CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
|
|
30-Nov-15
|
|
|
31-Aug-15
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Asset
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,142
|
|
|
$
|
3,462
|
|
Other Receivable
|
|
|
0
|
|
|
|
373,082
|
|
Prepaid
Project Cost
|
|
|
-
|
|
|
|
-
|
|
Total
Current Assets
|
|
|
3,142
|
|
|
|
376,544
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Film Costs
|
|
|
4,299,440
|
|
|
|
1,408,330
|
|
Organization Costs
|
|
|
3,269
|
|
|
|
3,269
|
|
Other
Assets
|
|
|
220
|
|
|
|
220
|
|
Total
Assets
|
|
$
|
4,306,071
|
|
|
$
|
1,788,363
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT)
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
282,035
|
|
|
$
|
246,035
|
|
Loans
payable - related parties
|
|
|
692,663
|
|
|
|
691,943
|
|
Total
Current Liabilities
|
|
|
937,978
|
|
|
|
937,978
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
|
Convertible debt –
related parties
|
|
|
900,000
|
|
|
|
1,900,000
|
|
Accrued
Interest
|
|
|
20,321
|
|
|
|
59,358
|
|
Total
Liabilities
|
|
|
2,897,336
|
|
|
|
2,897,336
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,339,155
|
|
|
|
(1,178,553
|
|
Total
Stockholders’ Deficit or Value
|
|
|
1,408,735
|
|
|
|
(1,108,973
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS
|
|
$
|
4,306,071
|
|
|
$
|
1,788,363
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND OPERATIONS
|
|
Q2
|
|
|
Q3
|
|
|
Q2/Q3
|
|
|
|
2015
|
|
|
2015
|
|
|
Change
|
|
REVENUES
(all
media, fees & licenses)
|
|
$
|
6,863
|
|
|
$
|
622,129
|
|
|
$
|
615,266
|
|
Net, Collected Revenues
|
|
|
|
|
|
|
-
|
|
|
|
|
|
ADJUSTED
REVENUES FOR PERIOD
|
|
|
6,863
|
|
|
|
622,129
|
|
|
|
615,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales and Marketing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Freight
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE
EXP.
|
|
|
163,770
|
|
|
|
39,457
|
|
|
|
(124,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
(156,907
|
)
|
|
|
582,672
|
|
|
|
739,579
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
OTHER INCOME (EXPENSE)
|
|
|
(30,800
|
)
|
|
|
(20,320
|
)
|
|
|
10,480
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
INCOME BEFORE TAXES
|
|
|
(187,707
|
)
|
|
|
562,352
|
|
|
|
750,059
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
PROVISION FOR INCOME
TAXES
|
|
(1)
|
-
|
|
|
(1)
|
(40,510
|
)
|
|
|
(40,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
(187,707
|
)
|
|
$
|
521,842
|
|
|
$
|
709,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS (Beginning of Period)
|
|
|
|
|
|
$
|
(1,108,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS (End of Period)
|
|
|
|
|
|
$
|
(587,131
|
)
|
|
|
|
|
(1) NOTE: Company
was carrying a net operating loss of $446,879 as of Aug. 31, 2015, which offsets most of the tax liabilties in the current reporting
period. A reserve for taxes of 35% has been applied to those revenues in excess of the prior N.O.L.
The
accompanying notes are an integral part of these consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
The
|
|
|
|
Three
Months Ended
|
|
|
|
November
30, 2015
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net
Income (loss)
|
|
$
|
521,842
|
|
Adjustments to reconcile
net loss to net cash (used in) operating activities:
|
|
|
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
(Increase)/Decrease
in:
|
|
|
|
|
Prepaid
Project Cost
|
|
|
(1,974,083
|
)
|
Film
Costs
|
|
|
-
|
|
Other
Assets
|
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
-
|
|
Project
advances
|
|
|
-
|
|
Accrued
interest
|
|
|
-
|
|
Net
Cash (Used In) Operating Activities
|
|
|
(1,452,241
|
)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Cash from Acquisition
of Crimson Forest
|
|
|
-
|
|
Film Production Investments
|
|
|
2,825,003
|
|
Other
Receivable
|
|
|
(373,082
|
)
|
Net
Cash provided by (Used In) Investing Activities
|
|
|
2,451,921
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Proceeds from loans
payable - related party
|
|
|
-
|
|
Repayment of loans
payable-related party
|
|
|
(1,000,000
|
)
|
Proceeds from issuance
of convertible debt
|
|
|
-
|
|
Net
Cash Provided By (Used In) Financing Activities
|
|
|
(1,000,000
|
)
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
(320
|
)
|
|
|
|
|
|
CASH
- BEGINNING OF PERIOD
|
|
|
3,462
|
|
CASH
- ENDING OF PERIOD
|
|
$
|
3,142
|
|
|
|
|
|
|
SUPPLEMENTARY
DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
Income
tax
|
|
$
|
-
|
|
Interest
|
|
$
|
20,371
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY (DEFICIT)
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
|
|
Common
Stock
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Total
|
|
Balance
at Aug. 31, 2015
|
|
|
39,755,000
|
|
|
$
|
(1,108,973
|
)
|
|
$
|
-
|
|
|
|
(1,108,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Adjustments to Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
$
|
2,039,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
478,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at Nov. 30, 2015
|
|
|
39,755,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,408,735
|
|
NOTES:
(1)
Convertible Note to SAMCORP was previously listed as $1,900,000, but was adjusted to $900,000 following SAMCORPs' acknowledgment
of shares previously issued and received. Additional adjustments to Equity were from the revenue recognition of the CFA (China)
presale for "PALI ROAD", which had not been previously fully capitalized.
