U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended August 31, 2015
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Transition Period From __________ to __________
0-55142
(Commission
File Number)
CRIMSON
FOREST ENTERTAINMENT GROUP INC.
(Exact
name of small business issuer as specified in its charter)
Nevada |
|
27-2838091 |
(State
or other jurisdiction of
incorporation or organization) |
|
(IRS
Employer
Identification No.) |
8335
Sunset Blvd., Suite #238
West
Hollywood, California 90069
(Address
of principal executive offices)
(323)
337-9086
(Issuer’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) 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 [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted 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 [X] No [ ]
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 definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] |
|
Accelerated
filer [ ] |
|
|
|
Non-accelerated
filer [ ] |
|
Smaller
reporting company [X] |
(Do
not check if smaller reporting company) |
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
Number
of shares of common stock outstanding as of August 31, 2015: 39,755,000.
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
ITEM
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS AS OF AUGUST 31, 2015 AND FEBRUARY 28, 2015
|
|
August
31, 2015 |
|
|
February
28, 2015 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Asset |
|
|
|
|
|
|
|
|
Cash |
|
$ |
3,462 |
|
|
$ |
107,901 |
|
Other Receivable |
|
|
373,082
|
|
|
|
601,021 |
|
Prepaid Project
Cost |
|
|
- |
|
|
|
272,718 |
|
Total Current
Assets |
|
|
376,544
|
|
|
|
981,640 |
|
Other Assets |
|
|
|
|
|
|
|
|
Film Costs |
|
|
1,408,330
|
|
|
|
1,259,036 |
|
Organization Costs |
|
|
3,269 |
|
|
|
3,785 |
|
Other Assets |
|
|
220 |
|
|
|
220 |
|
Total Assets |
|
$ |
1,788,363 |
|
|
$ |
2,244,681 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities |
|
$ |
246,035 |
|
|
$ |
33,942 |
|
Loans payable
- related parties |
|
|
691,943 |
|
|
|
1,098,497 |
|
Total Current
Liabilities |
|
|
937,978 |
|
|
|
1,132,439 |
|
Long Term Liabilities |
|
|
|
|
|
|
|
|
Convertible debt
– related parties |
|
|
1,900,000 |
|
|
|
1,750,000 |
|
Accrued Interest |
|
|
59,358 |
|
|
|
24,336 |
|
Total Liabilities |
|
|
2,897,336 |
|
|
|
2,906,775 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit: |
|
|
|
|
|
|
|
|
Preferred stock,
$0.0001 par value, 10,000,000 shares authorized; none issued and outstanding |
|
|
- |
|
|
|
- |
|
Common stock,
$0.0001 par value, 500,000,000 shares authorized; 39,755,000 shares issued and outstanding |
|
|
3,976 |
|
|
|
3,976 |
|
Additional paid-in
capital |
|
|
65,604 |
|
|
|
65,604 |
|
Accumulated
deficit |
|
|
(1,178,553 |
) |
|
|
(731,674 |
) |
Total
Stockholders’ Deficit |
|
|
(1,108,973 |
) |
|
|
(662,094 |
) |
TOTAL LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
$ |
1,788,363 |
|
|
$ |
2,244,681 |
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Six
Months Ended
August 31, |
|
|
Three
Months Ended
August 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Net Revenues |
|
$ |
6,863
|
|
|
$ |
- |
|
|
$ |
6,863
|
|
|
$ |
- |
|
Cost
of Revenue |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Gross
profit |
|
|
6,863
|
|
|
|
- |
|
|
|
6,863
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses |
|
|
393,754 |
|
|
|
346,712 |
|
|
|
163,770 |
|
|
|
154,882 |
|
Total
operating expenses |
|
|
393,754 |
|
|
|
346,712 |
|
|
|
163,770 |
|
|
|
154,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations |
|
|
(386,891 |
) |
|
|
(346,712 |
) |
|
|
(156,907 |
) |
|
|
(154,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income |
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
Expense |
|
|
60,000 |
|
|
|
6,299 |
|
|
|
30,800 |
|
|
|
4,477 |
|
Total
other expense |
|
|
59,988 |
|
|
|
6,299 |
|
|
|
30,800 |
|
|
|
4,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(446,879 |
) |
|
|
(353,011 |
) |
|
|
(187,707 |
) |
|
|
(159,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax |
|
|
- |
|
|
|
800 |
|
|
|
- |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
|
$ |
(446,879 |
) |
|
$ |
(353,811 |
) |
|
$ |
(187,707 |
) |
|
$ |
(160,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted |
|
|
39,755,000 |
|
|
|
39,755,000 |
|
|
|
39,755,000 |
|
|
|
39,755,000 |
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For The
Six Months Ended
August 31, |
|
|
|
2015 |
|
|
2014 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(446,879 |
) |
|
$ |
(353,811 |
) |
Adjustments to reconcile net loss to net cash (used in) operating activities: |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase)/Decrease in: |
|
|
|
|
|
|
|
|
Prepaid Project Cost |
|
|
272,718 |
|
|
|
|
|
Film Costs |
|
|
(149,294 |
) |
|
|
(28,092 |
) |
Other Assets |
|
|
516 |
|
|
|
(220 |
) |
Accounts payable and accrued liabilities |
|
|
212,093 |
|
|
|
1,963 |
|
Project advances |
|
|
- |
|
|
|
126,062 |
|
Accrued interest |
|
|
35,022 |
|
|
|
6,299 |
|
Net Cash (Used In) Operating Activities |
|
|
(75,824 |
) |
|
|
(247,799 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash from Acquisition of Crimson Forest |
|
|
- |
|
|
|
764 |
|
Payment for acquisition of Crimson Forest |
|
|
- |
|
|
|
(1,000 |
) |
Other Receivable |
|
|
227,939
|
|
|
|
- |
|
Net Cash provided by (Used In) Investing Activities |
|
|
227,939
|
|
|
|
(236 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from loans payable - related party |
|
|
- |
|
|
|
6,747 |
|
Repayment of loans payable-related party |
|
|
(406,554 |
) |
|
|
(20,000 |
) |
Proceeds from issuance of convertible debt |
|
|
150,000 |
|
|
|
500,000 |
|
Net Cash Provided By (Used In) Financing Activities |
|
|
(256,554 |
) |
|
|
486,747 |
|
NET (DECREASE) INCREASE IN CASH |
|
|
(104,439 |
) |
|
|
238,712 |
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD |
|
|
107,901 |
|
|
|
9,500 |
|
CASH - ENDING OF PERIOD |
|
$ |
3,462 |
|
|
$ |
248,212 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income tax |
|
$ |
