T.O ENTERTAINMENT, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - T.O ENTERTAINMENT, INC.	Financial_Report.xls
EX-31 - T.O ENTERTAINMENT, INC.	exhibit311.htm
EX-31 - T.O ENTERTAINMENT, INC.	exhibit312.htm
EX-32 - T.O ENTERTAINMENT, INC.	exhibit322.htm
EX-32 - T.O ENTERTAINMENT, INC.	exhibit321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to __________________

Commission File Number: 000-53213

T.O ENTERTAINMENT, INC

(Exact name of registrant as specified in its charter)



Colorado		26-2666328
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

90 Madison Street

Suite 701

Denver, CO 80206

(Address of principal executive offices)

303-329-3008

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

As of March 12, 2013, the Registrant had 33,000,000 shares of common stock issued and outstanding.



	TABLE OF CONTENTS

		Page Number

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Balance Sheets as of December 31, 2012 (unaudited) and March 31, 2012	1

	Consolidated Statements of Operations for the three and nine months ended December 31, 2012 and 2011 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011 (unaudited)	4

	Notes to Condensed Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

SIGNATURES		29

PART I-FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
T.O Entertainment, Inc.
Condensed Consolidated Balance Sheets

	December 31, 2012		March 31, 2012
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	404,825	$	679,541
Restricted cash		18,242
Accounts receivable, less allowance for doubtful accounts and provision for sales returns		2,360,958		4,893,283
Other receivables		202,566		20,519
Inventories		1,064,019		850,210
Prepaid expenses and other current assets		60,329		83,482
Deferred loan fees		61,417
Deferred tax assets		-		683,968
Total Current Assets		4,172,356		7,211,003
Non-current assets:
Film costs		1,654,587		5,387,482
Investment in animation film		2,011,256		2,117,904
Property, plant and equipment		10,155		64,620
Other assets		273,500		573,595
Total non-current assets		3,949,498		8,143,601
Total assets	$	8,121,854	$	15,354,604

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	6,414,770	$	5,072,609
Other payables and accrued expenses		249,065		191,858
Bank loans – current portion		136,683		858,953
Revolving line of credit		1,200,000		-
Redeemable warrant liability		22,500
Deferred revenue		248,150		7,861,505
Convertible bond		415,800		-
Total Current Liabilities		8,686,968		13,984,925
Non-current liabilities:
Convertible bonds				421,464
Option liability				2,988
Bank loans – non-current portion		3,629,126		3,037,898
Total non-current Liabilities		3,629,126		3,462,350
Total liabilities		12,316,094		17,447,275
Commitments and contingencies
Stockholders’ deficit:
Common stock, no par value; 100,000,000 shares authorized; 33,000,000 shares issued and outstanding at December 31, 2012 and March 31, 2012		396,000		396,000
Additional paid in capital		2,790,998		2,790,998


Accumulated deficit		(7,123,122)		(4,724,986)
Accumulated other comprehensive loss		(258,116)		(554,683)
Total stockholders’ deficit		(4,194,240)		(2,092,671)
Total liabilities and stockholders’ deficit	$	8,121,854	$	15,354,604

See notes to consolidated financial statements


T.O Entertainment, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

	For the nine months ended December 31				For the three months ended December 31
	2012		2011		2012		2011
Revenues	$	16,079,082	$	19,348,337	$	5,968,279	$	8,584,505
Cost of revenue		14,954,835		15,813,873		5,735,348		7,526,523
Gross profit		1,124,247		3,534,464		232,931		1,057,982
Selling, general and administrative expenses		2,138,130		2,139,860		635,141		855,554
Depreciation		25,947		26,397		4,074		3,109
		2,164,077		2,166,257		639,215		858,663
Income/(Loss) from operations		(1,039,830)		1,368,207		(406,284)		199,319
Other income (expenses)
(Loss) from unconsolidated entities		(461,810)		-		(6,332)		-
Interest expenses		(133,011)		(93,871)		(46,762)		(5,929)
Loss for disposition of fixed assets		(60,757)		(525)		(60,757)		(525)
Gain on derivative		3,062		-		(26)		-
Other income		(5,003)		(3,707)		(11,716)		(16,803)
		(657,519)		(98,103)		(125,593)		(23,257)
Income/(Loss) from operations before income taxes		(1,697,349)		1,270,104		(531,877)		176,062
Income taxes		700,787		(17)		(25,789)		(17)
Net income /(loss)		(2,398,136)		1,270,121		(506,088)		176,079
Other comprehensive income/( loss):
Foreign currency translation income/(loss)		296,567		(317,412)		450,049		(40,277)
Comprehensive income/(loss)	$	(2,101,569)	$	952,709	$	(56,039)	$	135,802
Per share information – basic:
Weighted average shares outstanding - basic		33,000,000		31,680,000		33,000,000		31,680,000
Net income/(loss) per share - basic	$	(0.06)	$	0.03	$	(0.00)	$	0.00
See notes to consolidated financial statements


