro”), the owner of all membership interests of SC. Pursuant to this agreement, the Company paid  Shapiro $2.5 Million in the form of 2,500,000 Series B convertible preferred shares, which were issued to him on December 12, 2014. In return, the Company received 100% of the membership interests of SC.

As part of the purchase agreement The Company has formed Studioplex City Acquisition Corp., as a wholly owned subsidiary of the Company. The closing shall take place through this subsidiary.

  As a result of this transaction Shapiro directly owns 67% of the voting securities of the Company, causing a change of control of the Registrant.

On December 8, 2014 the Company elected Shapiro as a director and Chairman of the Board of Directors of the Company.  Mr. Shapiro was formerly a director of Medient Studios, Inc. (now Moon River Studios, Inc.)

On February 8, 2014, the Company completed a 400:1 reverse stock split.

On February 10, 2015, the Company acquired the lease of a 1,560 acre property located in Effingham County, Georgia from Moon River. The purchase price was $10,000,000 and 10,000,000 post-split shares (4,000,000,000 pre-split shares) of FONU2 common stock.  Terms of the purchase agreement require that the FONU2 shares be registered and distributed to all Moon River shareholders as of record date February 10, 2015.  In addition to the lease, the Company has acquired certain intellectual property and trademarks associated with the project. The property has an independently appraised value in excess of $22,000,000.  Included under terms of the original lease, Memorandum of Understanding and supplemental agreement (i) the Company is responsible for an agreed amount of job creation and capital investment in the property, (ii) All property taxes for the property have been waived for the term of the lease, (iii) the property may be purchased at any time with no prepayment penalties,  (iv) at the end of the lease, the property may be purchased for $100. FONU2 has assumed the $10,000,000 note secured by the property. The note has an interest rate of zero percent with a 20 year term.  

On February 12, 2014 300,000 post-split (120,000,000 pre-split) shares were issued to Roger Miguel and 73,500 post-split (24,900,000 pre-split) shares were issued to an unrelated third party as a performance bonus.

On February 12, 2015, the Company acquired the worldwide distribution rights for the movie Yellow. Under terms of the agreement, FONU2 will receive, in addition to a profit share, a 10% (ten percent) distribution fee, and a 20% (twenty percent) return on all funds expended associated with the acquisition of the rights, print and advertising, marketing, and other expenses associated with the release of the movie. As consideration, FONU2 has committed to provide these costs and fees, along with the assumption of $540,000 of costs associated with the movie.

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On February 15, 2015, the Company issued 4,300,000 post split (1,720,000,000 pre-split) common shares to Dr. Yusuf Hameed upon his conversion of his three outstanding convertible notes.  These notes consist of an $90,000 convertible note with an 8% per annum interest dated 9/5/2014, a $50,000 convertible note with an 8% per annum interest rate dated 12/22/2014, and a $20,000 convertible note with an 8% per annum interest rate dated 12/31/2014.  These notes were settled at a conversion price of $0.04 per share, resulting in the issuance of 4,000,000 post-split (1,600,000,000) common shares.  An additional 300,000 post-split (120,000,000 pre-split) shares were issued as a negotiated settlement for the interest due on the notes. Dr. Hameed has agreed a 12 month voluntary lockup provision on these shares.

On February 18, 2015, the Company issued 7,083,333 post-split (2,833,333,200 pre-split) common shares to Penny Marshall in payment of the equity portion of her director’s fee re the movie Effa , which totaled $425,000.  The shares were issued at a price of $0.06 per share.

On February 18, 2015, the Company issued 1,250,000 post-split (500,000,000 pre-split) common shares to Michael Mann in payment of the equity portion of his management fee re the movie Effa , which totaled $75,000.  The shares were issued at a price of $0.06 per share.

On February 27, 2015, the Company entered into a Rights Acquisition and Investment Agreement with Eagle Productions, LLC with a view toward the Company investing in, co-producing and exploiting the motion picture currently titled Effa to be produced by Eagle Productions.  Under this agreement, the Company will acquire the worldwide distribution rights and will invest in the movie.  The Company will be the sole and exclusive beneficiary of the worldwide exploitation rights of the picture for all purposes, in perpetuity.  The Company will advance a portion of the budget of the picture, consisting of $10,000,000 in restricted common shares at a value of $0.06 per share. The Company agrees to file a Registration statement for these shares.

Once the Company has recouped its advance in full, the Company and Eagle Productions will share in the net profits of the film, with the Company to receive 99% and Eagle Productions to receive 1%.  All fees and costs of the Company are to be included in and payable from the budget of the picture.  The Company is not liable for any loss should the transaction not proceed for any reason.  However, the Company will bear the loss (if any) arising from the initial payment of $75,000 in regards to the director services of Penny Marshall, the issuance of stock (7,083,333 post-split shares) in the value of $425,000 for the services of the director, the initial payment of $75,000 to Wendi Laski under the terms of her producing agreement, and the initial payment of $8,000 made to the writers of the screenplay.