- |
|
|
$ |
800 |
|
Interest |
|
$ |
- |
|
|
|
- |
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE
OF OPERATIONS
The
consolidated financial statements include the accounts of Crimson Forest Entertainment Group Inc. (formerly known as East Shore
Distributors, Inc.) and its wholly owned subsidiaries, Crimson Forest Entertainment (USA) LLC, Life Unknown The Movie LLC., Crimson
Forest Films (Canada) Ltd., Crimson Forest Films (Australia) Pty Ltd., Convergence The Movie LLC, and Nian The Movie LLC (collectively
referred as the “Company,” unless the context indicates otherwise).
Crimson
Forest Entertainment Group Inc. was incorporated in the State of Nevada on June 11, 2010. The Company was in the business of distributing
a variety of consumer products until the execution of a “Security Purchase Agreement” on February 7, 2014. Since then,
the new management and board of directors are in the business of financing, producing and acquiring theatrical quality feature
films and television series.
On
March 3, 2014, the Company entered into a Membership Interest Purchase Agreement with Namaskar Corporation, a California corporation,
and a related party of the Company. Subject to the terms and conditions of this agreement, the Company acquired 1,000 membership
interest units of Crimson Forest Entertainment (USA) LLC (“Crimson Forest”), a California limited liability company
with a purchase price of $1,000. Subsequent to the acquisition, Crimson Forest became a 100% owned subsidiary of the Company.
During
March 2014, the Company founded a wholly owned entity, Unknown Caller LLC (“UCL”), a California limited liability
company, with initial capital contribution of $5,500. On January 8, 2015, the Company has changed its legal name to Life Unknown
The Movie LLC (“LUML”).
On
November 19, 2014, the Company founded a wholly owned entity, Crimson Forest Films (Canada) Ltd. (“Crimson Forest Canada”)
in British Columbia, Canada. As of August 31, 2015, the Company has no material operating activities.
On
November 24, 2014, the Company founded a wholly owned entity, Crimson Forest Films (Australia) Pty Ltd. (“Crimson Forest
Australia”) in Australia with initial capital contribution of $1,000. As of August 31, 2015, the Company has no material
operating activities.
2. RISKS
AND UNCERTAINTIES
The
Company’s operations will be subject to normal entertainment industry risk and uncertainties including financial, operational,
technological, regulatory and other risks, including the potential risk of business failure.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented
in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these interim financial statements
do not include all of the information and notes required by GAAP for complete financial statements. These interim financial statements
should be read in conjunction with the consolidation financial statements and notes thereto for the fiscal year ended February
28, 2015 included in the Company’s Form 10-K. In the opinion of management, the interim financial statements included herein
contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial
position, the results of operations and cash flows for the periods presented. The operating results and cash flows for the interim
periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full
year.
The
Company has elected to adopt early Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination
of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information
and all references to development stage.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from estimates.
Revenue
Recognition
The
Company recognizes revenue from the sale (minimum guarantee or non-refundable advances) or licensing arrangement (royalty agreements)
of a film in accordance with ASC 926 “Revenue Recognition, Entertainment – Films”. Revenue will be recognized
only when all of the following criteria have been met:
a)
Persuasive evidence of a sale or licensing arrangement with a customer exists.
b)
The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and
unconditional delivery. (i.e. the “notice of delivery” (“NOD”) has been sent and there is a master negative
available for the customer).
c)
The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale.
d)
The arrangement fee is fixed or determinable.
e)
Collection of the arrangement fee is reasonably assured.
Earnings
per Share
Basic
earnings (loss) per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted
average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted
EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using
the treasury stock method (by using the average stock price for the period determine the number of shares assumed to be purchased
from the exercise of warrants), and convertible debt, using the if-converted method. Diluted EPS excludes all dilutive potential
of shares of common stock if their effect is anti-dilutive. Because the Company incurred losses for the six months and the three
months ended August 31, 2015, the number of basic and diluted shares of common stock is the same since any effect from outstanding
convertible debt would be anti-dilutive.
Cash
The
Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to
be cash equivalents. At August 31, 2015 and February 28, 2015, the Company had no cash equivalents.
Film
Costs
The
Company capitalizes costs which were used in the production of films according to ASC 926, Entertainment – Films. Pursuant
to ASC 926-20-35, the Company will begin to amortize capitalized film cost when a film is released and it begins to recognize
revenue from the film. For films produced by the Company, capitalized costs include all direct production and financing costs,
capitalized interest and production overhead.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Production
overhead includes allocation of costs of individuals or departments with exclusive or significant responsibility for the production
of films. Production overhead does not include general and administrative expenses.
