Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o   No  o

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer (Do not check if smaller reporting company)	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes x  Noo

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARY

FORM 10-Q

June 30, 2010

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited)	5
	Notes to Unaudited Consolidated Financial Statements.	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	25
Item 4.	Controls and Procedures.	25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	26
Item 1A.	Risk Factors.	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26
Item 3.	Default upon Senior Securities.	26
Item 4.	REMOVED AND RESERVED	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	26

 

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, "Eclips," "we," "us," "our" and similar terms refer to EClips Media Technologies, Inc., a Delaware corporation, and subsidiary.

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

   

		June 30, 2010				December 31, 2009
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS:
Cash		$	254,622			$	-
Prepaid expenses			346,350				-
Debt issuance cost			9,895				-
Total Current Assets			610,867				-
OTHER ASSETS:
Property and equipment, net			36,442				-
Intangible asset, net			3,852				-
Goodwill			1,038,577				-
Deposits			8,509				-
Total Assets		$	1,698,247			$	-
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	219,221			$	-
Unearned revenue			5,621				-
Derivative liabilities			1,885,796				67,147
Liabilities of discontinued operations			167,686				167,686
Total current liabilities			2,278,324				234,833
LONG-TERM LIABILITIES:
Convertible debentures, net of debt discount			98,542				7,620
Total Liabilities			2,376,866				242,453
Stockholders' Deficit
Preferred stock,  $.0001 par value; 10,000,000 authorized
Series A, 3,000,000 issued and outstanding			300				300
Series B, none issued and outstanding			-				-
Series C, none issued and outstanding			-				-
Series D, none issued and outstanding
and outstanding, respectively			-				-
Common stock; $.0001 par value; 750,000,000 shares
authorized; 203,525,338 and 129,725,338 shares issued
and outstanding, respectively			20,353				12,972
Additional paid-in capital			28,602,304				24,224,685
Accumulated deficit			(29,301,576	)			(24,480,410	)
Total Stockholders' Deficit			(678,619	)			(242,453	)
Total Liabilities and Stockholders' Deficit		$	1,698,247			$	-

See accompanying notes to unaudited consolidated financial statements.

3

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net revenues		$	-			$	-			$	-			$	-
Operating expenses:
Payroll expense and stock based compensation			508,798				497,551				874,215				662,429
Professional and consulting			1,932,300				48,058				2,698,986				131,628
General and administrative expenses			256,592				105,976				275,405				117,293
Total operating expenses			2,697,690				651,585				3,848,606				911,350
Loss from continuing operations			(2,697,690	)			(651,585	)			(3,848,606	)			(911,350	)
Other income (expense)
Interest income			1,725				-				2,157				-
Interest expense			(83,247	)			(1,827	)			(113,688	)			(2,500	)
Derivative liability expense			(2,309,910	)			-				(3,260,076	)			-
Change in fair value of  derivative liabilities			2,018,205				-				2,399,047				-
Total other income (expense)			(373,227	)			(1,827	)			(972,560	)			(2,500	)
Loss from continuing operations before provision for income taxes			(3,070,917	)			(653,412	)			(4,821,166	)			(913,850	)
Provision for income taxes			-				-				-				-
Loss from continuing operations			(3,070,917	)			(653,412	)			(4,821,166	)			(913,850	)
Loss from discontinued operations, net of tax			-				(42,280	)			-				(94,641	)
Net loss available to common shareholders		$	(3,070,917	)		$	(695,692	)		$	(4,821,166	)		$	(1,008,491	)
Loss per common share, basic and diluted:
Loss from continuing operations		$	(0.02	)		$	-			$	(0.03	)		$	(0.01	)
Loss from discontinued operations		$	-			$	-			$	-			$	-
		$	(0.02	)		$	-			$	(0.03	)		$	(0.01	)
Weighted average common shares outstanding			172,536,325				170,900,826				156,718,707				135,393,436

 

See accompanying notes to unaudited consolidated financial statements.

