Okay, let me try to answer all of the questions as best as I can. Let me know if I forget anything.
First of all, as I believe someone pointed out earlier, this is not an official SEC filing. It is their quarterly report as reported by the company but they are not a fully compliant and filing SEC company.
The company did operate at a net loss of $116,828 as can be seen on page 9 under "Nine month ended August 31, 2011". The math should be simple as it is just expenses were that much higher than incoming revenues.
As far as the accounting entry goes, it is tied in with the mentioned defaulting of a senior loan. The loan of which is being defaulted is the loan to Smash Clicks that previously had a face value of $1,000,000 (as seen on page 7) which was to be made in quarterly payments of $300,000 per quarter by either cash or shares. They have renegotiated this portion of the debt, which is also mentioned somewhere else in the report, by reworking it into a deal to become 24 monthly installments starting September 1st. They were able to write this into the book as a one time non-cash profit for the quarter ending August 31, 2011 because the debt no longer had an impact on that quarter; however, they still do owe the money and the entry that was realized for the quarter as "revenue" amounting to $978,006 will have to be re-entered in starting September 1st, 2011 as an expense under a new operating expense, account payable, or note payable.
Moving on to the "operating loss" portion of $116,828 you should notice that this is from costs of operation which mainly include general and administrative expenses. As explained in the report, these G&A expenses were mainly caused by the maintained operation of their call newly opened service center and the staff required to operate such. In regards to the question as to how they can claim a net profit when operating at a loss, the answer would be that revenues and expenses from operations are not the only items on a balance sheet that determines profit. The example here is that the cost of them operating as a business which includes G&A expenses, costs of productions, distribution costs and so on; this is an internet company with no manufacturing costs so the only costs are G&A, programming costs, and domain cost. To keep it short, operating here resulted in a loss of $116,828. After that, tack on the "revenue" generated by eliminating their debt and postponing it onto the next quarter of $978,006. Finally, there were more costs which I do not feel like rewriting the financial report for but all-in-all resulted in a "profit" of roughly $13,000. Here, it is important to keep in mind that they are only claiming a profit for the QUARTER ending August 31st, 2011 as the loss of $116,828 is for the entire NINE MONTH PERIOD ending August 31st, 2011. Big difference. It means that total operating revenue minus operating cost in the last 3 months is greater than operating revenue minus operating cost of the first 6 months.
I believe that is everything. Hope that's not too long and that it's helpful to some of you. Let me know if there's anything else and best of luck to you all!
-Phil
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