Results of Operations
For the year ended
Net Revenues
The Company principally engaged in content development of media targeted at the
"tween" demographic consisting of children between the ages of seven and
fourteen. During the year ended
Operating Expenses
Total operating expenses for the year ended
Other Expenses, net
Total other income (expense), net, for the years ended
Net Loss
We reported a net loss attributable to
26 Table of Contents Working Capital September 30, September 30, 2019 2018 Current assets$ 155,586 $ 131,849 Current liabilities 9,905,776 6,587,971 Working capital deficit$ 9,750,190 $ 6,456,122
We anticipate generating losses and, therefore, may be unable to continue operations in the future. If we require additional capital, we would have to issue debt or equity or enter into a strategic arrangement with a third party.
Going Concern Consideration
As reflected in the accompanying unaudited consolidated financial statements,
the Company has no significant revenue generating operations and has an
accumulated deficit of approximately
Liquidity and Capital Resources
Years endedSeptember 30, 2019 2018
-
Net Cash Provided by Financing Activities 1,844,337 956,793 Net Increase (Decrease) in Cash
$ 44,692 $ (51,441 )
Net cash used in operating activities was approximately
· net loss was approximately$7,499,000 , and · an increase in our film cost of approximately$68,000 , · an increase in our prepaid expenses and other current assets of approximately$19,000 , · an increase in deposit of$25,000 , · a decrease in our total accounts payable and accrued liabilities of approximately 167,000, · an increase in total accrued interest of approximately$287,000 , and · non-cash operating expense of amortization of approximately$3,056,000 , total impairment expense of$3,324,000 , stock-based compensation of approximately$561,000 , derivative expense of$4,692,000 , and · non-cash other income resulting from the change in fair value of derivate liabilities of approximately$2,306,000 , profit interest recovery of$1,225,000 and gain from extinguishment of debt of$2,437,000 . 27 Table of Contents
During the year ended
· net loss was approximately$1,359,000 , and · a decrease in our prepaid expenses and other current assets of approximately$106,000 , · an increase in our film cost of approximately$632,000 , partially offset by$347,900 due to the release agreement, · an increase in our total accounts payable and accrued liabilities of approximately$175,000 , · an increase in total accrued interest of approximately$110,000 , and · non-cash operating expense of amortization of approximately$1,433,928 , stock-based compensation of approximately$394,000 , stock-based debt forbearance fee of$22,000 , derivative expense of$1,814,000 and · non-cash other income resulting from the change in fair value of derivative liabilities of$4,060,000 .
Net cash provided by investing activities for the year ended
Net cash provided by financing activities for the year ended
We currently have no external sources of liquidity, such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital. We expect to require additional financing to fund our current operations for the remainder of fiscal 2019. There is no assurance that we will be able to obtain additional financing on acceptable terms or at all.
If we are unable to raise the funds required to fund our operations, we will seek alternative financing through other means, such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, stock-based compensation, valuation of derivative liabilities, and fair value of common stock issued.
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Fair value of financial instruments
The Company adopted ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company's financial position or operating results but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.
The Company analyzes all financial instruments with features of both liabilities and equity under the FASB's accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Depending on the product and the terms of the transaction, the fair value of notes payable and derivative liabilities was modeled using a series of techniques, including closed-form analytic formula, such as the Simple Binomial Lattice Model.
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718,
Share-Based Payment, which requires recognition in the financial statements of
the cost of employee and director services received in exchange for an award of
equity instruments over the period the employee or director is required to
perform the services in exchange for the award (presumptively, the vesting
period).
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Film Costs
The Company capitalizes costs which were used in the production of films according to ASC 926, Entertainment - Films. For films produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest and production overhead. Production overhead includes the costs of individuals or departments with exclusive or significant responsibility for the production of films. Production overhead does not include general and administrative expenses and marketing, selling and distribution costs. Capitalization of interest costs should generally commence when a film is set for production and end when a film is substantially complete and ready for distribution. Generally, the interest eligible for capitalization includes stated interest, imputed interest, and interest related to debt instruments as well as amortization of discounts and other debt issue costs.
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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. These costs for an individual film are amortized and participation costs are accrued to direct operating expenses in the proportion that current year's revenues bear to management's estimates of the ultimate revenue at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of such film. Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture.
Parties involved in the production of a film may be compensated in part by contingent payments based on the financial results of a film pursuant to contractual formulas (participations) and by contingent amounts due under provisions of collective bargaining agreements (residuals). Such parties are collectively referred to as participants, and such costs are collectively referred to as participation costs. Participations may be given to creative talent, such as actors or writers, or to entities from whom distribution rights are licensed. Participation costs are typically recognized evenly as the ultimate revenues are earned.
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)
Recent Accounting Pronouncements
In
In
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In
In
In
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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