RIVULET MEDIA, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q ofRivulet Media, Inc. (the "Company") contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These might include forward-looking statements regarding the Company's financial position, strategy and other plans and objectives for future operations, including assumptions and predictions related thereto. These statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "potential(ly)", "continue", "forecast", "predict", "plan", "may", "will", "could", "would", "should", "expect" or the negative of such terms or other comparable terminology. The Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to it on the date hereof, but the Company cannot provide assurances that these assumptions and expectations will prove to have been correct or that the Company will take any action that the Company may presently be planning. These forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially from those expected, anticipated or implied in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, available cash resources, competition from other similar businesses, changes in the entertainment and media industry, and market and general economic factors. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year endedJuly 31, 2020 , including the section entitled "Item 1A. Risk Factors". The Company does not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise. Overview The Company is engaged in the production, distribution and marketing of feature-length films, television series and mini-series, and television movies, from initial creative development through principal photography, postproduction, distribution and ancillary sales, as well as the music production and distribution industry. The Company also provides event-based audio and video design, production and installation services.
The Company's activities are subject to significant risks and uncertainties, including the need for additional capital, as described below at "Going Concern". The Company does not currently have positive cash flows from operations and is dependent on periodic infusions of capital to fund its operating requirements.
AtJuly 31, 2020 , the Company, through its subsidiaryBorderline Productions LLC , had commenced production of a documentary film related to the life of formerArizona SheriffJoseph M. Arpaio entitled "It's Complicated". During the three months endedOctober 31, 2020 , the Company, through its subsidiaryPBP Productions LLC , commenced the filming of its first film production, "Please Baby Please". InDecember 2020 , the Company, through its subsidiaryMistress Movie, LLC , commenced the filming of its second film production, "Mistress". InApril 2021 , the Company, through its subsidiaryStoryland Productions, LLC , commenced creation of a television series, "Storyland". The films are now in post-production. Upon completion of a production, the Company expects to receive initial revenues from domestic and foreign distribution contracts. AtApril 30, 2021 andJuly 31, 2020 , project development costs aggregated$3,337,396 and$134,413 , respectively.
In
Going Concern
The Company's consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has suffered losses from operations and negative operating cash flows since inception. During the nine months endedApril 30, 2021 , the Company incurred a net loss of$916,137 . The Company has financed its working capital requirements during this period primarily through the sale of its equity securities and the issuance of convertible debt. Accordingly, management has concluded that these matters raise substantial doubt about the Company's ability to continue as
a going concern.
AtApril 30, 2021 , the Company had limited cash resources available to fund its operations and will therefore need to raise additional funds in the short-term. The Company estimates that a significant amount of capital will be necessary over a sustained period of time to advance the development of the Company's business activities to the point at which it can become commercially viable and self-sustaining. However, there can be no assurances that the Company will
be
successful in this regard.
27
As a result, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern. In addition, the Company's independent registered public accounting firm, in their report on the Company's consolidated financial statements for the period fromFebruary 11, 2020 (inception) throughJuly 31, 2020 , has also expressed substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and successfully implement its business plan, and to ultimately achieve sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The development and expansion of the Company's business is dependent on many factors, including the capital resources available to the Company. No assurances can be given that any future financing will be available or, if available, that they will be on terms that are satisfactory to the Company or adequate to fund the development and expansion of the Company's business operations to a level that is commercially viable and self-sustaining. There is also significant uncertainty as to the affect that the coronavirus pandemic may have on the availability, amount and type of financing in the future. If cash resources are insufficient to satisfy the Company's ongoing cash requirements, the Company would be required to scale back its operations, obtain funds, if available, although there can be no certainty, through strategic alliances that may require the Company to relinquish rights to any assets, or to discontinue its operations entirely.
Recent Accounting Pronouncements
Information with respect to recent accounting pronouncements is provided at Note 2 to the condensed consolidated financial statements for the three months and nine months endedApril 30, 2021 , and for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 . Concentration of Risk
Information with respect to concentration of risk is provided at Note 2 to the condensed consolidated financial statements for the three months and nine months endedApril 30, 2021 , and for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 .
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and results of operations presented below is based on the Company's consolidated financial statements for the three months and nine months endedApril 30, 2021 , and for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , which have been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). Certain accounting policies and estimates are particularly important to the understanding of the Company's financial position and results of operations and require the application of significant judgment by management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the Company's control. As a result, these issues are subject to an inherent degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on the Company's historical operations, the future business plans and the projected financial results, the terms of existing contracts, trends in the industry, and information available from other outside sources. For a more complete description of the Company's significant accounting policies, see Note 2 to the condensed consolidated financial statements.