T.O Entertainment, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended December 31, 2012 and 2011
(Unaudited)

	2012		2011
Net cash (used in) operating activities	$	(302,426)	$	933,976

Cash flows from investing activities:
Purchase of plant and equipment		(4,364)		17,431
Investments animation films		(1,131,324)		(1,140,223)
Net cash (used in) investing activities		(1,135,688)		(1,122,792)

Cash flows from financing activities:
Proceeds from revolving line of credit		$1,089,450		-
Proceeds from long-term bank loans		888,241		1,800,400
Repayments of long-term bank loans		(32,675)		(707,557)
Proceeds from short-term bank loans		321,425		178,227
Repayment of short-term bank loans		(997,932)		(906,591)
Proceeds from issuance of common stock		-		(239,197)
Net cash provided by financing activities		1,268,509		603,675

Effect of exchange rate changes on cash		(86,871)		(98,309)

Net (decrease) in cash and cash equivalents		(256,474)		316,550
Cash and cash equivalents at beginning of year		679,541		767,247
Cash and cash equivalents at end of year	$	423,067	$	1,083,797

Supplementary cash flow information
Income taxes paid	$	-	$	-
Interest paid	$	133,011	$	94,168

See notes to consolidated financial statements

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITY

Throughout this report, the terms “our,” “we,” “us,” and “Company” refer to T.O Entertainment, Inc., including its subsidiaries. The accompanying unaudited financial statements of T.O Entertainment, Inc. at December 31, 2012 and 2011 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended March 31, 2012. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended, December 31, 2012 and 2011 presented are not necessarily indicative of the results to be expected for the full year. The March 31, 2012 balance sheet has been derived from our audited financial statements included in our annual report on Form 10-K for the year ended March 31, 2012.

T.O Entertainment, Inc. (formerly IBI Acquisitions, Inc. or “IBI”) was incorporated in the State of Colorado on May 22, 2008. The Company was formed to explore merger and acquisitions opportunities with other companies.

On January 3, 2012, pursuant to the terms of a Agreements between IBI and T.O Entertainment, Inc., Japan (“TOE Japan”) the shareholders invested 100% of the then outstanding stock in IBI by transferring ownership of such shares to IBI. IBI issued a total of 31,680,000 common shares of its common stock to the TOE Japan’s shareholders in exchange for their TOE Japan common shares.

On March 5, 2012, the Company changed the name from IBI Acquisitions, Inc. to T.O Entertainment, Inc.

The transaction was accounted for as a “reverse merger,” since the original stockholders of the TOE Japan own a majority of the outstanding shares of our common stock immediately following the completion of the transaction. TOE Japan was the legal acquiree but deemed to be the accounting acquirer, IBI was the legal acquirer but deemed to be the accounting acquiree in the reverse merger. The historical financial statements prior to the acquisition are those of the accounting acquirer (TOE Japan). Historical stockholders' equity of the acquirer prior to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in the merger. Operations prior to the merger are those of the acquirer. After completion of the transaction, the Company’s consolidated financial statements include the assets and liabilities of the Company and its subsidiaries, the operations and cash flow of the Company and its subsidiaries

We are an entertainment company incorporated in Tokyo, Japan on April 1, 2003, whose businesses include filmed entertainment and book publishing and production which consists principally of production and distribution of animated and live feature films, including distribution of such films on DVD’s and Blue Ray Discs, and. Book publishing consisting principally of the sale of books to which TOE has the rights to print and distribute. TOE operations are currently in Japan, Singapore, the United Kingdom and the Russia Federation.

After the reverse merger, TOE has been operating in the United States of America, Japan, Republic of Singapore, and the Russian Federation while the operations in the United Kingdom are in dormant.

NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The condensed consolidated financial statements have been prepared in accordance with GAAP and are expressed in United States dollars ($). Financial statements prepared in accordance with GAAP contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the deferred revenue, at December 31, 2012 we would have had a working capital deficit of $4,266,462. In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding which would enhance capital employed and strategic partners which would increase revenue bases or reduce production costs. In November 2012, the Company entered in a Credit Agreement with an unrelated third party (see Note 6 for additional details). Management believes that the above actions will allow the Company to continue its operations throughout the next fiscal year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

Significant estimates and judgments inherent in the preparation of these consolidated financial statements include, among other things, accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, the determination of ultimate revenues as it relates to amortization of capitalized film costs from participations and residuals, books and DVD sales returns, equity-based compensation, income taxes, and contingencies.