The
accompanying notes are an integral part of these consolidated financial statements.
GENERAL
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-Months
|
|
|
3-Months
|
|
|
Category
|
|
|
|
Ending
|
|
|
Ending
|
|
|
Change
In
|
|
CATEGORY
|
|
8/30/2015
|
|
|
11/30/2015
|
|
|
Period
|
|
Consulting
|
|
$
|
139,845
|
|
|
$
|
-
|
|
|
$
|
(139,845
|
)
|
Employees
and Labor
|
|
$
|
-
|
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
Entertainment
|
|
$
|
1,845
|
|
|
$
|
107
|
|
|
$
|
(1,738
|
)
|
Insurance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Labor
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Legal
and Accounting
|
|
$
|
18,000
|
|
|
$
|
2,000
|
|
|
$
|
(16,000
|
)
|
Promos
& Miscellaneous
|
|
$
|
-
|
|
|
$
|
270
|
|
|
$
|
270
|
|
Office
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Rent
|
|
$
|
720
|
|
|
$
|
720
|
|
|
$
|
-
|
|
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Telephone
|
|
$
|
465
|
|
|
$
|
-
|
|
|
$
|
(465
|
)
|
Travel
|
|
$
|
2,895
|
|
|
$
|
-
|
|
|
$
|
(2,895
|
)
|
Utilities
|
|
$
|
-
|
|
|
$
|
360
|
|
|
$
|
360
|
|
TOTAL
OF GENERAL AND ADMINISTRATIVE EXPENSES
|
|
$
|
163,770
|
|
|
$
|
39,457
|
|
|
$
|
(124,313
|
)
|
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
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 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 February 28, 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 February 28, 2015, the Company has no material
operating activities.
On
December 5, 2014, the Company founded a wholly owned entity, Convergence The Movie LLC (“CTV”), a California limited
liability company. As of February 28, 2015, the Company has no material operating activities.
On
December 5, 2014, the Company founded a wholly owned entity, Nian The Movie LLC (“NTV”), a California limited liability
company, with initial capital contribution of $1,000. As of February 28, 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
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles.
All material intercompany accounts, transactions and profits have been eliminated in consolidation.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTHS ENDED NOVEMBER 30, 2015
Use
of Estimates
The
preparation of consolidated 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 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 year ended February 28,
2014, 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. As of February 28, 2015 and 2014, the Company had no cash equivalents.
Prepaid
Project Cost
As
of February 28, 2015 and 2014, Prepaid cost related to movie projects were $272,718 and $0, respectively.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
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.
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 February 28, 2015 and 2014, the carrying value of the film costs was $1,259,036 and $0, 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:
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●
|
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
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|
|
|
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●
|
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.
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CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 20125
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 February
28, 2015 and 2014, respectively, due to the short-term nature of these instruments.
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 nine months ended November 30, 2014 and 2013
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.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
4.
OTHER RECEIVABLE
As
of February 28, 2015 and 2014, other receivable consisted of the following:
|
|
February
28,
|
|
|
|
2015
|
|
|
2014
|
|
Total
accumulated capitalized costs
|
|
$
|
3,147,590
|
|
|
$
|
-
|
|
Less: 40% Est. shared
of costs of the Company
|
|
|
(1,259,036
|
)
|
|
|
-
|
|
60% of the Project
cost is borne by CFA
|
|
|
1,888,554
|
|
|
|
-
|
|
Less: Project advances
from CFA
|
|
|
(199,720
|
)
|
|
|
-
|
|
Line
of credit from EWB
|
|
|
(1,087,813
|
)
|
|
|
-
|
|
Other receivable
from CFA
|
|
$
|
601,021
|
|
|
$
|
-
|
|
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 February 28, 2015 and 2014, the project has received $199,720 and $0, respectively, from CFA. In addition, the line of credit
from EWB (described below) is being considered an advance from CFA. As of February 28, 2015, CFA funded $1,287,533 to UCL and
was obligated to fund an additional $601,021 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 $730,000 at February 28, 2015, expiring
through 2034. Out of an abundance of caution, Company has valued the net operating loss at $466,879, based on maximum applicable
rates for Federal and State income taxes payable; Company anticipates that the actual value of the net operating loss for application
against earnings in profitable quarters, such as the current reporting period, will ultimately prove to be much higher, and perhaps
as much as $730,000 after application of eligible deductions.. 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).
