Notes to the Financial Statements
March 31, 2014
(Unaudited)
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 agreement with the Effingham County Industrial Development Authority (IDA) whereby it has beneficial ownership of 1560 acres in Effingham County. The Company plans to construct a Studioplex on the property.
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 three months ended March 31, 2014 and 2013 have been made. The Company has one subsidiary: Atlas International Film GmbH.
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)
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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.
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 it began to recognize revenue from
Storage 24
.
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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Film costs acquired in the acquisition of Atlas International GmbH (Atlas) are the costs of film rights owned by Atlas. Such rights are depreciated over 50 years on a straight line basis.
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 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.
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 March 31, 2014; therefore basic earnings per share is the same as diluted earnings per share for the three months ended
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March 31, 2014. As the Company incurred a net loss during the three months ended March 31, 2014 ( and a net profit for the three months ended March 31, 2013) 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 three months ended March 31, 2014 and 2013, the Company had no items of other comprehensive income. Therefore, the net loss equals the comprehensive loss for the three months 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.
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 March 31, 2014, 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
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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 three months ended March 31, 2014, 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.
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 $95,585 and $0 of site development costs on the land in the three months to March 31, 2014 and 2013, respectively.
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The discounted rate used in calculating the present value of the minimum lease payment was 10.72%, which represents the Companys incremental borrowing rate.
A Discount Accretion of $205,292 has been charged to the Profit & Loss Account to recognize the reduction in the benefit of the future lease payments.
Future interest and principal payments under the Lease are as follows:
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For Period Ended
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Interest
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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 ACQUISITION OF ATLAS INTERNATIONAL FILM GMBH
In January 2014, the Company completed the acquisition of Atlas International Film GmbH (Atlas). Under the Sale and Purchase Agreement, the Company purchased 100% of the issued and paid up capital of Euro 100,000 for $50,000, payable by issuing 5,000,000 common shares at $0.001.
Atlas has been consolidated as of March 31, 2014 and its results of operations have been recorded subsequent to the date of acquisition. The Company has temporarily recorded the excess purchase price as goodwill as of March 31, 2014.The Company will undergo a third party appraisal of Atlas film library as soon as practicable and believes that most of the goodwill will be allocated to the film library at that time.
NOTE 4 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.
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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).
As of March 20, 2014 the Company contracted with Shore Development & Construction, LLC (SDC) to act as general contractor for the building of the Studioplex in Effingham, Georgia. The project is planned as a four-phase construction project with a targeted completion in 2018.
The total cost is estimated to be approximately $700 million
Phase One will include the construction of roads, utilities (to include but not limited to power, water, sewage
) and the Studio One (~1,000,000 square feet). Phase One is estimated to cost approximately $50 million
Phase Two will include Medient corporate offices, parking structure and elevated driveway.
Phase Three will include multiplex/gaming center, hotel, boutique hotel, housing, low retail and parking structure.
Phase Four will include Studio Two (~400,000 square feet), high-end retail, leaf concert venue and landscaping.
NOTE 5 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 Company is currently filming a documentary being shot in India. Its initial preproduction costs of $50,300 were paid by the Company in the three months ended March 31, 2014.
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The following presents the cost basis of each of the films:
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| |
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March 31, 2014
|
March 31, 2013
|
Yellow
|
$17,819,698
|
$14,653,173
|
Storage 24
|
5,500,000
|
5,500,000
|
Films in Development
|
1,622,721
|
34,000
|
Atlas Film Costs
|
353,155
|
-
|
Film Costs, Prior to Amortization
|
25,925,574
|
20,187,173
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Less: Accumulated Amortization
|
(3,767,123)
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(2,658,647)
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Total Film Costs (net)
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$21,528,451
|
$17,528,526
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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.
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 March 31, 2014, no indications of impairment exist.
Film costs owned by Atlas are depreciated over 50 years on a straight line basis.
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NOTE 6 OTHER LONG TERM DEBT
HEB GmbH has lent Atlas significant monies at varying rates of interest. The loan remains the obligation of Atlas and totaled $5,316,725 as at March 31, 2014.
NOTE 7 NOTES PAYABLE
The following presents the notes payable outstanding as of March 31, 2014.