Foreign Currency Translation

The Company’s reporting currency is the United States dollar (“$”) and the accompanying consolidated financial statements have been expressed in United States dollars. The Company’s functional currency is the Japanese Yen (“¥”). In addition, its operating subsidiaries in the United Kingdom and Singapore maintain their books and record in their respective local currencies, the British Pound (“£”), the Singapore dollar (“SG$”), and the Russian ruble (“Rup”) which is a functional currency as being the primary currency of the economic environment in which their operations are conducted.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830 “Translation of Financial Statements” (“ASC 830”), capital accounts of the consolidated financial statements are translated into United States dollars from Japanese yen at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the respective year. The resulting exchange differences are recorded in the consolidated statement of operations.

Translation of amounts from the local currency of our subsidiaries into United States dollars has been made at the following exchange rates for the nine month periods ended December 31, 2012 and 2011:



	2012	2011
Period-end ¥: $1 exchange rate	86.58	77.74
Average period ¥ : $1 exchange rate	79.99	78.88
Period-end £: $1 exchange rate	139.52	119.81
Average period £: $1 exchange rate	127.14	126.61
Period-end SG$: $1 exchange rate	70.78	59.76
Average period SG$: $1 exchange rate	64.28	63.12
Period-end Rub: $1 exchange rate	2.87	2.43
Average period Rub: $1 exchange rate	2.54	2.68

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fair Value

ASC Topic 820 “Fair Value Measurement and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

·Level 1—defined as observable inputs such as quoted prices in active markets;

·Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

·Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, other receivables, payables, and long term debt. The carrying values of cash and cash equivalents, trade receivables, other receivables, and payables approximate their fair value due to their short maturities. The carrying value of long term debt approximates the fair value of debt of similar terms and remaining maturities available to the company.

The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

The Company’s non-financial assets measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which are measured for recoverability when indicators for impairment are present. ASC 820 requires companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the re-measurement at fair value is performed.

The Company valued the convertible bonds using Level 3 criterion. As of December 31, 2012, the valuations resulted in a gain on derivatives of $3,062.

Fair Value of Financial Instruments with Conversion Features

In accordance with ASC Topic 815 “Derivatives and Hedging”, the conversion feature of convertible bonds are separated from the debt instrument and accounted for separately as a derivative instrument. On the date the Company’s convertible bonds are issued, the conversion feature was recorded as a liability at its fair value, and future decreases in fair value recognized in earnings while increases in fair values recognized in expenses as interest expense.

The Company used the Black-Scholes-Merton (“Black-Scholes”) model to obtain the fair value of the conversion feature. The Company’s expected volatility assumption is based on the historical volatility of stock prices of entertainment industry average in Japan. The expected life assumption is primarily based on the expiration date of the conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.

The convertible bonds reached maturity and were not converted. The conversion feature has expired and is no longer available.

Investments in Animations Films

Investments in animation films includes the Company’s investments in co-production animation films which are generally less than 50% owned by the Company and are produced by the other investors of the ventures. Prior to August 1, 2012, the Company accounted for investments in animated films for which it had an interest greater than 20% and exercised influence over the investment using the equity method. Under the equity method, the initial investment is recorded at cost and adjusted annually to recognize the Company’s share of earnings and losses of the entity. As a result of the Company’s inability to fund certain requirements of its investment it no longer exercises any influence over the co-productions. On August 1, 2012, the Company ceased accounting for its investment in animated films under the equity method, and began accounting for the investment utilizing the cost method.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Film Costs and Revenues

Feature films typically are produced for initial exhibition in theaters, followed by distribution in the home video, electronic sell-through, video-on-demand, pay cable, basic cable and broadcast network sectors. Generally, distribution to the home video, video-on-demand, pay cable, basic cable and broadcast network sectors each commence within a range of approximately one to five years of initial theatrical release. Theatrical revenues are recognized as the films are exhibited. Revenues from home video sales are recognized at the later of the delivery date or the date that video units are made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns. A warranty period for six months are usually provided by the Company on the film produced or arranged by the Company. Based on management’s past experience, no report of defects or claim for compensation

Upfront or guaranteed payments for the licensing of intellectual property are recognized as revenue when (i) an arrangement has been signed with a customer, (ii) the customer’s right to use or otherwise exploit the intellectual property has commenced and there is no requirement for significant continued performance by the Company, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fees is reasonably assured. In the event any significant continued performance is required in these arrangements, revenue is recognized when the related services are performed.