4

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Six Months Ended
		June 30,
		2010				2009
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Loss from continuing operations		$	(4,821,166	)		$	(913,850	)
Adjustments to  reconcile loss from
continuing operations  to net cash used in operating activities:
Depreciation			1,034				-
Amortization of intangible asset			11				-
Amortization of prepaid expenses			7,058				-
Amortization of debt issuance costs			2,605				-
Amortization of debt discount			98,542				-
Impairment loss			173,257				-
Change in fair value of  derivative liabilities			(2,399,047	)			-
Derivative liablity expense			3,260,076				-
Stock based consulting			2,612,500				477,457
Stock based compensation expense			807,292				-
(Increase) Decrease in:
Interest receivable			(2,157	)			-
Prepaid expense			(188,200	)			-
Deposits			(8,509	)			-
Increase (Decrease) in:
Accounts payable and accrued expenses			82,319				-
Unearned revenue			565				-
Net cash used in continuing operations			(373,820	)			(436,393	)
Loss from discontinued operations			-				(94,641	)
Adjustments to reconcile loss from discontinued operations to net cash
provided by discontinued operating activities:
Depreciation & Amortization			-				89,240
(Increase) decrease in discontinued assets			-				(138,097	)
Increase (decrease) in discontinued liabilities			-				299,748
Net cash provided by discontinued operations			-				156,250
Net cash used in operating activities			(373,820	)			(280,143	)
Cash flows from investing activities:
Cash acquired in acquisition			9,518				-
Cash used in acquisition			(110,000	)			-
Payment of leasehold improvement			(14,025	)			-
Purchase of equipment			(23,451	)			(787	)
Investment in note receivable			(171,100	)			-
Net cash used in investing activities			(309,058	)			(787	)
Cash flows from financing activities:
Proceeds from issuance of common stock			-				286,641
Net proceeds from debentures			937,500				-
Net cash provided by financing activities			937,500				286,641
Net increase in cash			254,622				5,711
Cash, beginning of period			-				370
Cash, end of period		$	254,622			$	6,081
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	-			$	-
Income Taxes		$	-			$	-
Supplemental disclosure of non-cash investing
and financing activities:
Issuance of common stock in connection
with acquisition of business		$	800,000			$	-

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business

The Company was incorporated under the name “Swifty Carwash & Quick-Lube, Inc.” in the state of Florida on September 25, 1997. On October 22, 1999, the Company changed its name from “Swifty Carwash & Quick-Lube, Inc.” to “SwiftyNet.com, Inc.” On January 29, 2001, the Company changed its name from “SwiftyNet.com, Inc.” to “Yseek, Inc.” On June 10, 2003, the Company changed its name from “Yseek, Inc.” to “Advanced 3-D Ultrasound Services, Inc.”

 The Company merged with a private Florida corporation known as World Energy Solutions, Inc. effective August 17, 2005. Advanced 3D Ultrasound Services, Inc. (“A3D”) remained as the surviving entity as the legal acquirer, and the Company was the accounting acquirer.  On November 7, 2005, the Company changed its name to World Energy Solutions, Inc. (“WESI”). On November 7, 2005, WESI merged with Professional Technical Systems, Inc. (“PTS”).  WESI remained as the surviving entity as the legal acquirer, while PTS was the accounting acquirer. On February 26, 2009, the Company changed its name to EClips Energy Technologies, Inc.

On December 22, 2009, in a private equity transaction (“Purchase Agreement”), the majority shareholder (the “Seller”) and Chief Executive of the Company entered into agreement, whereby certain purchasers collectively purchased from the Seller an aggregate of (i) 50,000,000 shares of Common Stock of the Company and (ii) 1,500,000 shares of series D preferred stock, $0.001 par value (the “Preferred Stock”), comprising approximately 82 % of the issued and outstanding shares of capital stock of the Company, for the aggregate purchase price, including expenses, of $100,000.

In connection with the Purchase Agreement, the Company and Seller entered into a release pursuant to which in consideration for the termination of Seller’s employment agreement, dated January 31, 2006, the Company issued to Seller 1,100,000 shares of the Company’s common stock.  Furthermore, the Company agreed to transfer to Seller or Seller’s designee, the Company’s subsidiaries Pure Air Technologies, Inc., Hydrogen Safe Technologies, Inc., World Energy Solutions Limited and Advanced Alternative Energy, Inc. and granted to Seller a five-year option for the purchase of H-Hybrid Technologies, Inc.