Unamortized
film costs are tested for impairment when there is an indication that the fair value of the film may be less than unamortized
costs. Consistent with the rules for recognizing impairment of long-lived assets in ASC 926, the standard sets forth examples
of events or changes in circumstances that indicate that the entity must assess whether the fair value of the film (whether it
has been completed or is still in production) is less than the carrying amount of its unamortized film costs.
1.
An adverse change in the expected performance of the film prior to its release
2.
Actual costs substantially in excess of budgeted costs
3.
Substantial delays in completion or release schedules
4.
Changes in release plans, such as a reduction in the initial release pattern
5.
Insufficient funding or resources to complete the film and to market it effectively
6.
Actual performance subsequent to release fails to meet prerelease expectations. (ASC 926-20-35-12)
As
of August 31, 2015 and February 28, 2015, the carrying value of the film costs was $1,408,330 and $1,259,036, respectively.
Fair
Value of Financial Instruments
The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance
on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation
techniques, are assigned a hierarchical level.
The
following are the hierarchical levels of inputs to measure fair value:
|
● |
Level
1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets; |
|
|
|
|
● |
Level
2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar
assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities;
or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and |
|
|
|
|
● |
Level
3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair
value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The
Company’s financial instruments consisted primarily of cash, film costs, accounts payable, and loans payable – related
party. The carrying amounts of the Company’s financial instruments generally approximate their fair values as of August
31, 2015 and February 28, 2015, respectively, due to the short-term nature of these instruments.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates
expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation
allowances when necessary.
Assessing
whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative
evidence, including historical operating performance and expectations of future operating performance. The ultimate realization
of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company
believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established
against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is
made.
Income
taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon
audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations
for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax
rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes
on the statements of operations. There were no unrecognized tax benefits for the three months ended August 31, 2015 and 2014 since
a valuation allowance has offset the deferred tax asset resulting from the net operating losses.
None
of the Company’s federal or state income tax returns are currently under examination by the Internal Revenue Service (“IRS”)
or state authorities. However, fiscal years 2014, 2013, 2012 and 2011, remain subject to examination by the IRS and respective
states.
Recent
Accounting Pronouncements
In
June 2014, the FASB issued ASU 2014-10, “Development Stage Entities”. The amendments in this update remove the definition
of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between
development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements
for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder
equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development
stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development
stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively.
The Company elected early adoption of ASU 2014-10. The adoption of ASU 2014-10 removed the development stage entity financial
reporting requirements from the Company.
There
are no recent accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial
statements.
4.
OTHER RECEIVABLE
As
of August 31, 2015 and February 28, 2015, other receivable consisted of the following:
|
|
|
August
31, 2015 |
|
|
|
February
28, 2015 |
|
Total accumulated
capitalized costs |
|
$ |
3,520,824
|
|
|
$ |
3,147,590 |
|
Less:
40% Est. shared of costs of the Company |
|
|
(1,408,330 |
) |
|
|
(1,259,036 |
)
|
60% of the Project
cost is borne by CFA |
|
|
2,112,494
|
|
|
|
1,888,554 |
|
Less: Project
advances from CFA |
|
|
(199,720 |
) |
|
|
(199,720 |
) |
Line
of credit from EWB |
|
|
(1,539,692 |
) |
|
|
(1,087,813 |
) |
Other receivable
from CFA |
|
$ |
373,082
|
|
|
$ |
601,021 |
|
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On
July 3, 2014, the Company entered into a Co-Production Agreement with China Film Assist Co., Ltd. (“CFA”), a limited
company having its principal place of business in Beijing, Peoples Republic of China (“PRC”). In the Agreement, the
Company and CFA agree to finance, market and distribute, an English-language feature film tentatively entitled “Unknown
Caller” (the “Picture”). Unknown Caller LLC (which subsequently changes its name to Life Unknown The Movie LLC)
(“UCL”), which is the joint venture entity that will produce the Picture, agrees to perform all production work on
the Picture. The financial contributions of the Company and CFA depend on the selection of the main lead actor identified in the
Agreement. If such actor is the person identified in the agreement, 60% of the contributions would be attributed by CFA. If the
main lead actor is anyone other than the person specified in the agreement, the contributions would be split equally. The Company
is entitled to the distribution rights in the Picture in all regions and territories outside of those controlled by CFA, which
consist of Mainland China, Taiwan, Hong Kong, Macao, Singapore, Korea, Japan, Australia, New Zealand and Malaysia) in all media
(including without limitation licensing, merchandising and soundtrack distribution rights) in perpetuity. The Company has the
right to appoint and assign an international sales agent on behalf of both parties for all sales outside of mainland China. The
sales agency fees may not be more than 15% of all marketing and distribution expenses, which are capped at USD$100,000 and to
be shared by the Company and CFA according to the sales revenue in each of their respective territories and in proportion to the
overall international sales. Proceeds collected from exploitation of the Picture from any and all sources on a worldwide basis
either by the Company and CFA, are to be distributed on the basis of their respective distribution rights. The total budget amount
is $6,000,000. Should the actual spent budget exceed the budgeted amount, then it is the Company’s sole responsibility to
make up the difference over the budgeted amount.
As
of August 31, 2015 and February 28, 2015, the project has received $199,720 and $199,720, respectively, from CFA. In addition,
the line of credit from EWB (described in footnote 6) is being considered an advance from CFA. As of August 31, 2015, CFA funded
$1,739,412 to UCL and was obligated to fund an additional $373,082 to UCL.
5.