Film costs include the unamortized cost of completed films, films in production and film rights in preparation of development. Film costs are stated at the lower of cost, less accumulated amortization, or fair value. The amount of capitalized film costs recognized as cost of revenues for a given film as it is exhibited in various sectors, throughout its life cycle, is determined using the film forecast computation method. Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s revenues recognized for such period to the film’s estimated remaining ultimate revenues. The process of estimating a film’s ultimate revenues (i.e., the total revenue to be received throughout a film’s life cycle) is discussed further under “Film Cost Recognition and Impairments.”

Film Cost Recognition and Impairments

Film costs include direct production costs, production overhead and acquisition costs for films are stated at the lower of unamortized cost or estimated fair value and classified as noncurrent assets. Accounting for film costs, as well as related revenues requires the exercise of judgment relates to the process of estimating a film’s ultimate revenues and is important for two reasons. First, while a film is being produced and the related costs are being capitalized, as well as at the time the film is released, it is necessary for management to estimate the ultimate revenues, less additional costs to be incurred (including exploitation and participation costs), in order to determine whether the value of a film has been impaired and, thus, requires an immediate write-off of unrecoverable film costs. Second, it is necessary for management to determine, using the film forecast computation method, the amount of capitalized film costs and the amount of participations and residuals to be recognized as costs of revenues for a given film in a particular period. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

Prior to the theatrical release of a film, management bases its estimates of ultimate revenues for each film on factors such as the historical performance of similar films, the rating and genre of the film, pre-release market research (including test market screenings) and the expected number of theaters in which the film will be released. Management updates such estimates based on information available during the film’s production and, upon release, the actual results of each film. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on the Company’s financial results for that period. For example, prior to a film’s release, the Company often will test market the film to the film’s targeted demographic. If the film is not received favorably, the Company may (i) reduce the film’s estimated ultimate revenues, (ii) revise the film, which could cause the production costs to increase or (iii) perform a combination of both. Similarly, a film that generates lower-than-expected theatrical revenues in its initial weeks of release would have its theatrical and home video ultimate revenues adjusted downward.

Collaborative Arrangements

The Company has entered into collaborative arrangements in the film business, with one or more active participants to jointly finance produce and/or distribute motion picture or television product under which both the Company and the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

production and distribution arrangements.

The Company typically records an asset for only the portion of the film it owns and finances. The Company and the other participants typically distribute the product in different media or markets. Revenues earned and expenses incurred for the media or markets in which the Company distributes the product are typically recorded on a gross basis. The Company typically does not record revenues earned and expenses incurred when the other participants distribute the product. The Company and the other participants typically share in the profits from the distribution of the product in all media or markets. For films product, if the Company is a net receiver of (1) the Company’s share of the profits from the media or markets distributed by the other participants less (2) the other participants’ share of the profits from the media or markets distributed by the Company then the net amount is recorded as net sales. If the Company is a net payer then the net amount is recorded in cost of sales.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes.

Recent Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoptions of any such pronouncements may be expected to cause a material impact on our financial condition or the results of operations.

NOTE 3 INVENTORIES

Inventories are valued at cost, not in excess of market, cost being determined on the “First-in-first-out” basis and consist of finished goods of books and DVDs. Inventories are at December 31, 2012 and March 31, 2012 are summarized as follows:


	December 31		March 31
Inventories	$	1,064,019	$	859,478
Less: provision for inventory written off				(9,268)
Inventories	$	1,064,019	$	850,210

The inventories represent the ending balance of finished goods of books and DVDs as at December 31, 2012 and March 31, 2012.

NOTE 4 FILM COSTS

Film costs at December 31, 2012 and March 31, 2012 are summarized as follows:


	December 31		March 31
Film costs — Theatrical film and animation:
Released, less amortization	$	1,209,444	$	886,069
In production and development				568,301
Television production:
Released, less amortization		445,143		1,079,684
In production and development		-		2,853,428
	$	1,654,587	$	5,387,482

The cost of completed films amounting to $1,654,587 and $5,387,482, respectively, are expected to be amortized in

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the next operating cycle (i.e. 12 months from the date of December 31, 2012 and March 31, 2012).

All unamortized film cost as of December 31, 2012 and March 31, 2012 are expected to be amortized within three years from December 31, 2012 and March 31, 2012.

