Notes to the Financial Statements
For the Years Ended December 31, 2013 and 2012
NOTE 1 - BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Medient is a global film production and distribution company with a strong presence in the key markets of North America and India. In 2013, the Company entered into a lease with the IDA under which the Company has the beneficial ownership of the Property together with an option to purchase the legal title to the Property on which Company intends to build a Studioplex.
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 December 31, 2013 and 2012 have been made. The Company currently does not have any subsidiaries.
Significant Accounting Policies
The Companys 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 Companys 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.
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Use of Estimates
The preparation of the 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less and money market instruments to be cash equivalents
Film Costs
The Company has acquired the rights to two completed films:
Storage 24
and
Yellow
.
Storage 24
was released in Europe in 2012 and in the United States in 2013. The Company is currently reviewing dates for domestic and international release of
Yellow
Film costs include the costs of the film rights that were acquired by the Company plus additional costs incurred prior to release. The films are amortized using the individual film forecast method, and the costs are amortized pro-rata for the current periods revenue over managements estimate of ultimate revenue. The Company began amortizing films in the fourth quarter of 2012, when they began to recognize revenue.
Film costs are presented as the lower of amortized cost or estimated fair value. Each film will be reviewed quarterly and if circumstances indicate that the fair value of the film (calculated as the discounted future cash flows from the film) is less than its unamortized cost, then impairment will be recorded. Estimates of future revenue are based on the best information currently available, but do involve uncertainty, and it is possible that reductions in the carrying value of the film assets may be required as a result of changes in circumstances that affect the revenue estimates for the future.
Impairment of Long Lived Assets
The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other
35
factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the value of expected future discounted operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or future discounted operating cash flows.
The Company reviews capitalized film costs for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable or at least once per year.
As of March 31, 2014, management determined that both major assets were not impaired.
Revenue Recognition
The Company recognizes revenue from the sale or licensing arrangement of a film in accordance with ASC 605-15
Revenue Recognition
. Revenue will be recognized only when all of the following criteria have been met:
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Persuasive evidence of a sale or licensing arrangement with a customer exists.
|
The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery.
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The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale.
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The arrangement fee is fixed or determinable.
|
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Collection of the arrangement fee is reasonably assured.
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A written contract with a distributor indicating the film name, territory and period is required for the recognition of revenue. Revenue is recognized when the performance criteria in the contracts have been met.
Film Tax Relief Revenue
Many countries make tax credits and the like available to encourage film production in the territory. Medient benefits from United Kingdom Film Tax Relief (FTR). The FTR may be treated as a reduction in the capitalized costs of the film assets financed or as revenue to the production company. The FTR has been earned by the production company, assigned to the previous film rights owner, Medient Unstoppable Limited, and then assigned to the Company as revenue.
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Medient Unstoppable Limited Revenue
Revenue is due to the Company from a related party, Medient Unstoppable Limited, of which the Companys co-founder is a significant shareholder, in the amount of the net proceeds from the FTR as well as income from sales of
Storage 24
. In accordance with an intercompany agreement between the Company and Medient Unstoppable Limited, all revenues earned by Medient Unstoppable Limited for the movie
Storage 24
are due to the Company. This includes FTR.
Earnings per Share
Earnings per share (basic) is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period covered. There were no potentially dilutive common stock equivalents as of December 31, 2013; therefore basic earnings per share is the same as diluted earnings per share for the year ended December 31, 2013. As the Company incurred net losses during the years ended December 31, 2013 and 2012 the basic and diluted loss per common share is the same amount, as any common stock equivalents would be considered anti-dilutive.
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 December 31, 2013 and 2012, the Company had no items of other comprehensive income. Therefore, the net loss equals the comprehensive loss for the years then ended.
Income Taxes
Provision for income taxes represents actual or estimated amounts payable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets, and for operating loss and tax credit carry forwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustment to the tax provision or benefit in the period of enactment.
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Fair Value of Financial Instruments
In accordance with the reporting requirements of ASC 820, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. At December 31, 2013, the Company did not have any financial instruments.
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.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued during the year ended December 31, 2013, none of which are expected to have a material impact on the Company's financial position, operations or cash flows.
