Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward
Looking Statement Notice
Certain
statements made in this Quarterly Report on Form 10-Q are
“forward-looking statements”
(within the meaning
of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or
achievements of Goliath Film and Media Holdings, (
“we”
,
“us”
,
“our”
or
the
“Company”
) to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that
involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving
the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance
the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation
by the Company or any other person that the objectives and plans of the Company will be achieved.
Description
of Business
Background
The
Company
was incorporated in Nevada on February 16, 2010 under the name “
China
Advanced Technology”
as the successor by merger to Vitalcare Diabetes Treatment Centers,
Inc. (“Vitalcare”). In February and March 2010, Vitalcare underwenta holding company reorganization under Delaware
law, pursuant to which it became a wholly-owned subsidiary of Vitalcare Holding Corporation, and Vitalcare, together with its
assets and liabilities, was sold to a non-affiliated third party. Vitalcare Holding Corporation subsequently reincorporated in
Nevada by merger into China Advanced.
Vitalcare
was in the business of administering medical clinics specializing in diabetes treatment. It was the successor to Network Financial
Services, Inc. (“Network”), which went public in an underwritten offering in 1987. Network was engaged in mortgage
origination, and changed its name to Westmark Group Holdings (“Westmark”) in 1993 in connection with the acquisition
of Westmark Mortgage from Primark Corporation. Westmark ceased operations at some time in 2006, and in 2006 ceased filing reports
under the Securities Exchange Act of 1934. The corporate entity was thereafter known as Viking Consolidated, Inc. (2006), Tailor
Aquaponics World Wide, Inc. (2007) and Diversified Acquisitions (2007) until it entered the medical clinic business in early 2008.
The Company has no information regarding any business activities from 2006 after the mortgage origination business closed, to
early 2008.
On
October 25, 2011, Goliath Film and Media International, a California corporation, entered into an Agreement and Plan of Reorganization
(the “Exchange Agreement”), pursuant to which Goliath Film and Media International was acquired by China Advanced
Technology. Prior to the acquisition, our principal operations consisted of internet marketing, and were conducted through a wholly
owned subsidiary, Live Wise, Inc. Live Wise was disposed of on October 31, 2011 for cancellation of debt and shares described
below. At the Closing Date, there were no assets or liabilities on China Advanced Technology’s balance sheets.
The
transaction closed on October 31, 2011 (the “Closing Date”). On the Closing Date China Advanced Technology acquired
Goliath Film and Media International by issuing 47,000,000 shares of its Common Stock, constituting 70.1% of the outstanding shares
after giving effect to their issuance and the cancellation of 15,619,816 shares held by China Advanced Technology’s prior
control person. Immediately following the Closing, 67,100,000 shares were issued and outstanding. On the Closing Date, the name
of China Advanced Technology was changed to Goliath Film and Media Holdings. All share numbers herein have been adjusted for an
eight-for-1 forward stock split affected as of the Closing Date. The forward stock split was reflected in the trading market on
February 13, 2012.
Overview
Goliath
Film and Media Holdings, through its wholly-owned subsidiaries Goliath Film and Media International and Goliath Movie Partners
1, LLC (collectively, “Goliath” or the “Company”), develops, produces and licenses for distribution, domestically
and internationally, quality digital content with an emphasis on “niche” markets of the feature motion picture and
television content segments of the entertainment industry, such as, without limitation, education, faith-based, horror and socially
responsible minority content. Goliath does not intend to engage in domestic theatrical distribution of motion pictures to any
significant extent.
In
qualified cases, Goliath will develop screenplays that will be outsourced to an independent entity for production, but will be
licensed for distribution through the Company. Also, in certain cases Goliath will produce content that is tied to working with
an established distributor that provides an advance or minimum guarantee for the production of a project that will be licensed
by the participating distributor. Goliath plans to produce content and to distribute domestically and internationally, through
a wide distribution network which includes major international theatrical exhibitors, and other distributors and television networks.