INCOME TAX
The
Company recognizes deferred tax assets and liabilities for both the expected impact of differences between the financial statements
and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit
carry forwards. The Company has established a valuation allowance to reflect the likelihood of the realization of deferred tax
assets.
The
Company has a net operating loss carry forward for tax purposes totaling approximately $1,178,000 at August 31, 2015, expiring
through 2034. U.S. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by
carry forwards after a change in control (generally greater than a 50% change in ownership).
Significant
deferred tax assets at August 31, 2015 and February 28, 2015 are approximately as follows:
|
|
August
31, 2015 |
|
|
February
28, 2015 |
|
|
|
|
|
|
|
|
Gross deferred
tax assets: |
|
|
|
|
|
|
|
|
Net
operating loss carry forwards |
|
$ |
400,000 |
|
|
$ |
248,000 |
|
Total deferred
tax assets |
|
|
400,000 |
|
|
|
248,000 |
|
Less: valuation
allowance |
|
|
(400,000 |
) |
|
|
(248,000 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax
asset recorded |
|
$ |
- |
|
|
$ |
- |
|
As
of August 31, 2015 and February 28, 2015, the valuation allowances were $400,000 and $248,000, respectively.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
actual tax benefit differs from the expected tax benefit for the six months and three months ended August 31, 2015 and 2014 (computed
by applying the U.S. Federal Corporate tax rate of 34% to income before taxes) approximately as follows:
|
|
For
The Six Months
Ended
August 31, |
|
|
For
The Three Months
Ended
August 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset for NOL carry forwards |
|
|
152,000
|
|
|
|
120,000 |
|
|
|
64,000
|
|
|
|
55,000 |
|
Change
in valuation allowance |
|
|
(152,000 |
) |
|
|
(120,000 |
) |
|
|
(64,000 |
) |
|
|
(55,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income
tax expenses (benefit) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative
to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of August
31, 2015.
The
net change in valuation allowance during the six months ended August 31, 2015 and 2014 was an increase of approximately $152,000
and $120,000, respectively.
The
net change in valuation allowance during the three months ended August 31, 2015 and 2014 was an increase of approximately $64,000
and $55,000, respectively.
6.
PROMISSORY NOTE
On
August 29, 2014, UCL entered into a Business Loan Agreement, Commercial Security Agreement and Promissory Note with East West
Bank (“EWB”). Pursuant to the Loan Agreement, EWB provided UCL with a Variable Rate Draw Down Line of Credit Loan
(the “Loan”) for an aggregate amount of USD $3,333,333 due on August 29, 2015. The Loan Agreement provides that UCL
may from time to time borrow up to an aggregate amount of $3,333,333 from East West Bank. The Loan was secured by Standby Letter
of Credit denominated in Renminbi (“RMB”) for the equivalent of USD $3,333,333, which were issued by East West Bank
China (“EWCN”). The Loan is also secured by substantially all of UCL’s tangible and intangible property, including
but not limited to UCL’s inventory, accounts, instruments, and equipment. The Loan bears interest on the outstanding daily
balance at a variable interest rate based on changes in the daily Wall Street Journal Prime rate, which was 3.25% per annum at
the time the Loan Agreement was executed. The agreements contain customary events of default that include, among others, non-payment
of principal, interest or fees, violation of certain covenants, defective collateralization, inaccuracy of representations and
warranties, and insolvency events.
The
Loan proceeds are to be used as followed:
(a)
Film Production. $3 million are to be allocated for film production of the Picture.
(b)
Loan reserve. For each standby Letter of Credit, 10% of the face amount of the Standby Letter of Credit is required to be maintained
as a reserve under the loan and allocated for (1) payment of interest and (2) for differences in the amount of the Loan and the
Standby Letter of Credit resulting from fluctuations in the USD/RMB exchanges rate during the term of the loan.
UCL
is required to pay the Loan in accordance with the following payment schedule:
(a)
UCL shall pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning September 29, 2014,
with all subsequent interest payments to be due on the same day of each month after that until the maturity date.
(b)
UCL shall pay all outstanding principal plus all accrued unpaid interest on the date which is 30 days prior to the expiration
date of the standby letters of credit.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As
of August 31, 2015, UCL had an outstanding balance of $1,539,692 under the line of credit with EWB.
7.
LOAN PAYABLE-RELATED PARTY
The
related parties listed below loaned money to the Company for the purpose of working capital. As of August 31, 2015 and February
28, 2015, due to related party consisted of the following:
|
|
August
31, 2015 |
|
|
February
28, 2015 |
|
Due
to Mirare Corporation |
|
$ |
675,000 |
|
|
$ |
395,000 |
|
Due to Anthony
Lim |
|
|
12,212 |
|
|
|
700,000 |
|
Due
to Jonathan Lim |
|
|
4,731 |
|
|
|
3,497 |
|
Total |
|
$ |
691,943 |
|
|
$ |
1,098,497 |
|
Mirare
Corporation is ultimately owned by Mr. Anthony Lim and Mr. Jonathan Lim. Mr. Jonathan Lim is the Chief Executive Officer and chairman
of the Company. Mr. Anthony Lim is the father of Mr. Jonathan Lim. Those loans are unsecured, bear no interest, and due on demand.
8.