NOTE 2 - CAPITAL LEASE AND GOVERNMENT ASSISTANCE
On August 21, 2013, the Company entered into a lease agreement (Lease) with the Effingham County Industrial Development Authority (the IDA). Under the Lease, the Company leased approximately 1,560 acres of land located primarily within Effingham County, Georgia. The Lease is effective from August 21, 2013 through July 1, 2033. No interest is payable and no payments are due for the first two years, with the total rent of $10 Million being paid in 18 equal annual installments, commencing February 28, 2016. The Company is obligated to pay additional rent if it does not achieve the specified goals of $90 Million in investment and 1,000 jobs on or before the end of year 5 (five). At the end of the Lease, the Company has the option to purchase the Property for $100. Furthermore, the State of Georgia and the IDA are providing additional cash grants, rebates, and tax incentives for the Studioplex. The Lease has been accounted for as a capital lease and the net present value of the minimum lease payments under the Lease is $3.6 Million.
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The Company obtained an independent third party appraisal on the Lease land, which indicated that the land has a fair market value of $22.1 Million. The difference between the net present values of the minimum Lease payments and the fair market value of the land is considered the value of the government assistance under the Lease.
The $18.5 Million of government assistance has been deferred on the accompanying balance sheet until such time as the Companys obligations under the Lease have been fulfilled. During the course of the Lease, the Company has beneficial ownership of the land and can utilize the land as collateral for financing purposes. The Company incurred approximately $276,831 and $72,872 of site development costs on the land in 2013 and 2012, respectively.
The discounted rate used in calculating the present value of the minimum lease payment was 10.72, which represents the Companys incremental borrowing rate.
Future interest and principal payments under the Lease are as follows:
For Period Ended
Interest
Principal
Total Payment
Balance
2014 $4,158,082
2015 4,622,217
2016 $465,478 $90,078 $555,556 4,532,141
2017 455,410 100,146 555,556 4,431,994
2018 444,213 111,343 555,556 4,320,651
Thereafter $5,034,899 $3,298,433 $8,333,332 $ 0
NOTE 3 MATERIAL AGREEMENTS
The Company was assigned agreements with Universal Pictures Visual Programming Limited (Universal) to distribute the film
Storage 24
for a period of 25 years commencing on the date of the firm release of the film via any media by Universal. The territories covered by this agreement are the United Kingdom and Eire, Australasia (as defined), Germany, Austria, and German speaking Switzerland and Benelux (consisting of Belgium, Netherlands and Luxembourg). The agreement outlines the royalty payments, which vary based on the type of distribution (internet streaming, free television, pay television, etc) and range from 20% to 50% of net receipts.
Other distribution agreements with similar terms have been entered into for other territories, including the United States and other international territories, for
Storage 24
.
The Company has sold the rights for the development, production and exploitation of any prequel, sequel or remake film(s) of the
Storage 24,
together with such rights required for the inclusion of the Monster in film(s).
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On May 7, 2013, the Company and Prime Focus entered into a Memorandum of Understanding that provides that Prime Focus and Medient shall execute a definitive agreement for the provision of equipment, technology and skill transfer by Prime Focus to Medient. The Company is in the process of finalizing the definitive agreement
NOTE 4 FILM COSTS
The Company has acquired the rights to two completed films:
Storage 24
and
Yellow
.
Storage 24
was released in Europe in 2012 in the United States in 2013. The Company is currently reviewing domestic and international release dates for
Yellow
. A number of other films are currently being developed by the Company.
The following presents the cost basis of each of the films:
|
| |
|
December 31,
2013
|
December 31,
2012
|
Yellow
|
$17,783,918
|
$14,653,173
|
Storage 24
|
5,500,000
|
5,500,000
|
Films in Development
|
1,448,460
|
34,000
|
Film Costs, Prior to Amortization
|
24,732,378
|
20,187,173
|
Less: Accumulated Amortization
|
(3,728,120)
|
(2,658,647)
|
Total Film Costs (net)
|
$21,004,258
|
$17,528,526
|
Film costs include the unamortized costs of the film rights that were acquired by the Company in addition to film costs incurred by the Company. The films are amortized using the individual film forecast method, and the costs are amortized pro-rata for the current periods revenue over managements estimate of ultimate revenue.
Film costs are presented as the lower of amortized cost or estimated fair value. Each film will be reviewed quarterly and if circumstances indicate that the fair value of the film (calculated as the discounted future cash flows from the film) is less than its unamortized cost, then impairment will be recorded. Estimates of future revenue are based on the best information currently available, but do involve uncertainty, and it is possible that reductions in the carrying value of the film assets may be required as a result of changes in circumstances that affect the revenue estimates for the future.
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The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the value of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or future operating cash flows. As of December 31, 2013, no indications of impairment exist
NOTE 5 SETTLEMENT PAYABLE
In 2012 the Company assumed a $385,000 settlement payable that was filed against Yellow Productions, LLC prior to the acquisition of the rights to
Yellow
by the Company. The settlement was payable upon demand and was settled in 2013.