NOTE 5 PROPERTIES, PLANT AND EQUIPMENT

Property and equipment at December 31, 2012 and March 31, 2012 is summarized as follows:


	December 31		March 31
Office equipment	$	31,708	$	138,655
Leasehold improvement		-		98,469
		31,708		237,124
Accumulated depreciation		(21,553)		(172,504)
	$	10,155	$	64,620

The depreciation of leasehold improvement and office equipment charged was $25,947, $26,397, $4,074 and $3,109 for the nine and three months periods ended December 31, 2012 and 2011, respectively.

NOTE 6 REVOLVING LINE OF CREDIT

On November 12, 2012 the Company borrowed $1,200,000 from an unrelated third party.

The loan was made pursuant to the terms of a Credit Agreement dated as of October 31, 2012 (the "Credit Agreement"), and made effective as of November 12, 2012, by and is evidenced by a Revolving Note. Under the Credit Agreement, the Company may borrow up to an amount equal to the lesser of 80% of its Eligible Accounts (as defined in the Credit Agreement) and the revolving loan commitment, which initially is $1,200,000. Upon satisfaction of certain conditions, The Company may, from time to time, request that the revolving loan commitment be raised up to a maximum of $5,000,000. The decision to grant any such increase in the revolving loan commitment is in the Lender's sole discretion.

The loan matures on the earlier of May 12, 2013, which is six (6) months from the closing date, subject to a six-month extension upon written request of the Company made prior to the initial closing date. The maturity date may also be extended in the Lender's sole discretion, in connection with execution of any modification, extension or renewal of the Revolving Note evidencing the loan. The loan bears interest at the rate of 10% per annum. In addition, the Company is required to pay certain fees specified in the Credit Agreement. The fees include due diligence fees, document review and legal fees, an asset monitoring fee, and a transaction advisory fee, all of which are payable in cash, and an additional advisory fee payable through issuance to the Lender of three (3) redeemable warrants to purchase shares of common stock of the Company. Each of the warrants has a term of 10 years, and each of them grants the Lender the right to purchase a number of shares equal to up to one percent (1%) of the Company’s issued and outstanding common stock at a price of $0.001 per share. Each of the warrants includes a mandatory redemption provision pursuant to which the Company is required to redeem the warrant for a redemption price of $45,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption dates of the three warrants are May 12, 2013, August 12, 2013 and November 12, 2013, respectively, which dates are 6 months, 9 months and 12 months after the initial closing date.

Under the terms of the Credit Agreement, the Company is required to direct all payments received on account to a lock box account under the control of the Lender. The Lender is authorized, on a weekly basis, to apply funds in the lock box account toward payment of fees and interest due and owing by the Company, to the establishment of a reserve in the amount of twenty percent (20%) of the amount of the revolving loan commitment, and, in its sole discretion, to prepayments of the outstanding principal due on the loan. Any funds remaining on deposit in the lock box account after payment of the foregoing items, are required to be disbursed on a weekly basis to the Company.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In addition to the lock box, the loan is secured by a pledge of substantially all of the assets of the Company, by a pledge of all of the shares of T.O Entertainment, Inc., a Japan corporation, owned by the Company, and by the pledge by the officers and directors of the Company of a total of 8,581,725 shares of common stock of the Company currently owned by such officers and directors, and representing approximately 26% of the Company’s currently issued and outstanding common stock.

The Credit Agreement imposes certain restrictions on the Company, including restrictions on its ability to (i) incur any Funded Indebtedness (as defined in the Credit Agreement), (ii) incur liens, (iii) make investments, (iv) permit a Change in Control (as defined in the Credit Agreement) or dispose of all or substantially all of its assets, (v) make capital expenditures not in the ordinary course of its business, (vi) issue or distribute capital stock, (vii) make distributions to its shareholders, (viii) engage in any line of business other than the business engaged in on the date of the Credit Agreement and businesses reasonably related thereto, and (ix) enter into transactions with any affiliates except in the ordinary course of business and upon fair and reasonable terms that are no less favorable to Company than it would obtain in an arm-length's basis with a non-affiliate. Each of these restrictions is subject to certain exceptions, as specified in the Credit Agreement.

The loan may be accelerated upon the occurrence and during the continuation of an Event of Default (as defined in the Credit Agreement), including nonpayment of amounts owed, misrepresentation, failure to perform under the Credit Agreement or related documents, default under certain other obligations, events of bankruptcy, the entry of a judgment in excess of certain specified amounts, the occurrence of a Material Adverse Effect (as defined in the Credit Agreement), the occurrence of a Change in Control (as defined in the Credit Agreement), certain impairments of collateral, and the determination in good faith by the Lender that the prospect for payment or performance of the Obligations (as defined in the Credit Agreement) is impaired for any reason.