CONVERTIBLE DEBT
The
Company had the following convertible debt outstanding:
|
|
August
31, 2015 |
|
|
February
28, 2015 |
|
Convertible
Debt |
|
$ |
1,900,000 |
|
|
$ |
1,750,000 |
|
Convertible
Debt Issued in March 2014
On
March 23, 2014, the Company entered a Convertible Notes Purchase Agreement with Portnice Investment Limited, a British Virgin
Islands corporation and a related party of the Company. Subject to the terms and conditions of this agreement, the Company may
issue up to an aggregate maximum of $2,000,000 in principal amount of Convertible Notes prior to March, 2019. The Convertible
Notes pay interest at a rate of 3.8 % per annum, compounded annually, based on a 365 day year. Principal and any accrued but unpaid
interest under Convertible Notes shall be due and payable on the earlier of (a) the fifth year anniversary of the issuance date
of Convertible Notes (b) the consummation of a Qualified Financing, which involves the issuance of Capital Stock and results in
gross proceeds equal to or in excess of $3,000,000.
The
Convertible Notes is convertible at the holders’ option into shares of Company common stock at $0.008 per share or at the
purchase price of the Capital Stock issued in the Qualified Financing. On March 23, 2014, the Company issued a Convertible Promissory
Note in principal amount of $250,000 under this agreement to Portnice Investment Limited. On June 13, 2014, the Company issued
a Convertible Promissory Note to Portnice in the principal amount of $250,000. On November 21, 2014, the Company issued an additional
Convertible Promissory Note to Portnice in the principal amount of $250,000. On December 31, 2014, the Company issued an additional
Convertible Promissory Note to Portnice in the principal amount of $1,000,000. On May 28, 2015, the Company issued an additional
Convertible Promissory Note to Portnice in the principal amount of $50,000. As of August 31, 2015 and February 28, 2015, the Convertible
Debt amounted to $1,900,000 and $1,750,000, respectively.
Interest
expense of the Convertible Notes for the six months ended August 31, 2015 and 2014 amounted to $35,022 and $6,299, respectively.
Interest
expense of the Convertible Notes for the three months ended August 31, 2015 and 2014 amounted to $18,084 and $4,477, respectively.
9.
STOCKHOLDER’S EQUITY (DEFICIT)
On
March 10, 2014, the Company approved an increase of the Company’s authorized common stock from 100,000,000 to 500,000,000
shares.
Stock
Purchase Agreement
On
November 3, 2014, the Company entered into a Stock Purchase Agreement with CFA. Pursuant to the terms of the Stock Purchase Agreement,
the Company agreed to issue and sell an aggregate of 10,000,000 shares of the Company’s Common Stock to CFA at a price of
$0.50 per share for aggregate gross proceeds of $5,000,000.
The
transaction was scheduled to close in installments:
i) |
10% of the shares
shall be purchased upon 5 working days after execution of the Stock Purchase Agreement; |
|
|
ii) |
40% of the shares
shall be purchased upon on or before December 15, 2014; |
|
|
iii) |
50% of the shares
shall be purchased upon on or before January 15, 2015; |
As
of August 31, 2015, no CFA had not funded any portion of the $5 million and no shares were issued. We are in negotiations with
CFA regarding this Stock Purchase Agreement.
10.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date the financial statements were issued. Management does not believe there
were any other subsequent events have occurred that would require further disclosure or adjustment to the financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD
LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations, estimates,
forecasts and projections about us, our future performance and the industries in which we operate as well as our management’s
assumptions and beliefs. Statements that contain words like “believe”, “expect”, “anticipate”,
“optimistic”, “intend”, “will”, or variations of such words and similar expressions are forward-looking
statements. In addition, any statements that refer to trends in our businesses, future financial results, and our liquidity and
business plans are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
There can be no assurance that forward-looking statements will be achieved, and actual results could differ materially from those
expressed or implied by forward-looking statements. Important factors that could cause actual results to differ materially include
those discussed under “Risk Factors” in our Annual Report on From 10-K for the fiscal year ended February 28, 2014.
We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of
this Form 10-Q.
The Company
Prior
to February 2014, we pursued a business of distributing consumer products, including alcohol detection saliva strips, a facial
anti-aging cream and a hand moisturizing cream. In February 2014, Samcorp Capital Corporation acquired 91% of our issued and outstanding
stock.
On
March 3, 2014, we acquired Crimson Forest Entertainment (USA) LLC. On June 20, 2014, we changed our name to “Crimson Forest
Entertainment Group Inc.” (referred to herein as the “Company”).
During
March 2014, the Company founded a wholly owned entity, Unknown Caller LLC, (“Unknown”) a California limited liability
company, with initial capital contribution of $5,500.
With
our new management and ownership, we intend to build the Company into a global independent motion picture studio that finances,
produces and acquires theatrical quality feature films and televisions series, with budgets up to $25 million, for worldwide distribution.
We currently have offices in Los Angeles and Shanghai, and our management will play an integral role in all aspects of the film
and television production process.
Our
senior management team has substantial experience in the filmed entertainment industry in the United States and China. We believe
our management’s experience will allow the Company to successfully conceptualize, produce and distribute various film and
television projects worldwide and in the local Chinese market, and position the Company as a valuable partner in the growing Chinese
theatrical marketplace.
RESULTS
OF OPERATIONS
For
the Six Months Ended August 31, 2015 Compared to the Six Months Ended August 31, 2014
| |
| | |
| | |
Increase/ | |
| |
Six Months Ended | | |
Increase/ | | |
(Decrease) | |
| |
August
31, | | |
(Decrease) | | |
Percentage | |
| |
2015
| | |
2014
| | |
U.S.