NOTE 6 NOTES PAYABLE
The Company has assumed certain debt in the acquisition of the film assets, as discussed in Note 1. The following presents the notes payable outstanding as of December 31, 2013:
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December 31, 2013
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Lender
|
Date of Loan
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Due Date
|
Original Principal Amount
|
Principal Balance Only
|
Balance with Accrued Interest
|
Film
|
Prime Focus
|
10/01/13
|
10/01/16
|
3,764,000
|
3,764,000
|
3,764,000
|
Yellow & New Projects
|
Tommee May
|
5/18/2011
|
Post Release
|
180,000
|
180,000
|
180,000
|
Yellow
|
Indion Group
|
4/27/2012
|
Post Release
|
4,556,130
|
500,000
|
500,000
|
Yellow
|
AMAG
|
9/13/2011
|
8/31/2012
|
1,000,000
|
800,000
|
1,146,063
|
Yellow
|
Derreck Lee
|
5/1/2011
|
Post Release
|
500,000
|
600,000
|
600,000
|
Yellow
|
|
|
|
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$5,844,000
|
$6,190,063
|
|
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Prime Focus is a multi-national visual effects and post-production company. The Dubai division of Prime Focus provided $3,764,000 of services, of which $2,500,000 was in relation to special effects costs of
Yellow
and $1,264,000 was in relation to pre visualization costs for two current projects. No interest is payable.
Tommee May, a media investor, made a loan of $180,000 towards the production cost of the film
Yellow
. This liability was assumed by the Company upon the acquisition of the rights in
Yellow
as of October 18, 2012. No interest is payable.
Indion Group, a media and tax credit investor, made an initial loan of $4,556,130 towards the production cost of the film
Yellow
. This liability was reduced by the receipt of the films tax rebate to the amount of $600,000, and assumed by the Company upon the acquisition of the rights in
Yellow
as of October 18, 2012. No interest is payable.
AMAG, Inc. is a media investment company. It made a loan of $1,000,000, which has accumulated $346,063 of interest, towards the production cost of the film
Yellow
. In addition to repayment of principal and interest, AMAG shall receive a three percent participation in
Yellow
. This liability was assumed by the Company upon the acquisition of the rights in
Yellow
as of October 18, 2012. This note is currently in default. The Company is in the process of negotiating an extension. Annual interest is payable at 12%.
Mr. Derreck Lee, a media investor made a loan of $500,000, which has accumulated $100,000 of interest, towards the production cost of the film
Yellow
. In addition to repayment of principal and interest, Mr. Lee shall receive profit participation in the film after all other debts and equity investors in the film are paid in full. This liability was assumed by the Company upon the acquisition of the rights in
Yellow
as of October 18, 2012. No interest is payable.
As of December 31, 2013, it cannot be reasonably estimated as to how much, if any, may be paid out as profit participation under these agreements and therefore, nothing (other than interest where applicable) has been accrued.
NOTE 7 - CREDIT LINE
The Companys former line of credit was repaid by the former majority shareholders of the Company during the year. As of December 31, 2013, the Company has a new credit line of which $600,000 has been drawn down and with interest and other costs the amount outstanding of $788,289. The Company has no other outstanding liabilities on any credit facilities. The annual interest rate on the credit line is 12%.
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NOTE 8 RESTRICTED NOTES
During the year ended December 31, 2013, the Company issued $1,044,500 of Restricted Notes of which $78,500 were converted to common stock during the year. The balance of Restricted Notes as at December 31, 2013 was $966,000.
Annual interest rates on Restricted Notes range from 0% to 12%. Accrued Interest as of December 31, 2013 on the Restricted Notes was $23,644.
NOTE 9 -AGED DEBT
During the year to December 31, 2013, the Company retired debt with the use of Aged Debt in the amount of $1,400,000. Of this, $782,618 was converted to common stock during the year, with a balance outstanding of $617,382 as a December 31, 2013.
Annual interest rates on Aged Debt range from 0% to 12%. Interest Accrued on Aged Debt as of December 31, 2013 was $8,278.
NOTE 10 SCREEN ACTORS GUILD
During the year ended December 31, 2013, the Company assumed a debt due to the Screen Actors Guild (SAG) regarding the film,
Yellow
, in the amount of $311,244. The Company repaid $42,000 of the debt in 2013, leaving a balance of $269,244 as of December 31, 2013.
The Company also obtained a deposit held by SAG in the amount of $70,000.
NOTE 11 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company is 500,000,000 shares with a $0.001 par value. At December 31, 2013 and 2012, the Company had 109,841,420 and 28,458,000 shares of its common stock issued and outstanding respectively. The Company has 50,000,000 preferred shares authorized and 10,000,000 and 10,000,000 shares issued and outstanding, respectively.