On January 31, 2013 the Credit Agreement was modified. The Lender agreed to waive its right to retain any portion of payments received in the lock box between January 31, 2013 and March 31, 2013 for purposes of establishing a reserve account equal to 20% of the initial Revolving Loan Commitment of $1,200,000. All funds held in reserve by Lender prior to January 31, 2013, will continue to be held in reserve in the lock box account. In consideration for agreeing to enter into this Amendment, the Company agreed to pay Lender an additional advisory fee in the form of a redeemable warrant, giving the Lender the right to purchase, for no additional consideration, one percent (1.0%) of the issued and outstanding common stock of the Issuing Borrower, which warrant is in substantially the same form as the Warrants issued under the Credit Agreement (the “Additional Warrant”). The Additional Warrant includes a mandatory redemption feature pursuant to which the Company is required to redeem the warrant for a redemption price of $135,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption price is payable in twelve (12) equal monthly installments of $11,250.00 each, commencing on April 1, 2013, and continuing on the first day of each consecutive calendar month thereafter until the Additional Warrant is redeemed in full.

Gross proceeds from the first draw on the line of credit were $1,200,000. Fees of $73,050 which included a transaction fee, due diligence, legal fees, and filings fees, have been recorded as deferred loan costs and are being amortized over a six month period, the original loan period. A finder’s fee of $36,000 and an asset monitoring fee of $1,500 have been charged directly to expense. The net proceeds received by the Company were $1,089,450.

Amounts deposited into the required lockbox, but not yet credited to the loan account by the lender are shown as restricted cash.

As stated above the Company issued to the lender redeemable warrants. The Company has followed the guidance in ASC Topic 480 - “Distinguishing Liabilities and Equity” and has determined that the warrant is a liability. The Company has recorded the liability and a deferred amount which represents the advisory fee, and is writing off advisory fee on a periodic basis.

There are no material relationships between the Company or any of its affiliates and the Lender, other than with respect to the Credit Agreement.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 7 BANK LOANS

Bank loans at December 31, 2012 and March 31, 2012 are summarized as follows:


	Interest rate	Due date	December 31		March 31
Financial institution in Japan¹	2.000%	10/31/2012	$	-	$	8,345
Financial institution in Japan¹	1.975%	7/15/2013		75,075		97,600
Financial institution in Japan¹	2.200%	3/25/2014		92,400		117,120
Financial institution in Japan¹	1.975%	7/15/2014		240,760		284,797
Financial institution in Japan¹	2.250%	10/10/2015		231,000		268,400
Financial institution in Japan¹	2.150%	6/30/2015		224,705		271,206
Financial institution in Japan¹	2.200%	2/29/2016		187,110		220,820
Financial institution in Japan²	1.200%	7/31/2015		115,662		139,068
Financial institution in Japan²	2.300%	3/31/2021		808,442		886,489
Financial institution in Japan²	2.300%	3/31/2021		50,474		55,364
Financial institution in Japan²	2.300%	4/28/2018		577,385		644,770
Financial institution in Japan²	2.000%	5/25/2021		816,308		902,872
Financial institution in Japan²	4.175%	11/30/2012		57,738		-
Financial institution in Japan²	5.900%	9/30/2013		288,750		-
Notes payable to banks				3,765,809		3,896,851
Less current portion				(136,683)		(858,953)
Long term loan payable			$	3,629,126	$	3,037,898

1. Bank loans guaranteed by the Company’s Chief Executive Officer

2. Bank loans guaranteed by the Company’s Chief Executive Officer and Tokyo Credit Guarantee Association, an independent commercialized credit guarantee company.

The scheduled maturities of the Company’s bank loans are as follows:


12 Months ending December 31,
2013	$	136,683
2014		820,304
2015		753,938
2016		679,510
2017		332,744
Thereafter		1,042,630
Total	$	3,765,809

NOTE 8 CONVERTIBLE BONDS

The Company previously issued an unsecured convertible bond aggregating $466,560 (amount in original currency: ¥42,000,000) with an undetectable conversion feature in the form of a warrant due September 30, 2012 to stockholders of the company. The convertible bond bears interest at 3% per annum. The convertible bond reached maturity and was not converted. The conversion feature has expired and no longer is available.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The convertible bond holder agreed to extend the payment date of bond until March31, 2013.