Film, Television Programs, and Music Production Costs
Film, television program, and music production costs are capitalized in
accordance with Accounting Standards Codification 926, Entertainment - Films.
Capitalized amounts are stated at the lower of cost, less accumulated
amortization, or fair value. These costs represent capitalized costs for the
production of films and other entertainment projects. In addition to the films,
television programs and music that the Company may produce, costs of productions
in development are capitalized as development costs and are transferred to
production costs when the project is set for production. Films, television
programs and music in development include costs of acquiring film rights to
books, stage plays or original screenplays and costs to adapt such projects, as
well as amounts paid to musical artists. Projects in development are written off
if they are determined not to be recoverable and are evaluated for impairment at
each reporting period.
Once a project is released to consumers, the capitalized costs are amortized on
an individual project basis in the proportion that the current revenue for each
project bears to the estimated remaining unrecognized revenue to be received
from all sources for each project as of the beginning of the current fiscal
year. Revenue and cost forecasts are periodically reviewed by management and
revised when warranted.
28
The carrying value of film costs are reviewed for impairment each reporting period on a project-by-project basis. If events or changes in circumstance indicate that the fair value of the capitalized costs on a specific project is less than the carrying value, an impairment charge is recognized in the amount by which the unamortized costs exceed the project's fair value.
The Company has not completed any film or television programs as of
Revenue Recognition
Film and Television Program Revenues
The Company's film and television program business is expected to generate revenues principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places.
Revenues will be recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those services or goods. Revenues do not include taxes collected from customers on behalf of taxing authorities, such as sales tax and value-added tax. Event-Based Revenues Event-based revenues are derived from providing audio and video design, production and installation services and are recognized when the terms and conditions of such services have been formally agreed to and documented, the services have been provided, the amount to be billed is determinable, and the amount billed is reasonably collectible. Results of Operations
At
Operating Expenses The Company generally recognizes operating costs and expenses as they are incurred in two general categories, sales and marketing costs and expenses and general and administrative costs and expenses. The Company's operating costs and expenses also include non-cash components related to depreciation and amortization of property and equipment which are allocated, as appropriate, to sales and marketing costs and expenses and general and administrative costs
and expenses.
Sales and marketing costs and expenses consist primarily of press releases, web design and photo shoots and related one-time use equipment.
General and administrative costs and expenses consist of stock-based
compensation, payroll to officers and employees, accounting fees, audit fees,
legal fees, transfer agent fees, insurance, investor relations and other general
corporate expenses. Management expects general and administrative costs and
expenses to increase in future periods as the Company adds personnel and incurs
additional costs related to its operation as a public company for a full fiscal
year, including higher legal, accounting, insurance, compliance, compensation
and other costs.
29
The Company's consolidated statements of operations as discussed herein are
presented below.
For the Period
February 11,
Three Months Nine Months 2020 (date of
Ended Ended inception)
April 30, April 30, through April
2021 2021 30, 2020
Revenues - related party $ 3,000 $ 3,000 $ -
Costs and expenses:
General and administrative:
Officers, directors, affiliates, and other
related parties 256,149 784,365 110,000
Other costs 329,283 816,606 177,345
Production costs 1,639 1,639 -
Sales and marketing 8,015 13,190 649
Total costs and expenses 595,086 1,615,800 287,994
Loss from operations (592,086 ) (1,612,800 ) (287,994 )
Other income (expense):
Increase (decrease) in fair value of investment
in marketable securities 691,389 723,562 (129 )
Interest expense, net (15,037 ) (26,899 ) -
Total other income (expense), net 676,352 696,663 (129 )
Net income (loss) $ 84,266 $
(916,137 )
Net income (loss) per common share: Basic$ 0.00 $ (0.01 ) $ (0.00 ) Diluted$ 0.00 $ (0.01 ) $ (0.00 ) Weighted average common shares outstanding: Basic 115,681,834 90,504,204 75,964,632 Diluted 129,880,700 90,504,204 75,964,632
Three Months Ended
Revenues. The Company generated revenues of$3,000 from a related party during the three months endedApril 30, 2021 related to an event-based video production. The Company did not have any revenues for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 . General and Administrative:
Officers, Directors, Affiliates and Other Related Parties.
For the three months endedApril 30, 2021 , general and administrative costs associated with officers, directors, affiliates and other related parties were$256,149 , which consisted of stock-based compensation of$22,239 , compensation to officers of$220,000 , and costs associated with an area standards agreement incurred with the Company's IATSE union liaison of$13,910 .
For the period
Other.
For the three months endedApril 30, 2021 , other general and administrative costs were$329,283 , which consisted of compensation and related costs of$135,728 , health insurance of$16,072 , accounting and review fees of$53,501 , tax preparation fees of$10,119 , legal fees of$61,870 , office rent of$24,682 , transfer agent fees of$2,780 , depreciation of$673 , and other operating costs of$23,858 . 30 For the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , other general and administrative costs were$177,345 , which consisted of compensation and related costs of$36,622 , accounting fees of$3,860 , legal fees of$133,729 , transfer agent fees of$1,760 , and other operating costs of$1,374 .
Production Costs. For the three months ended
Sales and Marketing. For the three months endedApril 30, 2021 , selling and marketing costs were$8,015 , which consisted of public relations costs of$5,000 , branding guidance and advertising of$2,050 , and other sales and marketing costs of$965 . For the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , selling and marketing costs were$649 , which consisted of public relation costs of$525 and advertising of$124 . Interest Expense. For the three months endedApril 30, 2021 , the Company had interest expense of$15,037 (including amortization of debt discount of$6,858 ), which was related to the convertible promissory note payable and short-term unsecured debt. The Company capitalized$24,722 of interest expense related to the secured multiple advance promissory note as such costs related to production costs of a feature film in process. For the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , the Company did not have any interest expense. Increase (Decrease) in Fair Value of Investment inMarketable Securities . For the three months endedApril 30, 2021 , the Company recorded an increase in the fair value of its investment in marketable securities of$691,389 . For the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , the Company recorded a decrease in the fair value of its investment in marketable securities of$129 .
Net Income (Loss). For the three months ended
Nine Months Ended
Revenues. The Company generated revenues of
General and Administrative:
Officers, Directors, Affiliates and Other Related Parties.
For the nine months endedApril 30, 2021 , general and administrative costs associated with officers, directors, affiliates and other related parties were$784,365 , which consisted of stock-based compensation of$66,717 , compensation to officers of$640,000 , and an area standards agreement incurred with the Company's IATSE union liaison of$77,648 . Other.
For the nine months endedApril 30, 2021 , other general and administrative costs were$816,606 , which consisted of compensation and related costs of$286,309 , health insurance of$26,706 , accounting, review and audit fees of$194,294 , tax preparation fees of$10,119 , legal fees of$215,613 , office rent of$29,578 , transfer agent fees of$9,830 , depreciation of$673 , and other operating costs of$43,484 .
Production Costs. For the nine months ended
Sales and Marketing. For the nine months endedApril 30, 2021 , selling and marketing costs were$13,190 , which consisted of public relations of$5,000 , press release costs of$2,475 , branding guidance and advertising of$4,750 , and other sales and marketing costs of$965 . Interest Expense. For the nine months endedApril 30, 2021 , the Company had interest expense of$26,899 (including amortization of debt discount of$10,288 ), net of interest income of$65 , which was related to the convertible promissory note payable and short-term unsecured debt. The Company capitalized$52,166 of interest expense related to the secured multiple advance promissory note as such costs related to production costs of a feature film in process. 31 Increase (Decrease) in Fair Value of Investment inMarketable Securities . For the nine months endedApril 30, 2021 , the Company recorded an increase in the fair value of its investment in marketable securities of$723,562 .
Net Income (Loss). For the nine months ended
Liquidity and Capital Resources -
The Company's consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has suffered losses from operations and negative operating cash flows since inception. During the nine months endedApril 30, 2021 , the Company incurred a net loss of$916,137 . The Company has financed its working capital requirements during this period primarily through the sale of its equity securities and the issuance of convertible debt. Accordingly, management has concluded that these matters raise substantial doubt about the Company's ability to continue as
a going concern.