During the years ended December 31, 2013 and 2012, the Company issued 109,841,420 and 27,054,000 shares, respectively. The Company issued 105,000 shares (179,000 in 2012) for services performed by the former majority shareholders of the Company, 105,000 shares earned for services performed by board members (250,000 in 2012), 62,283,420 shares issued in exchange for debt (3,250,000 in 2012), and 23,375,000 in 2012 for the acquisition of Kumaran Holding, LLC.
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NOTE 12 - INCOME TAXES
The Company has adopted ASC 740-10 which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The cumulative tax effect at the expected tax rate of 20% of significant items comprising the Companys net deferred tax amounts as of December 31, 2013 and 2012 are as follows:
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|
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Prior Year
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$
|
48,543
|
$
|
25,017
|
Tax Benefit for Current Period
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273,326
|
|
23,526
|
Total Deferred Tax Asset
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|
321,869
|
|
48,543
|
Less: Valuation Allowance
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|
(321,869)
|
|
(48,543)
|
Net Deferred Tax Asset
|
$
|
0
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$
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0
|
At December 31, 2013 and at December 31, 2012, the Company had net deferred tax assets of $0 and $0, respectively, for federal income tax purposes. These assets, if not utilized to offset taxable income, will begin to expire in 2028.
NOTE 13 EMPLOYEE BENEFIT PLANS
During the years ended December 31, 2013 and 2012, there were no qualified or non-qualified employee pension, profit sharing, stock option, or other plans authorized for any class of employees.
NOTE 14 DUE TO RELATED PARTY
The Company is obligated to a shareholder for funds advanced to the Company for operating expenses. The advances are unsecured and are to be paid back upon demand. The amounts due at December 31, 2013 and 2012 are $698,623 and $486,905, respectively.
NOTE 15 COMMITMENTS AND CONTINGENCIES
As presented in Note 6, the Company has entered into participation agreements in which the Company will pay the participation holders a portion of the proceeds from films after all debt has been repaid. As of December 31, 2013, it cannot be reasonably estimated as to how much, if any, may be paid out under these agreements, and therefore, no interest has been accrued.
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As of December 31, 2012, Michael A Littman, who had served as legal counsel to the Company, had accrued professional fees of $25,081. As part of the share purchase agreement dated August 24, 2012, the Sellers shall pay all debts, and obtain releases from creditors of the Company. As of December 31, 2012, the assumption of these liabilities has been recorded as additional paid in capital from the Sellers. It is the view of Management that upon completion of the funding of the escrow agreement, the Sellers shall pay these professional fees and Mr. Littman will provide the Company with the appropriate release.
NOTE 15 - SUBSEQUENT EVENTS
The Company has evaluated its activities subsequent to the year ended December 31, 2013 and noted the following reportable events:
On January 23, 2014 Mr. Matthew Mellon resigned as a director of the Company
On January 28, 2014, Medient completed the acquisition of Atlas International Film GmbH (Atlas).
On January 6, 2014, the Board of Directors of Medient Studios, Inc. adopted a resolution approving an amendment to our Articles of Incorporation to:
·
effectuate an increase of the authorized common shares from 500,000,000, par value $.001 per share, to 5,000,000,000, par value $.001 per share; and
·
effectuate an increase in the votes per share of the Companys Series A Preferred Stock, par value $.001 per share, from 25 to 250 votes per share.
Medient obtained the written consent of stockholders representing 64.0% of the voting power of the Companys outstanding stock as of January 6, 2014, approving an amendment to the Companys Articles of Incorporation to affect the above-mentioned corporate actions. Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended, the actions will not be effective and an amendment to our Articles of Incorporation effectuating the corporate actions will not be filed with the Secretary of State for the State of Nevada, until twenty (20) days after the date this Information Statement is filed with the Securities and Exchange Commission and a copy thereof is mailed to each of the Companys stockholders.
On January 29, 2014, Medient appointed San Francisco based Merriman Capital, Inc. (Merriman Capital) as the Company's capital markets advisor and Designated Advisor for Disclosure for the OTCQX market. The OTCQX marketplace is the premier tier of the U.S. Over-the-Counter (OTC) market, providing investors with an objective measure to distinguish the best OTC-traded companies.
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On February 10, 2014, Mr. Kumaran, Chairman of the Board and Chief Executive Officer, converted $660,000 of personal loans to the Company into common stock at $0.064 per share, the book value of the Company. The approximately 10.3 Million represents an 822% premium to the closing market price on February 7, 2014.
On March 21, Medient announced that Shore Development and Construction, LLC was engaged by the Company and contracted as the construction manager for the Studioplex.
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