NOTE 9 SHARE BASED COMPENSATION

All shares amounts have been restated retroactively to reflect the reverse merger.

On August 29, 2005, Board of Directors passed a resolution which was approved by the Company’s stockholders to permit the grant of incentive stock options to its officers, employees, consultants and non-employee directors. In November, 2005, 599,691 stock options were granted pursuant to the resolution. Option awards could be exercised two years after the day of allocation of the share option to eight years after that. The exercise price for this option is ¥7.25 per share ($0.08 per share at December 31, 2012). On October 25, 2006, the Company exercised a stock split of ratio 1:3 and accordingly, the number of option granted and the price was adjusted accordingly.

On October 22, 2007 the Board of Directors passed a resolution which was approved by the Company’s stockholders to grant incentive options to its officers, employees, consultants and non-employee directors. In October, 2007, 16,543,200 stock options were granted pursuant to the resolution. Option awards could be exercised two years after the day of allocation of the share option to eight years after that. The exercise price for this option is ¥8.70 per share ($0.10 per share at December 31, 2012).

During 2008, 516,975 of 16,543,200 stock options were automatically cancelled upon the departure of two employees who were granted with such stock options according to the stock option agreement.

On January 20, 2010 the Board of Directors passed a resolution which was approved by the Company’s shareholders in a special shareholder meeting held at the same date to grant incentive options to a business partner. In January 26, 2011, 689,300 stock options were granted pursuant to the resolution. Option awards could be exercised the following day after the date of allocation of the share option to ten years after that. The exercise price for this option is ¥8.70 per share ($0.10 per share at December 31, 2012).

On July 6, 2010, 137,860 of 16,543,200 stock options were automatically cancelled upon the departure of an employee who was granted with such stock options according to the stock option agreement.

On September 22, 2011, 1,488,888 stock options granted during the year of 2005 were exercised at price of ¥2.42 per share ($0.03 per share at September 22, 2011), On same date, 1,723,250 share options granted during the year of 2011 were exercised at price of ¥8.70 ($0.10 per share at September 22, 2011).

The fair value of stock acquisition rights granted to employees on the date of grant and used to recognize compensation were estimated using the Black-Scholes model with the following weighted-average assumptions:



Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

There was no expense recorded for the three and nine month periods ended December 31, 2012 and 2011.

The following table summarizes options outstanding issued to employees at December 31, 2012. There were no options granted exercised or cancelled during the nine and three months ended December 31, 2012.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Options

Weighted Average Exercise Price

Weighted Average remaining contractual life

(in years)

Average Intrinsic Value

Outstanding as at December 31, 2012

13,786,000

0.10

4.55

14,688

(*)

(#): Weighted average exercise prices in original currency are ¥ as at December 31, 2012.

(*): Average intrinsic values in original currency are ¥ as at December 31, 2012.

The stock option granted to non-employees is for the services rendered or sign-up bonus to strengthen the relationship with business partners or service providers. The fair values of the vesting non-employee options were determined using the Black Scholes option pricing model with the following assumptions:



Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

The following table summarizes options outstanding issued to non-employees at December 31, 2012. There were no options granted exercised or cancelled during the nine and three months ended December 31, 2012.



	Options	Weighted Average Exercise Price			Weighted Average remaining contractual life (in years)	Average Intrinsic Value
Outstanding December 31, 2012	1,378,600	$	0.09	(#)	4.95	$	25,010-

(#): Weighted average exercise price in original currency is ¥ as at December 31, 2012.

There was no stock option expense of non-employee options for the nine and three months periods ended December 31,2012 and 2011.

The following table summarizes all options outstanding issued to both employee and non-employees at December 31, 2012:



			Options Outstanding			Options Exercisable
			Weighted			Weighted
			Average	Weighted		Average	Weighted
Range of			Remaining	Average		Remaining	Average
Exercise Price		Number Outstanding	Contractual Life	Exercise Price	Number Exercisable	Contractual Life	Exercise Price
$0.03	(*)	310,185	2.45	$0.03	310,185	2.2	$0.03
$0.10	(#)	14,165,115	5.45	$0.10	14,165,115	5.2	$0.11
$0.10	(#)	689,300	7.75	$0.10	689,300	7. 5	$0.11
Total		15,164,600			15,164,600

(*): Weighted average exercise price in original currency is ¥ as at December 31, 2012.

(#): Weighted average exercise price in original currency is ¥ as at December 31, 2012.