As a result, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern. In addition, the Company's independent registered public accounting firm, in their report on the Company's consolidated financial statements for the period fromFebruary 11, 2020 (inception) throughJuly 31, 2020 , has also expressed substantial doubt about the Company's ability to continue as a going concern (see "Going Concern" above). The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. AtApril 30, 2021 , the Company had a bank overdraft of$10,211 and a working capital deficiency of$848,309 . During the nine months endedApril 30, 2021 , the Company generated cash of$2,285,000 from the sale of 29,450,000 shares of common stock, and cash of$67,400 from the collection of common stock subscriptions receivable from both related and unrelated parties for 1,348,000 shares of common stock which has been subscribed for in August andSeptember 2020 . However, atApril 30, 2021 , the Company also had$805,000 of short-term indebtedness due onJune 30, 2021 and$100,000 due onJuly 31, 2021 , with respect to which it will either need to repay or extend the due date. AtApril 30, 2021 , the Company had limited cash resources available to fund its operations and repay its short-term indebtedness, and will therefore need to raise additional funds to repay debt and finance its short-term working capital requirements. The Company estimates that a significant amount of capital will be necessary over a sustained period of time to advance the development of the Company's business activities to the point at which it can become commercially viable and self-sustaining. However, there can be no assurances that the Company will be successful in this regard. Operating Activities For the nine months endedApril 30, 2021 , operating activities utilized cash of$1,177,541 , as compared to utilizing cash of$150,572 for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , to fund the Company's
ongoing operating expenses. Investing Activities For the nine months endedApril 30, 2021 , the Company's investing activities utilized cash of$3,258,140 consisting of$13,000 for the purchase of property and equipment,$42,157 for the purchase of intellectual property, and$3,202,983 for the payment of project development costs. The Company had no investing activities for the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 . Financing Activities For the nine months endedApril 30, 2021 , the Company's financing activities provided net cash of$4,417,400 , consisting of proceeds of$2,285,000 from the sale of 29,450,000 shares of common stock,$67,400 received from common stock subscriptions receivable for 1,348,000 shares of common stock, proceeds from a rescinded stock subscription receivable of$60,000 , proceeds of$100,000 from the issuance of a convertible promissory note payable,$1,000,000 from the issuance of a secured Multiple Advance Promissory Note, and proceeds of$1,106,500 in unsecured promissory notes from related parties, reduced by repayments of$201,500 . For the periodFebruary 11, 2020 (date of inception) throughApril 30, 2020 , the Company's financing activities generated cash of$150,000 from the sale of 5,023,800 shares of common stock, and cash of$572 acquired in connection with the reverse merger transaction. 32 Project Funding
The Company expects that its film projects will generally be funded through a variety of techniques. The films that the Company intends to produce will likely include a well-known cast and a compelling script. The Company plans to use its sales agents to pre-sell foreign distribution rights, which would include money guarantees from the distributors. In addition, the Company's sales agents will attempt to secure domestic right pre-sales through backstop (floor amount) agreements or direct distribution agreements with money guarantees. The Company plans to produce films in states that provide significant tax incentive rebates.
The Company's objective is for these agreements, together with the tax incentives, to provide security for bank financing at 80% to 90% of the aggregate contract and tax incentive amounts, as well as that bank loans, pre-sale agreements and tax incentive assignments will provide sufficient funds to finance the respective project costs.
In some cases, while the funds may be sufficient to fully finance a production, there may be a timing difference between obtaining the funds and the time frame needed to complete the project. In such cases, the Company intends to seek temporary funding from film project lenders until the Company is able to obtain project financing from a senior lender. Principal Commitments Employment Agreements
The Company and its wholly owned subsidiaries have entered into employment
agreements with their officers with total aggregate monthly salaries of
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements at
Trends, Events and Uncertainties
The production, distribution and marketing of feature-length films, television series and mini-series, and television movies, from initial creative development through principal photography, postproduction, distribution and ancillary sales, is, by its nature, unpredictable and costly, and occurs over an extended period of time. Although the Company will undertake program development efforts with commercially reasonable diligence, there can be no assurance that the Company's efforts to raise funds in the future will be sufficient to enable the Company to develop its program content to the extent needed to create future revenues to sustain operations as contemplated herein. There can be no assurances that the Company will ever achieve sustainable revenues sufficient to support its operations. Even if the Company is able to generate revenues, there can be no assurances that the Company will be able to achieve profitability or positive operating cash flows. There can be no assurances that the Company will be able to secure additional financing on acceptable terms or at all. If cash resources are insufficient to satisfy the Company's ongoing cash requirements, the Company would be required to scale back or discontinue its operations, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights to certain of its programs, or to curtail or discontinue its operations entirely.
© Edgar Online, source