We plan to utilize corporate sponsorships as a means of reducing the costs of advertising and marketing in distribution. Further,
we may augment our marketing efforts with a limited and strategically focused advertising campaign in traditional “print”
media with press releases targeted specifically toward standard entertainment industry trade journals and publications on an “as
needed” basis as well as the inclusion of targeted “social media” campaigns.
Goliath’s
revenue model includes receiving revenue from distribution fees. A limited number of its content properties include projects developed
and produced by Goliath and those produced by an independent third party production entity.
Questions
and Answers
What
is your business?
We
develop, produce and distribute motion pictures and digital content. At this time we do not intend to engage in theatrical releases
of motion pictures, due to the high up- front costs of advertising and marketing theatrically. However, in some specific cases
the company will consider theatrical releases based upon a “four wall, ” limited release delivery that will be focused
on targeted niche audiences.
Distribution
Rights
The
Company has the following distribution rights:
On
March 9, 2015 Goliath signed a non-exclusive license to sell the feature length motion pictures: “Farewell”, “Buddies”
and “The Pit.” The term is for one year expiring on March 9, 2016 with compensation to Goliath of 25% of gross proceeds
from the sales of each of these films. No revenue has been recognized to date.
On
October 22, 2014 Goliath entered into an agreement to distribute all foreign rights for the motion picture “Virus X,”
“Film” starring Sybil Danning with some of the key terms as follows:
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Time
frame (Term) – 18 months with ability to renew at same terms for another 18 months if agreed by both parties by end
of the 18 month term. Term begins October 22, 2014. As of January 31, 2017 Goliath still is working on distribution of the
film, “Virus X.”
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2.
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Markets
– In all foreign media known and unknown
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Compensation
to Goliath- 15% of gross proceeds on all foreign territories. Said 15% (of 100%) is inclusive and includes, but not limited
to, all payments, fees and reimbursements of any and all kinds made and/or incurred by Goliath through the exploitation of
the Film. No revenue has been recognized to date.
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4.
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Renewals
- when the contract is renewed by a particular territory, Goliath will be the entity of record to effectuate the renewals,
yet only after notification is made to and approved verbally or written by Empire Films.
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On
October 29, 2014, Goliath entered into a Distribution and Sales Agreement with EMILIO ROSO (“Producer”) granting all
domestic and foreign distribution rights, excluding digital streaming for the motion pictures “Day of Redemption,” “On
Borrowed Time” and “Tumbleweed,” with some of the major terms as follows: Time frame (Term) – 18 months.
Term began October 29, 2014. Goliath is still is the process of distributing these films.
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Markets
– In all domestic and foreign media known and unknown and all domestic and foreign territories.
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Compensation
to Goliath - 25% of gross proceeds on all domestic and foreign territories, except digital streaming. Said 25% (of 100%) is
inclusive and includes, but not limited to, all payments, fees and reimbursements of any and all kinds made and/or incurred
by Goliath through the exploitation of the motion pictures. No revenue has been recognized to date.
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On
February 13, 2012 the Company announced that it has acquired the distribution rights to the following motion pictures:
Seducing
Spirits, The Perfect Argument, Marina Murders, Film Struggle, Divorce in America, A Wonderful Summer, The Truth About Layla, Living
with Cancer, and The Biggest Fan
. Under the distribution agreements, Goliath will receive 30% of the gross revenues for each
picture it distributes. In general, the Company’s distribution contracts cover both domestic and international licensing
agreements; however, for the picture
The Biggest Fan,
the Company obtained limited distribution rights. No revenue has
been recognized to date.
Production
Agreements
On
March 4, 2016, we signed a distribution agreement with Mar Vista Entertainment, LLC to distribute a feature length motion picture
currently in post-production by us. Per the agreement, we will receive $125,000 in advance payments per an agreed delivery schedule
for providing distribution rights on the motion picture “Bridal Bootcamp” a romantic comedy movie being produced by
us to Mar Vista Entertainment LLC. Additionally, Mar Vista Entertainment, LLC will receive 35% of the gross proceeds for a period
of 25 years on the motion picture. As of July 31, 2016, we have received $100,000 of the advance payments. Subsequent to July
31, 2016, we have received an additional $25,000.