Dollar ($) | | |
(%) | |
Net Revenues | |
$ | 6,863
| | |
$ | - | | |
$ | 6,863
| | |
$ | - | |
Cost of Revenue | |
| - | | |
| - | | |
| - | | |
| - | |
Gross profit | |
| 6,863
| | |
| - | | |
| 6,863
| | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
| 393,754 | | |
| 346,712 | | |
| 47,042 | | |
| 13.56 | |
Total operating expenses | |
| 393,754 | | |
| 346,712 | | |
| 47,042 | | |
| 13.56 | |
| |
| | | |
| | | |
| | | |
| | |
Loss From Operations | |
| (386,891 | ) | |
| (346,712 | ) | |
| (40,179 | ) | |
| 13.56 | |
| |
| | | |
| | | |
| | | |
| | |
Other Expense: | |
| | | |
| | | |
| | | |
| | |
Other Income | |
| (12 | ) | |
| - | | |
| (12 | ) | |
| - | |
Interest Expense | |
| 60,000 | | |
| 6,299 | | |
| 53,701 | | |
| 852.53 | |
Total other expense | |
| 59,988 | | |
| 6,299 | | |
| 53,689
| | |
| 828.53 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Loss | |
| (446,879 | ) | |
| (353,011 | ) | |
| (93,868 | ) | |
| 26.59
| |
| |
| | | |
| | | |
| | | |
| | |
Provision for
income tax | |
| - | | |
| 800 | | |
| (800 | ) | |
| 100.00 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
| (446,879 | ) | |
| (353,811 | ) | |
$ | (93,068 | ) | |
$ | 26.30
| |
Revenue
Revenue was $6,863
for the six months ended August 31, 2015, compared to $0 for the six months ended August 31, 2014. The increase was due to the
increase of revenue from previous project.
Cost
of Revenue
We
had no cost of revenue for the six months ended August 31, 2015 or 2014.
Gross
Profit
Gross profit from
sales was $6,863 for the six months ended August 31, 2015, compared to $0 for the six months ended August 31, 2014. The increase
was due to the increase of revenue from previous project.
General
and Administrative Expenses
General
and administrative expenses were $393,754 for the six months ended August 31, 2015, compared to $346,712 for the six months ended
August 31, 2014, which represents an increase of $47,042, or 14%. This increase was due to the increase of administrative expenses
for the movie projects and professional fees related to public company filing and business strategy.
Interest
expense.
Interest expense was $60,000 for the six months
ended August 31, 2015, compared to $6,299 for the six months ended August 31, 2014, which represents an increase of $53,701, or
852.53%. The increase in interest expense was due to increase in interest accrued derived from additional issuance of convertible
debt and line of credit for the six months ended August 31, 2015.
For
the Three Months Ended August 31, 2015 Compared to the Three Months Ended August 31, 2014
| |
| | |
| | |
Increase/ | |
| |
Three Months Ended | | |
Increase/ | | |
(Decrease) | |
| |
August
31, | | |
(Decrease) | | |
Percentage | |
| |
2015
| | |
2014
| | |
U.S.
Dollar
($) | | |
(%)
| |
Net Revenues | |
$ | 6,863
| | |
$ | - | | |
$ | 6,863
| | |
| - | |
Cost of Revenue | |
| - | | |
| - | | |
| - | | |
| - | |
Gross profit | |
| 6,863
| | |
| - | | |
| 6,863
| | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
General
and administrative expenses | |
| 163,770 | | |
| 154,882 | | |
| 8,888 | | |
| 5.73 | |
Total
operating expenses | |
| 163,770 | | |
| 154,882 | | |
| 8,888 | | |
| 5.73 | |
| |
| | | |
| | | |
| | | |
| | |
Loss From Operations
| |
| (156,907 | ) | |
| (154,882 | ) | |
| (2,025 | ) | |
| 1.31
| |
| |
| | | |
| | | |
| | | |
| | |
Other Expense: | |
| | | |
| | | |
| | | |
| | |
Interest
Expense | |
| 30,800 | | |
| 4,477 | | |
| 26,323 | | |
| 587.96 | |
Total
other expense | |
| 30,800 | | |
| 4,477 | | |
| 28,348
| | |
| 587.96
| |
| |
| | | |
| | | |
| | | |
| | |
Operating Loss | |
| (187,707 | ) | |
| (159,359 | ) | |
| (28,348 | ) | |
| 17.79
| |
| |
| | | |
| | | |
| | | |
| | |
Provision for
income tax | |
| - | | |
| 800 | | |
| (800 | ) | |
| 100.00 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (187,707 | ) | |
$ | (160,159 | ) | |
$ | (27,548 | ) | |
$ | 17.20
| |
Revenue
Revenue was $6,863
for the three months ended August 31, 2015, compared to $0 for the three months ended August 31, 2014. The increase was due to
the increase of revenue from previous project.
Cost
of Revenue
We
had no cost of revenue for the three months ended August 31, 2015 or 2014.
Gross
Profit
Gross profit from
sales was $6,863 for the three months ended August 31, 2015, compared to $0 for the three months ended August 31,2014. The increase
was due to the increase of revenue from previous project.
General
and Administrative Expenses
General
and administrative expenses were $163,770 for the three months ended August 31, 2015, compared to $154,882 for the three months
ended August 31, 2014, which represents an increase of $8,888, or 5.73%. This increase was due to the increase of administrative
expenses for the movie projects.
Interest
expense
Interest
expense was $30,800 for the three months ended August 31, 2015, compared to $4,477 for the three months ended August 31, 2014,
which represents an increase of $26,323, or 587.96%. The increase in interest expense was due to increase in interest accrued
derived from additional issuance of convertible debt for the three months ended August 31, 2015.
Liquidity
& Capital Resources
Our
principal sources of liquidity during the three months ended August 31, 2015 include proceeds from issuance of convertible debt
and net proceeds from loan from related party.
As
of August 31, 2015, we had cash of $3,462 as compared to $107,901 as of February 28, 2015, representing a decrease of $104,439.
The
following table sets forth a summary of our cash flows for the three months indicated:
| |
For
The Six Months
Ended
August 31, | |
| |
2015
| | |
2014
| |
| |
| | |
| |
Net cash (used in) operating activities | |
$ | (75,824 | ) | |
$ | (247,799 | ) |
Net cash provided by (used in) investing activities | |
$ | 227,939
| | |
$ | (236 | ) |
Net cash (used in) provided by financing activities | |
$ | (256,554 | ) | |
$ | 486,747 | |
Net cash used in operating activities was
$75,824 for the six months ended August 31, 2015, compared to $247,799 for the six months ended August 31, 2014. The increase
of $171,975 was primarily due to increased prepaid project cost of $272,718 for the six months ended August 31, 2015.
Net cash provided
by investing activities was $227,939 for the six months ended August 31, 2015, compared to to the net cash used in investing activities
$236 for six months ended August 31, 2014. The increase of $228,175 was due to the decrease other receivable of $228,175 for the
six months ended August 31, 2015.
Net
cash used in financing activities amounted to $256,554 for the six months ended August 31, 2015, compared to the net cash provided
by financing activities of $486,747 for the six months ended August 31, 2014, representing a decrease of $743,301. The decrease
was primarily due to the repayment of loan to related party of $406,554 for the six months ended August 31, 2015.
On
March 23, 2014, the Company entered into a financing agreement with Portnice Investment Limited for the amount of $2,000,000 to
be used for operational and project development expenses. The financing agreement was executed as a convertible note purchase
agreement with Portnice Investment Limited whereby the company may sell and issue up to an aggregate maximum of $2,000,000 in
principal amount of Convertible Notes prior to March 3, 2019. The Notes bear an interest rate equal to 3.8% per annum, compounded
annually, based on a 365 day year. On March 23, 2014, the Company issued a Convertible Promissory Note in principal amount of
$250,000 under this agreement to Portnice Investment Limited. On June 13, 2014, the Company issued an additional Convertible Promissory
Note to Portnice in the principal amount of $250,000. On November 21, 2014, the Company issued an additional Convertible Promissory
Note to Portnice in the principal amount of $250,000. On December 31, 2014, the Company issued an additional Convertible Promissory
Note to Portnice in the principal amount of $1,000,000. As of August 31, 2015, the Convertible Debt had a balance of $1,900,000.
On
July 3, 2014, the Company entered into a Co-Production Agreement with China Film Assist Co., Ltd. (“CFA”), a limited
company having its principal place of business in Beijing, Peoples Republic of China (“PRC”). In the Agreement, the
Company and CFA agree to finance, market and distribute, an English-language feature film tentatively entitled “Unknown
Caller” (the “Picture”). Unknown Caller LLC (which subsequently changes its name to Life Unknown The Movie LLC)
(“UCL”), which is the joint venture entity that will produce the Picture, agrees to perform all production work on
the Picture. The financial contributions of the Company and CFA depend on the selection of the main lead actor identified in the
Agreement. If such actor is the person identified in the agreement, 60% of the contributions would be attributed by CFA. If the
main lead actor is anyone other than the person specified in the agreement, the contributions would be split equally. The Company
is entitled to the distribution rights in the Picture in all regions and territories outside of those controlled by CFA, which
consist of Mainland China, Taiwan, Hong Kong, Macao, Singapore, Korea, Japan, Australia, New Zealand and Malaysia) in all media
(including without limitation licensing, merchandising and soundtrack distribution rights) in perpetuity. The Company has the
right to appoint and assign an international sales agent on behalf of both parties for all sales outside of mainland China. The
sales agency fees may not be more than 15% of all marketing and distribution expenses, which are capped at USD$100,000 and to
be shared by the Company and CFA according to the sales revenue in each of their respective territories and in proportion to the
overall international sales. Proceeds collected from exploitation of the Picture from any and all sources on a worldwide basis
either by the Company and CFA, are to be distributed on the basis of their respective distribution rights. The total budget amount
is $6,000,000. Should the actual spent budget exceed the budgeted amount, then it is the Company’s sole responsibility to
make up the difference over the budgeted amount.
As of August 31, 2015 and February 28, 2015,
the project has received $199,720 and $199,720, respectively, from CFA. In addition, the line of credit from EWB (described in
note) is being considered an advance from CFA. As of August 31, 2015, CFA funded $1,739,412 to UCL and was obligated to fund an
additional $368,964 to UCL.
On
August 29, 2014, UCL entered into a Business Loan Agreement, Commercial Security Agreement and Promissory Note with East West
Bank (“EWB”). Pursuant to the Loan Agreement, EWB provided UCL with a Variable Rate Draw Down Line of Credit Loan
(the “Loan”) for an aggregate amount of USD $3,333,333 due on August 29, 2015. The Loan Agreement provides that UCL
may from time to time borrow up to an aggregate amount of $3,333,333 from East West Bank. The Loan was secured by Standby Letter
of Credit denominated in Renminbi (“RMB”) for the equivalent of USD $3,333,333, which were issued by East West Bank
China (“EWCN”). The Loan is also secured by substantially all of UCL’s tangible and intangible property, including
but not limited to UCL’s inventory, accounts, instruments, and equipment. The Loan bears interest on the outstanding daily
balance at a variable interest rate based on changes in the daily Wall Street Journal Prime rate, which was 3.25% per annum at
the time the Loan Agreement was executed. The agreements contain customary events of default that include, among others, non-payment
of principal, interest or fees, violation of certain covenants, defective collateralization, inaccuracy of representations and
warranties, and insolvency events.