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On February 27, 2015, the Company issued 166,666,667 post-split (66,666,666,800 pre-split) common shares at $0.06 per common share to Eagle Productions (which was originally formed by Jake Shapiro) to acquire the worldwide distribution rights for the film Effa , as described above.   Film Producer Wendi Laski has been appointed the managing director of Eagle Productions LLC.

 

On March 1, 2015, the Company sold ownership of Zaldiva Comics and Collectibles to Ms. Nicole Leigh, a former director of the Company, for $100 and the settlement of a $10,000 debt.  The assets sold consist of Zaldiva.com, Zaldiva.com Comics & Collectibles, Zaldiva Comics & Collectibles, and all of Zaldiva’s inventory and intellectual property.  The company was not profitable and was deemed by Management to no longer be a strategic fit for the Company.

On March 1, 2015, Nicole Leigh resigned as a director.

On March 1, 2015, the Company elected Joseph Giamichael as a director.  Mr. Giamichael will be the chairman of the audit committee.  Mr. Giamichael was formerly a director of Medient Studios, Inc. (now Moon River Studios, Inc.). Other than his experience in serving as a director of Medient, there have been no transactions between Mr. Giamichael and any related party, nor any material plans, contracts, or arrangements to which Mr. Giamichael is a party.

On March 1, 2015, the Company appointed Graham Bradstreet, as Chief Financial Officer.  His position will last for one year, and is renewable at the yearly shareholder meeting.  

On March 1, 2015, the Company approved the change of its offices to 135 Goshen Rd. Ext., Suite 205, Rincon, GA 31326, with a monthly rent of $2,730.

On March 9, 2015 the Company engaged EquityGroups to conduct an investor campaign to increase the Company’s public awareness. The Company has agreed to pay $2,500 per month for the first three months increasing to $3,500 per month thereafter. The consultant may also earn up to 1M of common shares. From time to time, the Company intends to hire a variety of companies to increase public awareness.

On March 10, 2015 the Company announced that Ms. Alice P. Neuhauser has been appointed as Chief Operating Officer of the Company.

On March 26, 2015 the Board resolved that the Company issue 1,250,000 shares of unregistered and restricted common shares to Alex Warner in exchange for $50,000 of services.

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On March 31, 2015 the Company announced that it had signed definitive agreements to acquire the assets of Applebox Productions. The acquisition is structured as an asset purchase consisting of lights, cameras, grip equipment, electrics, production vehicles, etc. The purchase price of One Million Dollars ($1,000,000) is being financed by a combination of traditional equipment loans and seller financing. The seller-financing note is both corporately guaranteed and personally guaranteed by Mr. Jake Shapiro, Chairman of the Board of the Company. Closing is expected to take place by mid May, 2015

In the period to March 31, 2015 the Company issued a Long Term Note in the amount of $78,000. The Note matures 36 months after issue.

Subsequent to September 30, 2014, the Company issued $1,154,879 of Convertible Notes. The Convertible Notes have interest rates of between 8% and 12% and mature one year from the date of issue. The Convertible Notes are convertible between no days and 180 days. The discount on conversion ranges from 45% to 50% based on various share prices averaged over a number of days prior to the date of conversion or the date of notice of conversion.

12 .

EMPLOYEE BENEFIT PLANS

During the years ended September 30, 2014 and 2013, there were no qualified or non-qualified employee pension, profit sharing, stock option, or other plans authorized for any class of employees.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On December 12, 2014 the Company discontinued audit services with Malone Bailey, LLP, (“MB”) its independent registered public accounting firm, and appointed The Hall Group CPAs as its independent registered public accounting firm.

During the term of engagement of MB there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedure which, if not resolved to the satisfaction of MB, would have caused MB to make reference to the subject matter of the disagreement(s) in connection with any report.

On March 6, 2015, the registrant dismissed The Hall Group, CPAs as their registered independent public accountant.  On March 6, 2015, the registrant engaged MaloneBailey, LLP as its new registered independent public accountant.  MaloneBailey has previously served as the Company’s independent public accountants.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

Based on our evaluation as of the end of the period covered by this Annual Report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report were not effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding disclosure. This material deficiency is due to a lack of adequate internal controls and the lack of an audit committee.

Management’s Annual Report on Internal Control over Financial Reporting:

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

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The Company’s management, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2014.  In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.  Based on this evaluation, our management, with the participation of the principal executive officer and principal financial officer, concluded that, as of September 30, 2014, o ur internal control over financial reporting was not effective, due primarily to lack of adequate internal controls and the lack of an audit committee.  The most significant material weaknesses that led management to this conclusion are the lack of segregation of duties, and failure in the operation of controls over stock based compensation and derivative liabilities.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Commission that permit the Company to provide only management’s report in this Annual Report.

Evaluation of Changes in Internal Control over Financial Reporting:

There have been no changes in internal control over financial reporting during the fourth quarter of the fiscal year covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

The Company is delinquent in meeting its payroll tax obligations and is working to correct this as soon as possible.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Identification of Directors and Executive Officers

The following table sets forth the names of all current directors and executive officers of the Company. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.