On
September 18, 2015, we signed a distribution agreement with Mar Vista Entertainment, LLC to distribute a feature length motion
picture currently completed by us. Per the agreement, we will receive $125,000 in advance payments per an agreed delivery schedule
for providing distribution rights on the motion picture “Merry Exes” a Christmas holiday movie being produced by us
to Mar Vista Entertainment LLC. Additionally, Mar Vista Entertainment, LLC will receive 35% of the gross proceeds for a period
of 25 years on the motion picture. As of July 31, 2016, we have received $125,000 of the advance payments. Merry Exes was completed
June 6, 2016 and Mar Vista is looking to distribute this film.
On
May 20, 2015, we signed a distribution agreement with Mar Vista Entertainment, LLC to distribute a feature length motion picture
currently completed by us and being licensed by Mar vista Entertainment, LLC. Per the agreement, we will receive $175,000 in advance
payments per an agreed delivery schedule for providing distribution rights on the motion picture “Terror Birds” a
science fiction movie produced by us to Mar Vista Entertainment LLC. Additionally, Mar Vista Entertainment, LLC will receive 30%
of the gross proceeds for a period of 25 years on the film. As of April 30, 2016, we have received $175,000 of the advance payments.
Terror Birds was completed December 14, 2015 and Mar Vista is looking to distribute this film.
On
April 15, 2015, we signed an agreement whereby we agreed to invest $15,000 to KKO Productions to produce a feature length motion
picture known as “Forgiven”. Per the agreement, we will receive 15% of adjusted gross proceeds after its initial investment
has been entirely recouped through adjusted gross proceed. Additionally, we will receive two on screen credits as Executive Producer
as well as receiving credit on all advertising, publicity and packaging of the motion picture. The investment of $15,000 presented
in other assets on the balance sheet has not yet been repaid, due to the fact that no revenues will be generated until this motion
picture’s released.
What
is the timeline for your activities during the next 12 months?
Over
the next 90 days to one year, our efforts will be concentrated on developing and producing content with distributors for licensing
by them of at least three projects.
What
is this going to cost you?
We
expect that producing the aforementioned content will cost approximately $150,000 per project, however licensing and distribution
will be handled by an experienced distributor for a fee of anywhere from 30 – 35% and the costs of advertising and marketing
will be handled by them and charged against gross distribution licensing proceeds..
Why
are these motion pictures not being distributed already?
The
motion pictures that are being produced by the Company and distributed by Mar Vista Entertainment, LLC take anywhere from six
to nine months from completion of production and delivery to obtain licensing agreements.
Generically,
the main reason why good, quality motion pictures are not distributed is that the production of a motion picture requires money
and creativity, and marketing a motion picture requires an entirely different set of skills. Many people dream of making a movie;
few aspire to distribute them. We estimate that there are in excess of 10,000 such motion pictures “gathering dust.”
There also have been and continue to be substantial tax incentives for motion picture production in many States and international
Territories, so that many producers do not need to depend on successful marketing in order to find investors for their projects.
A secondary factor is the difficulty of finding a reputable distributor. We think that our management has an excellent reputation
in the industry and we will be able to obtain distribution rights for content. Finally, many distributors as well as buyers do
not have an interest in niche market films, because they see the market as limited. Goliath sees the problem to be, rather, there
is no market merely because no one has assembled a critical mass of films for these niches. Most participants in the motion picture
industry are based in “Hollywood” and the major coastal metropolitan areas. Our “faith-based” films especially
are targeted toward the “Bible Belt” and the “Flyover Country”: places that the industry has consistently
overlooked.
Why
are you able to identify and acquire these motion pictures and educational videos?
After
attending all the major content acquisition markets around the world over the last three years, our Staff has developed relationships
with numerous quality filmmakers who need assistance in marketing and distributing their product. Goliath has also developed vital
relationships with many of the major content distributors and networks. Many of the filmmakers have requested the Company’s
assistance in marketing and distributing their product. Goliath will continue to pursue the marketing and distribution of product
that is demanded in the marketplace and desired by major aggregators, distributors, networks and studios.
So
how are you different than Amazon, Netflix, Blockbuster and Hulu, to name a few? How can you compete with them? They have a lot
of money and name recognition. Why wouldn’t they jump into your niches?
As
a content provider we are not competing with these entities but rather are working on providing them with quality content. As
an example, NETFLIX has such a high demand for programming content, they are spending $5 billion this year for the acquisition
of completed programming as well as for the development of original content by them. Therefore, as is mentioned, part of their
resources are directed toward acquiring content and part is targeting in-house” and joint venture production of quality
content. This content will be targeted to their subscription base on a domestic and international level.
There
are a number of quality content producers that work with the major networks and content distributors, Goliath is moving toward
becoming one of these content providers. We believe there exists significant opportunities for our company in that the demand
for programming is increasing almost exponentially. Irrespective of the platform for viewing by the consumer/subscriber, the demand
for quality content is continuing to expand. As an example there are currently, approximately 416 original scripted programs being
aired in the entire television universe – a cancellation rate of 10% reflects a number that represents the entire programming
universe in the late 1990’s and early 2000’s.. The upward trend is ongoing, which is where we see an opportunity for
Goliath to provide product to reach many components of the overall market.
Don’t
cable and satellite networks already offer specialty channels like TBN (for faith based) and BET (Black Entertainment Television
(for the African-American Community)?
As
mentioned above about NETFLIX, even though these channels maybe in niche markets they must expand the type, genre and format of
the content that they are showing in order to remain viable, therefore the opportunity to assist them by providing quality programming
is ongoing and expanding..
What
other niches are you looking at entering?
We
believe that there is an increasing and ongoing trend in home entertainment in servicing niches. Many viewers have cable or satellite
service with hundreds of channels, but view only a few channels that cater to their particular interests. One significant type
of niche we are targeting are the numerous immigrant groups in the United States. Other than Spanish speaking immigrants, coverage
is scarce. The last official data (2004) from the US Census Bureau is that 34.2 million persons in the US are foreign born, with
54% from Latin America, 25% from Asia and 14% from Europe. Foreign-born immigrants like to watch movies from their home countries.
There
are many interest groups that might be interested in specialty movies or programming. As an example in Hawaii and Southern California,
for instance, Surfing is quite popular, and there exists a huge body of surfing films which would be of interest.
What
about ancillary markets?
We
plan to incorporate advertising and marketing through social media and traditional outlets to the highest degree possible.
What
films do you have now in inventory?
We
presently have acquired the distribution rights to the following motion pictures:
, Seducing Spirits, The Perfect Argument,
Marina Murders, Film Struggle, Divorce in America, A Wonderful Summer, The Truth About Layla, Living with Cancer, The Biggest
Fan, Days of Redemption, On Borrowed Time, Tumbleweed, Virus X, Farewell, Buddies, and The Pit
. Under the distribution agreements
Goliath will receive 30% of the gross revenues for each of the pictures we distribute. In general, our distribution contracts
cover both domestic and international licensing agreements; however, for the picture
The Biggest Fan
we obtained limited
distribution rights.
How
do these distribution rights work?
We
enter into a Distribution Agreement for each motion picture. Terms may be perpetual or limited by years. The motion pictures that
we are acquiring with the proceeds of this offering will have a term of five years. We will generally obtain a fee of 20% to 30%
of gross revenues. Licensing will be flexible for usage applications on a yearly or multi-year basis. Most markets, especially
foreign territories have a tendency to continuously renew content licensing.
How
many employees do you have? Do you have an office?
We
have just 3 employees and we believe that is sufficient during the development, production and “content aggregation”
phase of our development. Our administrative office is in Marina del Rey, California.
Do
you have a website?
Our
website is www.goliathfilmandmediainternational.com. We have a mirror site at www.goliathfilmandmedia.com.
Critical
Accounting Policies and Estimates
The
SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the Company’s
financial condition and results of operations and which require the Company to make its most difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified
the critical accounting policies and judgments addressed below. We also have other key accounting policies that are significant
to understanding our results. For additional information, see Note 2 - Summary of Significant Accounting Policies.
The
following are deemed to be the most significant accounting policies affecting the Company.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances
and transactions are eliminated on consolidation.
Basis
of Presentation
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ
from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing
and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal
accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions
are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present
fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.
Use
of Estimates
The
preparation of financial statements in accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial
condition and results of operations during the period in which such changes occurred. The more significant estimates and assumptions
by management include among others: Estimated revenue of films. The current economic environment has increased the degree of uncertainty
inherent in these estimates and assumptions.
Actual
results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Revenue
Recognition
We
recognize revenues in accordance with ASC 926-605, “Entertainment Films, Revenue Recognition”.
Under
ASC 926-605, five conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) the film is complete and has been delivered, (iii) the license period has begun, (vi) the price is fixed or determinable,
and (v) collection is reasonably assured. The Company provides for an allowance for doubtful account based history and experience
considering economic and industry trends. The Company does not have any off-Balance Sheet exposure related to its customers.
The
Company recognizes revenue when the distributor confirms to the Company that the film has been delivered to the distributor with
all technical and document deliveries received, waived or deferred and the film has been entered into the distributor’s
rights system.
Accounts
Receivable
Accounts
receivable, if any are carried at the expected net realizable value. The allowance for doubtful accounts, when determined, will
be based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivables.
If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than historical experience,
our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.
The
Company currently does not have any accounts receivable. The above accounting policies will be adopted upon the Company carrying
accounts receivable.
Intangible
Assets
The
Company’s intangible assets consist of intellectual property, principally motion pictures. The Company periodically reviews
its long lived assets to ensure that their carrying value does not exceed their fair market value. There was no amortization expense
or impairment for the three months ended July 31, 2016 and 2015.
Income
Taxes
We
account for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Stock
Compensation
In
accordance with ASC No. 718,
Compensation – Stock Compensation
(“ASC 718”), we measure the compensation
costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements
over the period during which employees are required to provide services. Share-based compensation arrangements include stock options,
restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation
cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective
vesting periods of the option grant. We apply this statement prospectively. Equity instruments (“instruments”) issued
to other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC No. 505,
Equity
Based Payments to Non-Employees
(“ASC 505”) defines the measurement date and recognition period for such instruments.
In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the
non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized
over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
Accounting
for Derivative Financial Instruments
We
evaluate financial instruments using the guidance provided by ASC 815 and apply the provisions thereof to the accounting of items
identified as derivative financial instruments not indexed to our stock.
Fair
Value of Financial Instruments
We
follow the provisions of ASC 820. This Topic defines fair value, establishes a measurement framework and expands disclosures about
fair value measurements.
We
use fair value measurements for determining the valuation of derivative financial instruments payable in shares of its common
stock. This primarily involves option pricing models that incorporate certain assumptions and projections to determine fair value.
These require management’s judgment.
Fair
Value Measurements
Effective
beginning second quarter 2010, the FASB ASC Topic 825,
Financial Instruments
, requires disclosures about fair value of
financial instruments in quarterly reports as well as in annual reports. For the Company, this statement applies to certain investments
and long-term debt. Also, the FASB ASC Topic 820,
Fair Value Measurements and Disclosures
, clarifies the definition of
fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about
the use of fair value measurements.
Various
inputs are considered when determining the value of the Company’s investments and long-term debt. The inputs or methodologies
used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These
inputs are summarized in the three broad levels listed below.
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Level
1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
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Level
2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk,
etc.).
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Level
3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of
investments).
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The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial
statement is prepared. The Company had no financial assets and/or liabilities carried at fair value on a recurring basis at July
31, 2016, assets and liabilities approximate fair value due to their short term nature.
The
availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including
the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For
many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted
by market participants, and the valuation does not require significant management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management judgment. As of July 31, 2016, the Company had no
assets other than prepaid expenses and capitalized film production costs.