The
Loan proceeds are to be used as followed:
(a)
Film Production. $3 million are to be allocated for film production of the Picture.
(b)
Loan reserve. For each standby Letter of Credit, 10% of the face amount of the Standby Letter of Credit is required to be maintained
as a reserve under the loan and allocated for (1) payment of interest and (2) for differences in the amount of the Loan and the
Standby Letter of Credit resulting from fluctuations in the USD/RMB exchanges rate during the term of the loan.
UCL
is required to pay the Loan in accordance with the following payment schedule:
(a)
UCL shall pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning September 29, 2014,
with all subsequent interest payments to be due on the same day of each month after that until the maturity date.
(b)
UCL shall pay all outstanding principal plus all accrued unpaid interest on the date which is 30 days prior to the expiration
date of the standby letters of credit.
As
of August 31, 2015, UCL had an outstanding balance of $1,539,692 under the line of credit with EWB.
On
November 3, 2014, the Company entered into a Stock Purchase Agreement with CFA. Pursuant to the terms of the Stock Purchase Agreement,
the Company agreed to issue and sell an aggregate of 10,000,000 shares of the Company’s Common Stock to CFA at a price of
$0.50 per share for aggregate gross proceeds of $5,000,000.
The
transaction was scheduled to close in installments:
i) |
10%
of the shares shall be purchased upon 5 working days after execution of the Stock Purchase Agreement; |
|
|
ii) |
40%
of the shares shall be purchased upon on or before December 15, 2014; |
|
|
iii) |
50%
of the shares shall be purchased upon on or before January 15, 2015; |
As
of August 31, 2015, no CFA had not funded any portion of the $5 million and no shares were issued. We are in negotiations with
CFA regarding this Stock Purchase Agreement.
Critical
Accounting Policies and Estimates
Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our
significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies
impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to
be critical are those policies that have the most significant impact on our financial statements and require management to use
a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given
current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause
effect on our results of operations, financial position or liquidity for the periods presented in this report.
In
the six months ended August 31, 2015, the Company elected to early adopt Accounting Standards Update No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company
to remove the inception to date information and all references to development stage.
Recent
Accounting Pronouncements
Other
than Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, there are no recent accounting pronouncements expected to affect the Company.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons,
also known as “special purpose entities” (SPEs).
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES.
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our chief executive officer / chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period
covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact
that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible
controls and procedures relative to their costs.
Based
on our evaluation, our chief executive officer / chief financial officer concluded that our disclosure controls and procedures
are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required
to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive officer / chief financial officer, as appropriate, as appropriate
to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
There
were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during
the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The
Company is not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be
likely to have a material adverse effect on our financial condition or results of operations.
ITEM
1A. RISK FACTORS
In
addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk
Factors” in our Annual Report on Form 10-K for our fiscal year ended February 28, 2015. The risks discussed in our Annual
Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual
Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
31.1 |
Certification
of Chief Executive Officer |
|
|
31.2 |
Certification
of Chief Financial Officer |
|
|
32.1 |
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
CRIMSON
FOREST ENTERTAINMENT GROUP INC. |
|
|
|
Date:
October 20, 2015 |
By:
|
/s/
Jonathan Lim |
|
Jonathan
Lim
President
and Chief Executive Officer
(Principal
Executive Officer)
|
Date:
October 20, 2015 |
By:
|
/s/
Jonathan Lim |
|
Jonathan
Lim
Chief
Financial Officer
(Principal
Financial Officer)SSS |
INDEX
TO EXHIBITS
31.1 |
Certification
of Chief Executive Officer |
|
|
31.2 |
Certification
of Chief Financial Officer |
|
|
32.1 |
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
EXHIBIT
31.1
CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Jonathan Lim, Chief Executive Officer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Crimson Forest Entertainment Group Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b.
|
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated
Financial Statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c.
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
d.
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
b.
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
October 20, 2015
/s/
Jonathan Lim |
|
Jonathan
Lim |
|
EXHIBIT
31.2
CERTIFICATION
OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Jonathan Lim, Chief Financial Officer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Crimson Forest Entertainment Group Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b.
|
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated
Financial Statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c.
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
d.
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
b.
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: October 20, 2015
/s/
Jonathan Lim |
|
Jonathan
Lim |
|
EXHIBIT
32.1
STATEMENT
REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Crimson Forest Entertainment Group Inc. (the “Company”) for the
period ended August 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Jonathan Lim, Chief Executive Officer of the Company, certify that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, our consolidated financial condition and results
of operations.
/s/
Jonathan Lim |
|
Jonathan
Lim |
|
Chief
Executive Officer |
|
Date:
October 20, 2015
This
certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed
by us pursuant to the Securities Exchange Act of 1934, as amended, and does not constitute a part of the Quarterly Report of Crimson
Forest Entertainment Group Inc. on Form 10-Q for the period ended August 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof.
EXHIBIT
32.2
STATEMENT
REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Crimson Forest Entertainment Group Inc. (the “Company”) for the
period ended August 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Jonathan Lim, Chief Financial Officer of the Company, certify that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, our consolidated financial condition and results
of operations.
/s/
Jonathan Lim |
|
Jonathan
Lim |
|
Chief
Financial Officer |
|
Date:
October 20, 2015
This
certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed
by us pursuant to the Securities Exchange Act of 1934, as amended, and does not constitute a part of the Quarterly Report of Crimson
Forest Entertainment Group Inc. on Form 10-Q for the period ended August 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof.