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 May 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 May 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 MAY 31, 2015 AND FEBRUARY 28, 2015
| |
May
31, 2015 | | |
February
28, 2015 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current Asset | |
| | | |
| | |
Cash | |
$ | 9,310 | | |
$ | 107,901 | |
Other Receivable | |
| 390,898 | | |
| 601,021 | |
Prepaid Project Cost | |
| - | | |
| 272,718 | |
Total Current Assets | |
| 400,208 | | |
| 981,640 | |
Other Assets | |
| | | |
| | |
Film Costs | |
| 1,411,640 | | |
| 1,259,036 | |
Organization Costs | |
| 3,269 | | |
| 3,785 | |
Other Assets | |
| 220 | | |
| 220 | |
Total Assets | |
$ | 1,815,337 | | |
$ | 2,244,681 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 204,610 | | |
$ | 33,942 | |
Loans payable - related parties | |
| 690,719 | | |
| 1,098,497 | |
Total Current Liabilities | |
| 895,329 | | |
| 1,132,439 | |
Long Term Liabilities | |
| | | |
| | |
Convertible debt – related parties | |
| 1,800,000 | | |
| 1,750,000 | |
Accrued Interest | |
| 41,274 | | |
| 24,336 | |
Total Liabilities | |
| 2,736,603 | | |
| 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 | |
| (990,846 | ) | |
| (731,674 | ) |
Total Stockholders’ Deficit | |
| (921,266 | ) | |
| (662,094 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
$ | 1,815,337 | | |
$ | 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 OPERATION
AND OTHER COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MAY 31, 2015
AND 2014
| |
Three Months Ended May 31, | |
| |
2015 | | |
2014 | |
Net Revenues | |
$ | - | | |
$ | - | |
Cost of Revenue | |
| - | | |
| - | |
Gross profit | |
| - | | |
| - | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
General and administrative expenses | |
| 229,984 | | |
| 193,652 | |
Total operating expenses | |
| 229,984 | | |
| 193,652 | |
| |
| | | |
| | |
Loss From Operations | |
| (229,984 | ) | |
| (193,652 | ) |
| |
| | | |
| | |
Other Expense: | |
| | | |
| | |
Other Income | |
| (12 | ) | |
| - | |
Interest Expense | |
| 29,200 | | |
| - | |
Total other expense | |
| 29,188 | | |
| - | |
| |
| | | |
| | |
Operating Loss | |
| (259,172 | ) | |
| (193,652 | ) |
| |
| | | |
| | |
Provision for income tax | |
| - | | |
| - | |
| |
| | | |
| | |
Net Loss | |
$ | (259,172 | ) | |
$ | (193,652 | ) |
| |
| | | |
| | |
Net income (loss) per common share - basic and diluted | |
$ | (0.01 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted average shares outstanding - basic and diluted | |
| 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
FOR THE THREE MONTHS ENDED MAY 31, 2015
AND 2014
| |
Three
Months Ended May
31, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (259,172 | ) | |
$ | (193,652 | ) |
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 | |
| (152,604 | ) | |
| (47,844 | ) |
Other Assets | |
| 516 | | |
| (220 | ) |
Accounts payable and accrued liabilities | |
| 170,668 | | |
| 32,901 | |
Accrued interest | |
| 16,938 | | |
| - | |
Net Cash Provided By (Used In) Operating Activities | |
| 49,064 | | |
| (208,815 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Cash from Acquisition of Crimson Forest | |
| - | | |
| 764 | |
Other receivable | |
| 210,123 | | |
| - | |
Net Cash Provided By Investing Activities | |
| 210,123 | | |
| 764 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from loans payable-related party | |
| - | | |
| 2,497 | |
Repayment of loans payable-related party | |
| (407,778 | ) | |
| (20,000 | ) |
Proceeds from issuance of convertible debt | |
| 50,000 | | |
| 250,000 | |
Net Cash (Used In) Provided By Financing Activities | |
| (357,778 | ) | |
| 232,497 | |
NET (DECREASE) INCREASE IN CASH | |
| (98,591 | ) | |
| 24,446 | |
| |
| | | |
| | |
CASH - BEGINNING OF PERIOD | |
| 107,901 | | |
| 9,500 | |
CASH - ENDING OF PERIOD | |
$ | 9,310 | | |
$ | 33,946 | |
| |
| | | |
| | |
SUPPLEMENTARY DISCLOSURES: | |
| | | |
| | |
| |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Income tax | |
$ | - | | |
$ | - | |
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 May 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 May 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 three months ended May 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 May 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 May 31, 2015 and February 28, 2015,
the carrying value of the film costs was $1,411,640 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 May 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 May 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 May 31, 2015 and February 28, 2015,
other receivable consisted of the following:
|
|
|
May
31, 2015 |
|
|
|
February
28, 2015 |
|
Total accumulated capitalized costs |
|
$ |
3,529,100 |
|
|
$ |
3,147,590 |
|
Less: 40% Est. shared
of costs of the Company |
|
|
(1,411,640 |
) |
|
|
(1,259,036 |
) |
60% of the Project cost is borne by CFA |
|
|
2,117,460 |
|
|
|
1,888,554 |
|
Less: Project advances from CFA |
|
|
(199,720 |
) |
|
|
(199,720 |
) |
Line
of credit from EWB |
|
|
(1,526,842 |
) |
|
|
(1,087,813 |
) |
Other receivable from CFA |
|
$ |
390,898 |
|
|
$ |
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 May 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 below)
is being considered an advance from CFA. As of May 31, 2015, CFA funded $1,726,562 to UCL and was obligated to fund an additional
$390,898 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 $991,000 at May 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 May 31,
2015 and February 28, 2015 are approximately as follows:
| |
May
31, 2015 | | |
February 28, 2015 | |
| |
| | |
| |
Gross deferred tax assets: | |
| | | |
| | |
Net operating loss carry forwards | |
$ | 336,000 | | |
$ | 248,000 | |
Total deferred tax assets | |
| 336,000 | | |
| 248,000 | |
Less: valuation allowance | |
| (336,000 | ) | |
| (248,000 | ) |
| |
| | | |
| | |
Net deferred tax asset recorded | |
$ | - | | |
$ | - | |
As of May 31, 2015 and February 28, 2015,
the valuation allowances were $336,000 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 three months ended May 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 Three Months Ended
May 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Deferred tax asset for NOL carry forwards | |
| 88,000 | | |
| 66,000 | |
Change in valuation allowance | |
| (88,000 | ) | |
| (66,000 | ) |
| |
| | | |
| | |
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 May 31, 2015.
The net change in valuation allowance during
the three months ended May 31, 2015 and 2014 was an increase of approximately $88,000 and $66,000, 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 May 31, 2015, UCL had an outstanding
balance of $1,526,842 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 May 31, 2015 and February 28, 2015, due to related party consisted of
the following:
As of May 31, 2015, the Company had three
loans of $675,000, $12,212 and $3,507 due to Mirare Corporation, which is ultimately owned by Mr. Anthony Lim and Mr. Jonathan
Lim. As of February 28, 2015, the Company had three loans of $395,000, $700,000 and $3,497 due to Mirare Corporation, which 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:
| |
May
31, 2015 | | |
February
28, 2015 | |
Convertible Debt | |
$ | 1,800,000 | | |
$ | 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 May 31, 2015 and February 28, 2015, the Convertible Debt amounted to $1,800,000 and
$1,750,000, respectively.
Interest expense of the Convertible Notes
for the three months ended May 31, 2015 and 2014 amounted to $16,939 and $1,822, 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 May 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 $25 million, for worldwide distribution.
We currently have offices in Los Angeles and Shanghai, and our management will play an integral role in all aspects of the film
and television production process.
Our
senior management team has substantial experience in the filmed entertainment industry in the United States and China. We believe
our management’s experience will allow the Company to successfully conceptualize, produce and distribute various film and
television projects worldwide and in the local Chinese market, and position the Company as a valuable partner in the growing Chinese
theatrical marketplace.
RESULTS
OF OPERATIONS
For
the Three Months Ended May 31, 2015 Compared to the Three Months Ended May 31, 2014
| |
| | |
| | |
| | |
Increase/ | |
| |
For The Three Months
Ended | | |
Increase/ | | |
(Decrease) | |
| |
May
31, | | |
(Decrease) | | |
Percentage | |
| |
2015 | | |
2014 | | |
U.S. Dollar
($) | | |
(%) | |
Net Revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
| - | |
Cost of Revenue | |
| - | | |
| - | | |
| - | | |
| - | |
Gross profit | |
| - | | |
| - | | |
| - | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
| 229,984 | | |
| 193,652 | | |
| 36,332 | | |
| 18.76 | |
Total operating expenses | |
| 229,984 | | |
| 193,652 | | |
| 36,332 | | |
| 18.76 | |
| |
| | | |
| | | |
| | | |
| | |
Loss From Operations | |
| (229,984 | ) | |
| (193,652 | ) | |
| (36,332 | ) | |
| 18.76 | |
| |
| | | |
| | | |
| | | |
| | |
Other Expense: | |
| | | |
| | | |
| | | |
| | |
Other income | |
| (12 | ) | |
| - | | |
| (12 | ) | |
| (100.00 | ) |
Interest Expense | |
| 29,200 | | |
| - | | |
| 29,200 | | |
| 100.00 | |
Total other expense | |
| 29,188 | | |
| - | | |
| 29,188 | | |
| 100.00 | |
| |
| | | |
| | | |
| | | |
| | |
Operating Loss | |
| (259,172 | ) | |
| (193,652 | ) | |
| (65,520 | ) | |
| 33.83 | |
| |
| | | |
| | | |
| | | |
| | |
Provision for
income tax | |
| - | | |
| - | | |
| - | | |
| 100.00 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (259,172 | ) | |
$ | (193,652 | ) | |
$ | (65,520 | ) | |
| 33.83 | |
Revenue
We
had no revenue for the three months ended May 31, 2015 and 2014.
Cost
of Revenue
We
had no cost of revenue for the three months ended May 31, 2015 and 2014.
Gross
Profit
We
had no gross profit from sales for the three months ended May 31, 2015 and 2014.
General
and Administrative Expenses
General
and administrative expenses were $229,984 for the three months ended May 31, 2015, compared to $193,652 for the three months ended
May 31, 2014, which represents an increase of $36,332, or 18.76%.This increase was due to the increase in employee expenses, administrative
expenses for new movie projects and professional fees related to public company filings and business strategy.
Interest
expense.
Interest
expense was $29,200 for the three months ended May 31, 2015, compared to $0 for the three months ended May 31, 2014, which represents
an increase of $29,200, or 100%. The increase in interest expense was due to increase in interest accrued derived from additional
issuances of convertible debt and line of credit with EWB during the three months ended May 31, 2015.
Liquidity
& Capital Resources
Our
principal sources of liquidity during the three months ended May 31, 2015 include proceeds from issuance of convertible debt and
net proceeds from loan from related party.
As
of May 31, 2015, we had cash of $9,310 as compared to $107,901 as of February 28, 2015, representing a decrease of $98,591.
The
following table sets forth a summary of our cash flows for the three months indicated:
| |
For
The Three Months Ended
May 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net cash provided by (used in) operating activities | |
$ | 49,064 | | |
$ | (208,815 | ) |
Net cash provided by investing activities | |
$ | 210,123 | | |
$ | 764 | |
Net cash (used in) provided by financing activities | |
$ | (357,778 | ) | |
$ | 232,497 | |
Net
cash provided by operating activities was $49,064 for the three months ended May 31, 2015, compared to the net cash used in operating
activities of $208,815 for the three months ended May 31, 2014. The increase of $257,879 was primarily due to increased prepaid
project cost of $272,718 for the three months ended May 31, 2015.
Net
cash provided by investing activities was $210,123 compared to $764 for three months ended May 31, 2014. The increase of $209,359
was due to the increase other receivable of $210,123 for the three months ended May 31, 2015.
Net
cash used in financing activities amounted to $357,778 for the three months ended May 31, 2015, compared to the net cash provided
by financing activities of $232,497 for the three months ended May 31, 2014, representing a decrease of $590,275. The decrease
was primarily due to the repayment of loan to related party of $407,778 for the three months ended May 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 May 31, 2015, the Convertible Debt had a balance of $1,800,000.
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 May 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 below)
is being considered an advance from CFA. As of May 31, 2015, CFA funded $1,726,562 to UCL and was obligated to fund an additional
$390,898 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 May 31, 2015, UCL had an outstanding balance of $1,526,842 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 May 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 three months ended May 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
The
Company previously entered into a convertible note purchase agreement with Portnice Investment Limited for the maximum amount
of $2,000,000, under which 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. During the quarter ending May 31, 2015, on May 28, 2015, the Company issued a Convertible Promissory
Note in principal amount of $50,000 under this agreement to Portnice Investment Limited. The convertible notes were sold to an
accredited investor, as that term is defined in the Securities Act of 1933, as amended (the “Securities Act”), were
not registered under the Securities Act or the securities laws of any state, and were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws, which exempt transactions by an issuer not involving any public offering.
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: July 20,
2015 |
By: |
/s/
Jonathan Lim |
|
|
Jonathan Lim |
|
|
President and
Chief Executive Officer |
|
|
(Principal Executive
Officer) |
|
|
|
Date: July 20,
2015 |
By: |
/s/
Jonathan Lim |
|
|
Jonathan Lim |
|
|
Chief Financial
Officer |
|
|
(Principal Financial
Officer) |
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: July 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:
July 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 May 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: July 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 May 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 May 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:
July 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 May 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof.