CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and significant accounting policies
The accompanying unaudited financial statements of Embarr Downs, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2013 as reported in Form 10, have been omitted.
Stock-based Compensation
Accounting Standards Codification (“ASC”) 718, “Accounting for Stock-Based Compensation" established financial accounting and reporting standards for stock-based compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans and for share based payments to non-employees in accordance with ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value.
The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non- Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
Note 2 – Going Concern
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Note 3 – Related Party Transaction
As of May 31, 2014, a note payable of $20,714 was due to the Company CEO Joseph Wade. During the nine months ended May 31, 2014, the Company CEO contributed additional $107,173 as a note payable and repaid $99,459 for a total remaining amount owed of $20,714. This note is unsecured, non-interest bearing and matures on December 31, 2014.
The Company lent three Companies related to our CEO a total of $104,257. The amounts carry an interest rate of 0% and have a repayment date of December 31, 2015. The company has recorded the transactions as a distribution of equity and will record further payments from the entities as contribution to the company.
Note 4 – Equity
Shares issued for services
During the nine months ended May 31, 2014, the Company issued 45,000,000 shares of common stock to employees and third party consultants as compensation. The fair value of the shares was determined to be $945,000.
Shares issued for settlement of debt and accrued interest
During the nine months ended May 31, 2014, the company issued 1,500,000 shares of common stock to third party for the total value of $450,000. The company settled $282,000 of the line of credit outstanding as well as $1,243 of accrued interest with the third party. In addition to the settlement, the company received $166,757 in cash.
Shares issued for cash
During the nine months ended May 31, 2014, the company issued 1,500,000 shares of common stock to a third party for the proceeds of $450,000. As of May 31, 2014, the company has received $16,213 of the $450,000 with the remaining $433,787 outstanding as a stock subscription.
Reverse stock split
On September 20, 2013, the Company executed a Fifty Thousand to One (50,000:1) reverse stock split of issued and outstanding shares of its Common Stock. As part of the reverse, the total authorized shares of Common Stock were reduced to 500,000,000 shares. The Company accounted for the reverse stock split retrospectively and is presented accordingly in the Company’s financial statements.
Series B Preferred Stock
On September 20, 2012, the Company approved of the issuance of Series B Preferred Stock to its Common Stock shareholders. Each common stock shareholders, prior to the reverse stock split, received one share of Series B Preferred Stock for each 2,500 common stock shares owned. As a result 1,565,696 of Series B Preferred Stocks were issued for a total fair value of $1,566. The stock dividend is considered an equity transaction due to all shareholders participating in the issuance.
The Series B Preferred Stock consists of 2,000,000 authorized and 1,565,696 are issued and outstanding as of the date of this filing. The Series B Preferred has the following terms and rights:
Dividend
: No dividend rights
Ranks
: All shares of Preferred Stock shall rank superior with all of the Corporation's Common Stock, $.0001 par value (the "Common Stock"), now or hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, including the payment of dividends.
Conversion Provisions.
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(a)
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The company may convert, at any time by an affirmative vote of the Board of Directors, the shares of the Series B Preferred Stock into Common Stock equal to a rate equal to $1.00 divided by the closing price of the Company’s Common Stock as listed by OTC Markets (“Market Value”) for the date the conversion was approved by the Board of Directors. If no closing price is available, then the Market Value shall be assumed to be $1.00 per common share. Any fractional share shall be rounded up to the nearest share.
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(b)
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Each share of the Series B Preferred Stock, unless previously converted, will automatically convert on August 31, 2018 (the “mandatory conversion date”), into a number of shares of common stock equal to a rate equal to $1.00 divided by the closing price of the Company’s Common Stock as listed by OTC Markets (“Market Value”) for the date the conversion was approved by the Board of Directors. If no closing price is available, then the Market Value shall be assumed to be $1.00 per common share. Any fractional share shall be rounded up to the nearest share.
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Voting Rights.
The holders of the mandatory convertible preferred stock do not have voting rights other than those specifically required by Nevada law.
Series C Preferred Stock
On April 16, 2014, the Company approved of the issuance of Series C Preferred Stock to its Common Stock shareholders. Each common stock shareholders received one share of Series B Preferred Stock for each 3,500 common stock shares owned. As a result 13,797 of Series B Preferred Stocks were issued for a total fair value of $1. The stock dividend is considered an equity transaction due to all shareholders participating in the issuance.
The Series C Preferred Stock consists of 15,000,000 authorized and 113,797 are issued and outstanding as of the date of this filing. The Series C Preferred has the following terms and rights:
Rank
. All shares of Preferred Stock shall rank superior with all of the Corporation's Common Stock, no par value (the "Common Stock"), now or hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, including the payment of dividends.
Dividends
. No dividend shall be declared or paid on the Preferred Stock unless approved and declared by the Board of Directors.
No Liquidation Preference
. In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, the Series C Preferred shares shall have no priority on liquidation superior to that of the other Preferred Stock. The Series C Preferred shareholders will be entitled to preferential amounts paid in to the Corporation and be paid in full, for funds paid for the Series C Preferred Shares, if sufficient funds exist . The holders of shares of other series of Preferred Stock shall be entitled to participate with the Common Stock in all of the remaining assets of the Corporation available for distribution to its stockholders, ratably with the holders of Common Stock in proportion to the number of shares of Common Stock held by them, assuming for each holder of Preferred Stock on the record date for such distribution that each holder was the holder of record of the number (including any fraction) of shares of Common Stock into which the shares of Preferred Stock then held by such holder are then convertible. A liquidation, dissolution, or winding-up of the Corporation, as such terms are used in this Section 5, shall not be deemed to be occasioned by or to include any merger of the Corporation with or into one or more corporations or other entities, any acquisition or exchange of the outstanding shares of one or more classes or series of the Corporation, or any sale, lease, exchange, or other disposition of all or a part of the assets of the Corporation.
Voting Rights
. The holders of the preferred stock do not have voting rights other than those specifically required by Nevada law.
No Redemption
. The shares of Preferred Stock are not redeemable, unless approved by the Board of Directors and agreed upon by the Series C Preferred Shareholders.
Dividends
During the nine months ending May 31, 2014, the Company declared $17,810 in dividend. As of May 31, 2014, the company paid $17,508 and has accrued $302 in dividends.
Note 5 – Notes Payable
On January 9, 2014, the Company entered into a line of credit agreement for $500,000. The material terms of the line of credit are as follows:
(1)
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The Company to borrow up to $500,000.
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(2)
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The amount that the Company borrows will carry an interest equal to nine percent (9%) per annum.
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(3)
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The Company will pay the accrued interest on any outstanding principal balance on the 15th of each month.
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(4)
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The maturity date is August 31, 2016.
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(5)
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The Debt from the Line of Credit may not be converted into common shares of the company.
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As of May 31, 2014, the Company borrowed $282,000 from this line of credit and settled $282,243 of the line of credit plus accrued interest through the issuance of shares.
On December 30, 2013, the Company entered into an unsecured convertible promissory note with a principal amount of $37,500 with Asher Enterprises. The Company received net proceeds of $37,500 from the Transaction, which will be used as general working capital and to acquire thoroughbreds. Interest on the Note accrues at a rate of 8% annually and is to be paid with principal in full on the maturity date. The principal amount of the Note together with interest may be converted into shares of the Company's common stock, par value $0.0001 (“Common Stock”), at the option of the note holder at a conversion price equal to fifty-five percent (55%) of the average of the lowest three closing bid prices for the Common Stock during the ten trading days prior to the conversion. At any time up to 180 days from the date of the note; the company has the option to repay the principal amount plus any accrued interest at a rate equal to 140% of the principal amount and accrued interest.
On April 14, 2014, the Company entered into an unsecured convertible promissory note with a principal amount of $53,000 with KBM Worldwide. The Company received net proceeds of $53,000 from the Transaction, which will be used as general working capital and to acquire thoroughbreds. Interest on the Note accrues at a rate of 8% annually and is to be paid with principal in full on the maturity date. The principal amount of the Note together with interest may be converted into shares of the Company's common stock, par value $0.0001 (“Common Stock”), at the option of the note holder at a conversion price equal to fifty-five percent (55%) of the average of the lowest three closing bid prices for the Common Stock during the ten trading days prior to the conversion. At any time up to 180 days from the date of the note, the company has the option to repay the principal amount plus any accrued interest at a rate equal to 140% of the principal amount and accrued interest.