Basic
and diluted earnings per share
Basic
earnings per share are based on the weighted-average number of shares of common stock outstanding. Diluted Earnings per share
is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may
be issued as a result of the following types of potentially dilutive instruments:
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Warrants,
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Employee
stock options, and
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Other
equity awards, which include long-term incentive awards.
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The
FASB ASC Topic 260,
Earnings Per Share
, requires the Company to include additional shares in the computation of earnings
per share, assuming dilution.
Diluted
earnings per share is based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying
the treasury stock method. Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained
thereby were used to purchase common stock at the average market price during the period.
Basic
and diluted earnings per share are the same as there were no potentially dilutive instruments for the three months ended July
31, 2016 and 2015.
Concentrations,
Risks, and Uncertainties
The
Company had one customer, Mar Vista Entertainment, that accounted for 10% or more of total revenue comprising 100% of total revenue
for the three months ended July 31, 2016. The Company had no customers in the three months ended July 31, 2015 that accounted
for 10% or more of total revenue.
Recent
Accounting Pronouncements
We
have evaluated new accounting pronouncements that have been issued and are not yet effective for us and determined that there
are no such pronouncements expected to have an impact on our future financial statements.
Plan
of Operations
Although
we had net income of $47,958 for the three months ended July 31, 2016, we have historical losses and an accumulated deficit of
$546,554 as of July 31, 2016
. These factors create
substantial doubt about the Company’s ability to continue as a going concern. The Company’s management plan to continue
as a going concern revolves around its ability to execute its business strategy of distributing films, as well as raising the
necessary capital to pay ongoing general and administrative expenses of the Company.
During
the three months ended July 31, 2016, we entered into separate private placement memorandums with an affiliate shareholder under
which we issued 9,832,000 shares of our common stock, restricted in accordance with Rule 144, in exchange for $98,320. During
the three months ended July 31, 2015, we entered into separate private placement memorandums with an affiliate shareholder under
which we issued 7,325,000 shares of our common stock, restricted in accordance with Rule 144, in exchange for $73,250. The issuances
were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was sophisticated and familiar
with our operations at the time of the issuance of the shares.
Results
of Operations
Three
Months Ended July 31, 2016 Compared to Three Months Ended July 31, 2015
Film
Production Revenue
For
the three months ended July 31, 2016, we completed and delivered Merry Exes and recognized $125,000 as revenue from advance payments
previously received from Mar Vista Entertainment. For the three months ended July 31, 2015, we had no revenues.
Cost
of Sales
For
the three months ended July 31, 2016, we completed and delivered Merry Exes and recognized $66,812 of production costs as cost
of sales. For the three months ended July 31, 2015, we had no cost of sales.
Operating
expenses
Operating
expenses increased by $1,616, or 19.5%, to $9,900 in the three months ended July 31, 2016 from $8,284 in the three months ended
July 31, 2015 primarily due to increases in other operating expenses, primarily offset by decreases in consulting services and
travel costs.
Operating
expenses for the three months ended July 31, 2016 were comprised primarily of office rent of consulting services of $5,090, travel
costs of $746, rent of $597 and $3,467 of other operating expenses.
Operating
expenses for the three months ended July 31, 2015 were comprised primarily of $6,000 in consulting services costs, travel costs
of $1,406, office rent of $597, and $281 of other operating expenses.
Net
income (loss) before income taxes
Net
income before income taxes for the three months ended July 31, 2016 totaled $48,288 primarily due to revenue of $125,000 and decreases
in consulting services costs and travel costs compared to a loss of $8,284 for the three months ended July 31, 2015 primarily
due to consulting services costs, travel costs, and rent.
Assets
and Liabilities
Total
assets were $496,366 as of
July 31
,
2016 compared to $356,516 as of April 30, 2016, or an increase of $139,850, primarily the result of an increase in film production
costs totaling $147,292, offset primarily by a decrease in cash of $7,442. Total liabilities as of
July 31
,
2016 were $161,645, compared to $168,073 as of April 30, 2016, or an decrease of $6,428. The decrease was the result of a decrease
in accounts payable of $6,670.
Stockholders’
Equity
Stockholders’
equity was $334,721 as of July 31, 2016. Stockholder’s equity during the three months ended July 31, 2016 consisted primarily
of shares issued for cash in the amount of $98,320 and a net profit of $47,958.
Liquidity
and Capital Resources
General
– Overall, we had a decrease in cash flows of $7,442 in the three months ended July 31, 2016 resulting from cash
used in operating activities of $106,004, offset partially by cash provided by financing activities of $98,562.
The
following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods
indicated:
|
|
|
Three Months Ended July 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
$
|
25,310
|
|
|
$
|
579
|
|
|
Net cash used in operating activities
|
|
|
(106,004
|
)
|
|
|
(69,563
|
)
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(15,000
|
)
|
|
Net cash provided by financing activities
|
|
|
98,562
|
|
|
|
123,250
|
|
|
Cash at end of period
|
|
$
|
17,868
|
|
|
$
|
39,266
|
|
Net
cash used in operating activities was $106,004 for the
three
months ended July 31
, 2016 compared to net cash used in operations for the
three months
ended July 31
, 2015 of $69,563 primarily due to the change in operating assets and liabilities
of $153,962, primarily due to the change in film production costs of $147,292 and accounts payable of $6,670, offset primarily
by net profit of $47,958 for the three months ended July 31, 2016.
Net
cash used in investing activities was $0 for the
three
months ended July 31
, 2016, compared to net cash used in financing activities of $15,000
for the
three months ended July 31
, 2015 primarily as the result of the investment
in the production of motion pictures.
Net
cash provided by financing activities was $98,562 for the
three
months ended July 31
, 2016, compared to net cash provided by financing activities of $123,250
for the
three months ended July 31
, 2015 primarily as the result of an issuance of
stock for cash of $98,320.
Our
cash needs for the year ending April 30, 2017 are estimated to be $200,000. This budget is based on the assumption that we will
carry out one project at a time for which we will need about $50,000 in working capital; general and administrative expenses of
$150,000 for the costs related to being public, and miscellaneous office expenses. We sold 30,852,250 shares for net proceeds
of $328,855 in offerings conducted in fiscal years 2016 and 2015. As we move forward with our business plan we will need to raise
additional capital either through the sale of stock or funding from shares and or officers and directors to cover our cash needs
through the end of the 2017 fiscal year.
Information
included in this report includes forward looking statements, which can be identified by the use of forward-looking terminology
such as may, expect, anticipate, believe, estimate, or continue, or the negative thereof or other variations thereon or comparable
terminology. The statements in “Risk Factors” and other statements and disclaimers in this report constitute cautionary
statements identifying important factors, including risks and uncertainties, relating to the forward-looking statements that could
cause actual results to differ materially from those reflected in the forward-looking statements.
Equity
Financing
During
the three months ended July 31, 2016, we entered into separate private placement memorandums with an affiliate shareholder under
which we issued him 9,832,000 shares of our common stock, restricted in accordance with Rule 144, in exchange for $98,320. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investors were sophisticated
and familiar with our operations at the time of the issuance of the shares.
During
the three months ended July 31, 2015, we entered into separate private placement memorandums with an affiliate shareholder under
which we issued him 7,325,000 shares of our common stock, restricted in accordance with Rule 144, in exchange for $73,250. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investors were sophisticated
and familiar with our operations at the time of the issuance of the shares.
During
the year ended April 30, 2016, we entered into private placement memorandums with an affiliate under which we issued 13,249,000
shares of our common stock, restricted in accordance with Rule 144, in exchange for $132,490. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the investors were sophisticated and familiar with our operations
at the time of the issuance of the shares.
During
the year ended April 30, 2016, we entered into a private placement memorandum with a third party investor under which we issued
6,000,000 shares of our common stock, restricted in accordance with Rule 144, in exchange for $60,000. The issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investors were sophisticated and familiar with
our operations at the time of the issuance of the shares.
Contractual
Obligations and Off-Balance Sheet Arrangements
We
do not have any contractual obligations or off balance sheet arrangements.