On March 16, 2010, the Company filed a definitive information statement on Schedule 14C (the “Definitive Schedule 14C”) with the Securities and Exchange Commission (the “SEC”) notifying its stockholders that on March 2, 2010, a majority of the voting capital stock of the Company took action in lieu of a special meeting of stockholders authorizing the Company to enter into an Agreement and Plan of Merger (the “Merger Agreement”) with its newly-formed wholly-owned subsidiary, EClips Media Technologies, Inc., a Delaware corporation for the purpose of changing the state of incorporation of the Company to Delaware from Florida. Pursuant to the Merger Agreement, the Company merged with and into EClips Media with EClips Media continuing as the surviving corporation  on April 21, 2010. On the effective date of the Merger, (i) each issued and outstanding share of common stock of the Company shall be converted into two (2) shares of EClips Media common stock, (ii) each issued and outstanding share of Series D preferred stock of the Company shall be converted into two (2) shares of EClips Media Series A preferred stock and (iii) the outstanding share of EClips Media Common Stock held by the Company shall be retired and canceled and shall resume the status of authorized and unissued EClips Media common stock. The outstanding 6% convertible debentures of the Company shall be assumed by EClips Media and converted into outstanding 6% convertible debentures of EClips Media. All options and rights to acquire the Company’s common stock, and all outstanding warrants or rights outstanding to purchase the Company’s common stock, will automatically be converted into equivalent options, warrants and rights to purchase two (2) times the number of shares of EClips Media common stock at fifty (50%) percent of the exercise, conversion or strike price of such converted options, warrants and rights. Trading of the Company’s securities on a 2:1 basis commenced May 17, 2010 upon approval of the FINRA. All shares and per share values are retroactively stated at the effective date of merger.

 

On June 21, 2010, the Company, through its wholly-owned subsidiary SD Acquisition Corp., a New York corporation (“SD”), acquired (the “Acquisition”) all of the business and assets and assumed certain liabilities of Brand Interaction Group, LLC, a New Jersey limited liability company which is described below.

Acquisition of Business of Brand Interaction Group, LLC

 

On June 21, 2010, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) by and among the Company, SD and Brand Interaction Group, LLC, a New Jersey limited liability (“BIG”).  Pursuant to which , the Company, through its wholly-owned subsidiary SD acquired all of the business and assets and assumed certain liabilities of BIG owned by Eric Simon , the Company’s Chief Executive Officer (“CEO”). BIG owned Fantasy Football SUPERDRAFTTM, and operates as a  sports entertainment and media business focused on promotion of fantasy league events through live events hosted in various venues such as Las Vegas, and online, which feature sports and media personalities, and the sale and marketing of various sports oriented products and services.

 

6

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As consideration for the Acquisition by SD, the Company agreed to issue BIG 20,000,000 shares of the Company’s common stock valued at $0.04 per share (applying FASB ASC 805 “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination” ). The total purchase price was $868,152and includes common stock valued at $800,000 and incurred legal fees of $68,152.  Additionally, in May 2010, the Company issued a demand promissory note agreement and security agreement in the amount of $110,000 with BIG and such promissory note is included in the liabilities assumed and has been recognized as intercompany transaction following the acquisition.  Thus such intercompany transaction has been eliminated in consolidation. The purchase price was allocated as follows:

 

Assets Acquired
Cash		$	9,518
Intangible
Trademark		3,863
Goodwill		1,038,577
Total assets acquired		1,051,958
Liabilities Assumed		183,806
Net assets acquired		$	868,152

 

Goodwill is expected not to be deductible for income tax purposes.

The following table summarizes our unaudited consolidated result of operations for the three and six-month periods ended June 30, 2010, as well as the unaudited pro forma consolidated results of operations as though the Company and BIG acquisition  had occurred on January 1, 2010:

 

		Three Months Ended								Six Months Ended
		June 30, 2010								June 30, 2010
		As Reported				Pro Forma				As Reported				Pro Forma
Net Revenues		$	-			$	-			$	-			$	-
Loss from operations			2,697,690				2,785,960				3,848,606				3,988,685
Net Loss			3,070,917				3,165,731				4,821,166				4,973,486
Loss per common share:
Basic		$	(0.02	)		$	(0.02	)		$	(0.03	)		$	(0.03	)
Diluted		$	(0.02	)		$	(0.02	)		$	(0.03	)		$	(0.03	)

 

The unaudited pro forma condensed consolidated income statements are for informational purposes only and should not be considered indicative of actual results that would have been achieved if the Company and BIG acquisition had been completed at the beginning of 2010, or results that may be obtained in any future period.

 

Discontinued Operations

The Company’s operations were developing and manufacturing products and services, which reduce fuel costs, save power & energy and protect the environment. The products and services were made available for sale into markets in the public and private sectors. In December 2009, the Company discontinued these operations and disposed of certain of its subsidiaries, and prior periods have been restated in the Company’s financial statements and related footnotes to conform to this presentation. For the three months ended June 30, 2010 and 2009, the Company recognized total loss from discontinued operations of $0 and $42,280, respectively, associated with the discontinuance of our subsidiaries. Included in the loss from discontinued operations, total product sales and cost of goods sold from discontinued operations were $113,126 and $100,456 for the three months ended June 30, 2009. Research and development have been included in the loss from discontinued operations, in the amounts of $54,949 for the three months ended June 30, 2009. For the six months ended June 30, 2010 and 2009, the Company recognized total loss from discontinued operations of $0 and $94,641, respectively, associated with the discontinuance of our subsidiaries. Included in the loss from discontinued operations, total product sales and cost of goods sold from discontinued operations were $199,726 and $161,941 for the six months ended June 30, 2009.  Research and development have been included in the loss from discontinued operations, in the amounts of $132,426 for the six months ended June 30, 2009.

7

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of presentation

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").  The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries.  All material intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes as of and for the year ended December 31, 2009, included in the Company’s Form 10-K at  December 31, 2009.

In the opinion of management, all adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position as of June 30, 2010, and the results of operations and cash flows for the six months ending June 30, 2010 have been included. The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year.

ASB Accounting Standards Codification

The issuance by the FASB of the Accounting Standards CodificationTM (the “Codification”) on July 1, 2009 (effective for interim or annual reporting periods ending after September 15, 2009), changes the way that GAAP is referenced. Beginning on that date, the Codification officially became the single source of authoritative nongovernmental GAAP; however, SEC registrants must also consider rules, regulations, and interpretive guidance issued by the SEC or its staff. The change affects the way the Company refers to GAAP in financial statements and in its accounting policies. All existing standards that were used to create the Codification became superseded. Instead, references to standards consist solely of the number used in the Codification’s structural organization.

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended.  Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, debt discount, the useful life of property and equipment, purchase price fair value allocation for the business acquisition, valuation and amortization periods of intangible asset, and  valuation of goodwill.

Reclassification

Certain amounts in the 2009 consolidated financial statements have been reclassified to conform to the 2010 presentation. Such reclassifications had no effect on the reported net loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. For the six months ended June 30, 2010 and for the year ended December 31, 2009, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

 

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes payable. The Company’s cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000 between January 2007 and October 2008 and $250,000 for interest-bearing accounts and an unlimited amount for noninterest-bearing accounts after October 2008. During the six months ended June 30, 2010, the Company has not reached bank balances exceeding the FDIC insurance limit. While the Company periodically evaluates the credit quality of the financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden failure of such financial institutions. The Company's investment policy is to invest in low risk, highly liquid investments. The Company does not believe it is exposed to any significant credit risk in its cash investment.

8

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

 Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as 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. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of June 30, 2010 and December 31, 2009. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

 

The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying amount of the convertible debentures at June 30, 2010 and December 31, 2009, approximate their respective fair value based on the Company’s incremental borrowing rate.

In addition, FASB ASC 825-10-25 Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

Property and equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.  The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.

Intangible Asset

The Company records the purchase of intangible assets not purchased in a business combination in accordance with ASC 350-10 “Goodwill and Other Intangible Assets” and records intangible assets acquired in a business combination or pushed-down pursuant to acquisition in accordance with ASC Topic 805 “Business Combinations”.

Goodwill

The Company tests goodwill for impairment in accordance with the provisions of ASC Topic 350, “Goodwill and Other Intangible Assets”. Accordingly, goodwill is tested for impairment at least annually or whenever events or circumstances indicate that goodwill might be impaired. The Company has elected to test for goodwill impairment annually. During the six months ended June 30, 2010, the Company has determined that no adjustment to the carrying value of goodwill was required.

Impairment of Long-Lived Assets

Long-Lived Assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15,  “Impairment or Disposal of Long-Lived Assets” . The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the six months ended June 30, 2010 and 2009.

 

9

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance, when in the Company's opinion it is likely that some portion or the entire deferred tax asset will not be realized.

Pursuant to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  The adoption had no effect on the Company’s consolidated financial statements. 

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant. For the six months ended June 30, 2010 and 2009, the Company did not grant any stock options.

 

Related Parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.

 

Subsequent Events

For purposes of determining whether a post-balance sheet event should be evaluated to determine whether it has an effect on the financial statements for the six months ended June 30, 2010, subsequent events were evaluated by the Company as of August 16, 2010, the date on which the unaudited consolidated financial statements for the six months ended June 30, 2010, were available to be issued.

 

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Loss per Common Share

Net loss per common share are calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net earnings per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. The outstanding warrants and shares equivalent issuable pursuant to embedded conversion features amounted to 82,000,000 at June 30, 2010. There were no dilutive common stock equivalents as of June 30, 2009.

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.”  This amendment requires an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements.  ASU No. 2010-06 is effective for the Company for interim and annual reporting beginning after December 15, 2009, with one new disclosure effective after December 15, 2010. The adoption of ASU No. 2010-06 did not have a material impact on the results of operations and financial condition.

 In February 2010, the FASB issued an amendment to the accounting standards related to the accounting for, and disclosure of, subsequent events in an entity’s consolidated financial statements. This standard amends the authoritative guidance for subsequent events that was previously issued and among other things exempts Securities and Exchange Commission registrants from the requirement to disclose the date through which it has evaluated subsequent events for either original or restated financial statements. This standard does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provides different guidance on the accounting treatment for subsequent events or transactions. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  ASU 2010-20 requires additional disclosures about the credit quality of a company’s loans and the allowance for loan losses held against those loans.  Companies will need to disaggregate new and existing disclosures based on how it develops its allowance for loan losses and how it manages credit exposures.  Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class.  The new guidance is effective for interim- and annual periods beginning after December 15, 2010.  The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2 – GOING CONCERN CONSIDERATIONS

 

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern.  At June 30, 2010, the Company had an accumulated deficit of $29,301,576, and a working capital deficiency of $1,667,457.  Additionally, for the six months ended June 30, 2010, the Company incurred net losses of $4,821,166 and had negative cash flows from operations in the amount of $373,820. The ability of the Company to continue as a going concern is dependent upon increasing sales and obtaining additional capital and financing. Management intends to attempt to raise additional funds by way of a public or private offering.  While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect.

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ECLIPS MEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

 

NOTE 3 – NOTE RECEIVABLE

 

During the first quarter of 2010, the Company entered into a secured 6% demand promissory note (the “Demand Note”) with RootZoo, Inc. (“RZ”).  RZ owned and operated a website www.rootzoo.com, focused upon providing social networking to sports fans, statistics and commentary to the sports community. During the fourth quarter of 2009 the Company had entered into negotiations with the then fifty (50%) percent owner of the common stock of RZ and one of its then two directors (the “RZ Part Owner”) to acquire RZ pursuant to an Asset Purchase Agreement (the “RZ Acquisition”), but negotiations for the RZ Acquisition broke down and have since been terminated. As a result of the discontinuance of all negotiations for the RZ Acquisition, the Company elected to foreclose on its loan and to acquire the RZ business under its foreclosed loan agreement. On May 15, 2010 the Company demanded repayment of all outstanding amounts under the Demand Note. On June 6, 2010, RZ entered into a Peaceful Possession Letter Agreement with the Company pursuant to which RZ granted the Company all rights of possession in and to the collateral which secures the Demand Note, representing substantially all of the assets of RZ in partial satisfaction with the Demand Note debt. Subsequently the Company, through an Assignment Agreement, assigned the rights and possession of the collateral to its subsidiary, RZ Acquisition Corp. Following termination of negotiations, all of the persons associated with the development of the RZ business resigned. RZ presently has no employees or others who perform services necessary to maintain and develop RZ business successfully. Due to the termination of negotiations, the Company believes that the assets of RZ has no value and worthless. Consequently, the Company recorded a total impairment loss of $173,257 which represents the principal amount of $171,100 and interest receivable of $2,157 in connection with the secured 6% demand promissory note agreement. Such amount is included in the accompanying statements of operations under general and administrative expenses.

NOTE 4 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

	Estimated life		June 30, 2010
Computer Equipment	3 years		$	4,067
Office Equipment	5 years			8,142
Furniture and fixtures	5 years			11,243
Leasehold improvements	5 years			14,025
				37,476
Less: Accumulated depreciation				(1,034)
			$	36,442

During the six months ended June 30, 2010, the Company paid for leasehold improvements of $14,025 on a facility lease by an affiliated company for which our former Chief Executive officer and director, Greg Cohen, is the President. For the six months ended June 30, 2010 and 2009, depreciation expense amounted to $1,034 and $0, respectively.

 

NOTE 5 – INTANGIBLE ASSET