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
Significant
deferred tax assets at February 28, 2015 and 2014 are approximately as follows:
|
|
February
28, 2015
|
|
|
February
28, 2014
|
|
|
|
|
|
|
|
|
Gross deferred tax
assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
248,000
|
|
|
$
|
27,000
|
|
Total deferred tax
assets
|
|
|
248,000
|
|
|
|
27,000
|
|
Less: valuation
allowance
|
|
|
(248,000
|
)
|
|
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax
asset recorded
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of February 28, 2015 and 2014, the valuation allowances were $248,000 and $27,000, respectively.
The
actual tax benefit differs from the expected tax benefit for the years ended February 28, 2015 and 2014 (computed by applying
the U.S. Federal Corporate tax rate of 34% to income before taxes) approximately as follows:
|
|
For
The Years Ended
February 28,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Deferred
tax asset for NOL carry forwards
|
|
|
221,000
|
|
|
|
14,000
|
|
Change in valuation
allowance
|
|
|
(221,000
|
)
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
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 February
28, 2015.
The
net change in valuation allowance during the years ended February 28, 2015 and 2014 was an increase of approximately $221,000
and $14,000, respectively.
As
of the applicable period covered under this report, the Company is recognizing net income from the sale of the film “PALI
ROAD” to CFA, as described hereunder. Accordingly, the previously accrued amount for net operating loss has been reduced
by the adjusted earnings. As of this filing, the prior net operating loss of $446,879, has been eliminated by the accrued earnings
of $562,352 for the three-month period ended November 30, 2015, and a new line item for accrued / deferred income taxes has been
reserved in the amount of $40,510, reflecting a 35% reserve off the difference between the accrued earnings of $562,352, less
the prior net operating loss of $446,879.
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.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2015
The
Loan proceeds were utilized as follows:
(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 February 28, 2015, UCL had an outstanding balance of $1,087,813 under the line of credit with EWB.
7.
LOAN PAYABLE-RELATED PARTIES
The
related parties listed below loaned money to the Company for the purpose of working capital. As of November 30, 2015 the amount
due to related party consisted of the following:
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. As of February 28, 2014, the Company had a $20,000 loan due to 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- RELATED PARTY
The
Company had the following convertible debt outstanding:
|
|
Nov.
30, 2015
|
|
|
Aug.
31, 2015
|
|
Convertible
Debt
|
|
$
|
900,000
|
|
|
$
|
1,900,000
|
|
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.
CRIMSON
FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTH PERIOD ENDING NOVEMBER 30, 2015
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. As of February 28, 2015 and 2014, the Convertible
Debt amounted to $1,750,000 and $0, respectively. As of the current reporting period ended November 30, 2015, the sum total of
all convertible notes had been updated, corrected and verified by the note holders as being nine-hundred-thousand dollars (USD
$900,000).
Interest
expense of the Convertible Notes for the years ended February 28, 2015 and 2014 amounted to $24,336 and $0, respectively. For
the three-month period ending November 30, 2015, interest expense was $8,550 fpr convertible note holders and $11,770 for East-West
Bank (“Pali Road”).
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.
10.
SUBSEQUENT EVENTS
The
Company evaluated all events or transactions that occurred after November 30, 2015 up through the date the financial statements
were issued. During these periods, the Company did not have any material recognizable subsequent events required to be disclosed
as of and for the three-month period ended November 30, 2015, except as follows:
The
Portnice convertible note balance as of February 28, 2017 was nine-hundred-thousand dollars (USD $900,000) plus $85,520 in interest.
The Company has renegotiated the Portnice note so that the maturation date has been extended to Dec. 31, 2017 and that the formula
for conversion, should the Company not fully retire the balance and interest by Dec. 31, 2017, shall be established as a thirty-percent
(30%) discount to the market for the Company’s common stock shares, during the previous ten (10) days of trading, utilizing
a Volume Weighted Average Pricing (VWAP) formula to determine the prevailing price against which the discount-to-market shall
apply.