RIVULET MEDIA, INC. 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.
At
The feature film productions that were completed at
In
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The Company also began production of a children's television series called "Storyland." Pre-production activities on this series are underway.
At
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 fiscal year ended
At
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 fiscal year ended
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 effect 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 may be required to scale back its operations, liquidate its media assets to obtain funds, enter into strategic alliances that may require the Company to relinquish rights to any media assets, or discontinue its operations entirely.
Recent Accounting Pronouncements
In
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In
In
In
In
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Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company's financial statement presentation or disclosures.
Concentration of Risk
The Company may periodically contract with consultants and vendors to provide services related to the Company's business activities. Agreements for these services may be for a specific time period or for a specific project or task.
Costs and expenses incurred that represented 10% or more of costs for the period
from
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 fiscal year ended
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.
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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.
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 marketplaces.
Revenue 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.
Revenues from the licensing of film and television content and the sales and licensing of music will be recognized when the content has been delivered and the license period has begun, as discussed above. Revenues from the licensing of symbolic intellectual property (i.e., licenses of motion pictures or television characters, brands, storylines, themes, or logos) will be recognized over the corresponding license term. Commissions will be recognized as such services are provided.
The Company's content licensing arrangements are expected to include fixed fee and minimum guarantee arrangements, and sales or usage-based royalties.
Fixed Fee or Minimum Guarantees.
The Company's fixed fee or minimum guarantee licensing arrangements may, in some cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media, or territory) will be recognized when the content has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content.
Sales or Usage Based Royalties.
Sales or usage-based royalties will represent amounts due to the Company based on the "sale" or "usage" of the Company's content by the customer, and revenues which will be recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been allocated and has been satisfied (or partially satisfied). Generally, when the Company licenses completed content (with standalone functionality, such as a movie, or television show), its performance obligation will be satisfied prior to the sale or usage. When the Company licenses intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), its performance obligation will generally be satisfied in the same period as the sale or usage. The actual amounts due to the Company under these arrangements will generally not be reported to the Company until after the close of the reporting period. The Company will record revenue under these arrangements for the amounts due and not yet reported to the Company based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. Such estimates will be based on information from the Company's customers, historical experience with similar titles in that market or territory, the performance of the title in other markets, and/or data available in the industry.
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Revenues by Market or Product Line.
The following describes the revenues expected to be generated by market or product line.
Theatrical. Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis. Revenue from the theatrical release of feature films are treated as sales or usage- based royalties, are recognized as revenue starting at the exhibition date and are based on the Company's participation in box office receipts of the theatrical exhibitor.
Digital Media. Digital media will include digital transaction revenue sharing arrangements (pay-per-view and video-on-demand platforms, electronic sell through ("EST"), and digital rental) and licenses of content to digital platforms for a fixed fee.
Digital Transaction Revenue Sharing Arrangements: Represents primarily revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price. The Company shares in the rental or sales revenues generated by the platform on a title-by-title basis. These digital media platforms generate revenue from rental and EST arrangements, such as download-to-own, download-to-rent, and video-on-demand. These revenue sharing arrangements are recognized as sales or usage-based royalties based on the performance of these platforms and pursuant to the terms of the contract, as discussed above. The Company has not entered into any of these arrangements as of the date of the filing of this Form 10-K.
Licenses of Content to Digital Platforms: Represents primarily the licensing of content to subscription-video-on-demand ("SVOD") or other digital platforms for a fixed fee. As discussed above, revenues are recognized when the content has been delivered and the window for the exploitation right in that territory has begun. The Company has not entered into any of these arrangements as of the date of the filing of this Form 10-K
Packaged Media: Packaged media revenues will represent the sale of motion pictures and television shows (produced or acquired) on physical discs (DVD's, Blu-ray, 4K Ultra HD, referred to as "Packaged Media") in the retail market. Revenues are recognized, net of an allowance for estimated returns and other allowances, on the later of receipt by the customer or "street date" (when it is available for sale by the customer).
Television: Television revenues will be derived from the licensing to domestic markets (linear pay, basic cable, free television markets, syndication) of motion pictures (including theatrical productions and acquired films) and scripted and unscripted television series, television movies, mini-series, and non-fiction programming. Television revenues will include fixed fee arrangements, as well as arrangements in which the Company will earn advertising revenue from the exploitation of certain content on television networks. Television will also include revenue from licenses to SVOD platforms in which the initial license of a television series is to an SVOD platform. Revenues associated with a title, right, or window from television licensing arrangements will be recognized when the feature film or television program is delivered (on an episodic basis for television product) and the window for the exploitation right has begun
International: International revenues will be derived from (1) licensing of the Company's productions, acquired films, catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; (2) the direct distribution of the Company's productions, acquired films, and the Company's catalog product and libraries of acquired titles; and (3) licensing to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming. License fees and minimum guarantee amounts associated with title, window, media, or territory, will be recognized when access to the feature film or television program has been granted or delivery has occurred, as required under the contract, and the right to exploit the feature film or television program in that window, media or territory has commenced. Revenues will also be generated from sales or usage-based royalties received from international distributors based on their distribution performance pursuant to the terms of the contracts after the recoupment of certain costs in some cases, and the initial minimum guarantee, if any, and are recognized when the sale by the Company's customer generating a royalty due to the Company has occurred.
Event-Based: 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.
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Other: Other revenues will be derived from the licensing of the Company's film and television and related content (games, music, location-based entertainment royalties, etc.) to other ancillary markets and from commissions earned and executive producer fees related to talent management.
Related Parties: Revenues from related parties are expected to reflect pricing comparable to arm's-length customers.
Deferred Revenue
Deferred revenue relates to customer cash advances or deposits received prior to when the Company satisfies the corresponding performance obligation.
Payment terms are expected to vary by location and type of customer and the nature of the licensing arrangement, however, other than multi-year license arrangements; payments will generally be due within 60 days after revenue is recognized. For certain multi-year licensing arrangements, primarily in the television, digital media, and international markets, payments may be due over a longer period. When the Company expects the period between fulfillment of the Company's performance obligation and the receipt of payment to be greater than a year, a significant financing component will be present. In these cases, such payments will be discounted to present value based on a discount rate reflective of a separate financing transaction between the customer and the Company, at contract inception. The significant financing component will be recorded as a reduction to revenue and accounts receivable initially, with such accounts receivable discount amortized to interest income over the period to receipt of payment. The Company does not assess contracts with deferred payments for significant financing components if, at contract inception, the Company expects the period between fulfillment of the performance obligation and subsequent payment to be one year or less.
In other cases, customer payments may be made in advance of when the Company fulfills its performance obligation and recognizes revenue. This may primarily occur under television production contracts, in which payments may be received as the production progresses, international motion picture contracts, where a portion of the payments are received prior to the completion of the movie and prior to license rights start dates and pay television contracts with multiple windows with a portion of the revenues deferred until the subsequent exploitation windows commence. These arrangements will not contain significant financing components because the reason for the payment structure is not for the provision of financing to the Company, but rather to mitigate the Company's risk of customer non-performance and incentivize the customer to exploit the Company's content.
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, including higher legal, accounting, insurance, compliance, compensation, and other costs.
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The Company's consolidated statements of operations as discussed herein are
presented below.
For the Period
February 11,
2020
(date of
Year inception)
Ended through
July 31, July 31,
2021 2020
Revenues - including $18,000 from a related party $ 64,074 $ -
Costs and expenses:
General and administrative:
Officers, directors, affiliates, and other related parties 1,032,164 493,472
Other costs 1,210,387 447,847
Production costs 35,349 -
Sales and marketing 13,926 11,289
Write-off of consideration paid for acquisition of
- 115,532
Total costs and expenses 2,291,826 1,068,140
Loss from operations (2,227,752 ) (1,068,140 )
Other income (expense):
Increase in fair value of marketable securities 523,315 1,639
Loss on restatement of convertible note (48,010 ) -
Increase in fair value of derivative liability (123 ) -
Convertible promissory note payable default obligation
incurred (64,375 ) -
Interest expense, net (34,163 ) (427 )
Total other income net 376,644 1,212
Net loss $ (1,851,108 ) $ (1,066,928 )
Net loss per common share - basic and diluted $ (0.02 ) $ (0.04 )
Weighted average common shares outstanding - basic and
diluted 90,255,725 28,805,814
Year Ended
Revenues. The Company generated revenues of
General and Administrative:
Officers, Directors, Affiliates and Other Related Parties.
For the fiscal year ended
For the period
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Other General and Administrative Expenses.
For the fiscal year ended
For the period from
Event Based Production Costs. Event based production costs are costs incurred in
the production of media content for third parties through Eventide Media. For
the fiscal year ended
Sales and Marketing. For the fiscal year ended
Write-off of Consideration Paid for Acquisition of
Increase in Fair Value of
Convertible Promissory Note Payable Default Obligation Incurred. For the fiscal
year ended
Interest Expense. For the fiscal year ended
Net Loss. For the fiscal year ended
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Liquidity and Capital Resources -
The Company's consolidated statements of cash flows as discussed herein are
presented below.
For the Period
February 11, 2020
Year (date of inception)
Ended through
July 31, 2021 July 31, 2020
Net cash used in operating activities $ (1,320,626 ) $ (462,878 )
Net cash used in investing activities (4,958,515 ) (134,413 )
Net cash provided by financing activities 6,293,333 615,572
Net increase (decrease) in cash $ 14,192 $ 18,281
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 fiscal year ended
In addition, the Company's independent registered public accounting firm, in
their report on the Company's consolidated financial statements for the fiscal
year ended
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.
At
At
On
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Under the terms of the Settlement Agreement, the Company would pay an aggregate
amount of
Operating Activities
For the fiscal year ended
Investing Activities
For the fiscal year ended
Financing Activities
For the fiscal year ended
For the period
Project Funding
The Company expects that its film projects will 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 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 will continue to give strong consideration 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. So far this form of financing has not been obtained and the Company has instead relied on temporary financing which has resulted in ongoing renegotiations of due dates as a result of timing differences between obtaining the funds and the time frame needed to complete the projects. While the Company has planned to use this temporary funding from film project lenders until the Company is able to obtain project financing from senior lenders, it instead has been forced to rely on short term financing payment deferrals with some limited repayments of term loans.
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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
Impact of Novel Coronavirus (COVID-19) on the Company's Business Operations
The global outbreak of COVID-19 and its variants has led to severe disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis. Although the Company has not experienced any significant disruption to its business to date, these conditions could significantly negatively impact the Company's business in the future.
The extent to which the COVID-19 outbreak and its variants ultimately impacts the Company's business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, the emergence of additional variants, its severity and longevity, the actions to curtail the virus and treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Although the COVID-19 outbreak appears to be subsiding, the Company may be at risk of experiencing a significant impact to its business as a result of the global economic impact, including any economic downturn or recession that has occurred or may occur in the future if there is a significant resurgence of COVID-19 cases.
There is also significant uncertainty as to the effect that the coronavirus may have on the amount and type of financing available to the Company in the future.
The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become available.
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 assurance 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.
Other than as discussed above and elsewhere in the financial statements, the Company is not currently aware of any trends, events or uncertainties that are likely to have a material effect on the Company's financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on the Company's financial condition.
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