Although the fair value of stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 10 INCOME TAXES

We account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. As of December 31, 2012, the estimated effective tax rate for the year will be 0%

In accordance with ASC 740, at December 31,2012 we determined that a valuation allowance should be recognized against deferred tax assets because, based on the weight of available evidence, it is more likely than not (i.e., greater than 50% probability) that some portion or all of the deferred tax asset will not be realized in the future. We recognized a reserve of 100% of the amounts of the deferred tax expense in the amount of $700,787.

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2008 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

NOTE 11 EARNING PER SHARE

The Company calculates earnings per share in accordance with ASC Topic 260 “Earnings Per Share”, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options, warrants and convertible note (using the if-converted method). The dilutive earnings per share was not calculated because the exercise price of the outstanding stock options in 2012 and the conversion price of convertible bonds and the exercise price outstanding stock options in 2011 were higher than the average trading price of shares in those periods.

NOTE 12 RELATED PARTY TRANSACTIONS

There was no related transaction reported for the nine and three months ended December 31, 2012 and 2011.

NOTE 13 SEGMENT REPORTING

The Company has two reportable business segments; (i) film entertainment, which consists principally of production and distribution of animated and live feature films, including distribution of such films on DVD and Blu-ray Disc, and (ii) book publishing and distribution. The accounting policies of the segments are the same as those described in the summary of significant t accounting policies.

Operating profits for these segments excludes unallocated corporate items. Administrative and staff and costs were commonly used by all business segments and was indistinguishable.

The following sets forth information about the operations of the business segments:

Assets of the Company are used for all business segments and a segment differentiation cannot be made.

More than 90% of the Company’s total revenue is derived from Japan and accordingly no geographic segment reporting is included.

T.O Entertainment Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

No single customer accounts for more than ten percent (10%) of the Company’s revenues in the nine and three month periods ended December, 2012 or 2011.


	Nine months ended December 31,				Three months ended December 31,
Revenue	2012		2011		2012		2011
Film entertainment	$	12,880,118	$	16,064,673	$	5,059,766	$	6,448,556
Book publishing and distribution		3,198,964		3,283,664		908,513		2,135,949
Total revenue	$	16,079,082	$	19,348,337	$	5,968,279	$	8,584,505

Gross profit
Film entertainment	$	444,416	$	1,561,181	$	116,784	$	(101,540)
Book publishing		679,831		1,973,283		116,147		1,159,522
Total gross profit	$	1,124,247	$	3,534,464	$	232,931	$	1,057,982

Other items
General and administrative expenses unallocated	$	(2,164,077)	$	(2,166,257)	$	(639,215)	$	(858,663)

(Loss)/income from unconsolidated entities
Film entertainment	$	(461,810)	$	-	$	(6,332)	$	-
Interest (expense)								0
Unallocated amounts	$	(133,011)	$	(93,871)	$	(46,762)	$	(5,929)
Loss for disposition of fixed Assets	$	(60,757)	$	(525)	$	(60,757)	$	(525)
Other income/(expense)
Unallocated	$	(1,941)	$	(3,707)	$	(11,742)	$	(16,803)

Operating Income (loss)
Film entertainment	$	(17,394)	$	1,561,181	$	110,452	$	(101,540)
Book publishing		679,831		1,973,283		116,147		1,159,522
Unallocated amounts		(2,359,786)		(2,264,360)		(758,476)		(881,920)
Total loss from operations before income taxes	$	(1,697,349)	$	1,270,104	$	(531,877)	$	176,062

NOTE 14 SUBSEQUENT EVENT

Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements other than the modification of the Credit Agreement described in Note 6 above.

ITEM 2.

MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.

Background

We were incorporated in the State of Colorado on May 22, 2008. Since inception, we have been engaged in organizational efforts and obtaining initial financing. The Company was formed as a vehicle to pursue a possible business combination.

On January 3, 2012, we entered into Investment Agreements with all shareholders of TOE Japan (the “Investors”). Pursuant to the Investment Agreements, each of the Investors agreed to make a direct investment in the Registrant in the form of a contribution to the Registrant of all shares of common stock of TOE Japan owned by the Investor (“TOE Japan Shares”). In consideration for the investment in the Registrant of the TOE Japan Shares by each Investor, the Registrant agreed to issue to each of the Investors approximately 6,893 shares of common stock of the Registrant for each TOE Japan Share invested in the Registrant. Twenty Investors, who were the holders of one hundred percent (100%) of the outstanding shares of TOE Japan, invested in the Registrant. At the time of closing under the Investment Agreements, the Investors invested a total of 4,596 TOE Japan Shares in the Registrant, representing 100% of the outstanding stock of TOE Japan, and the Registrant issued a total of 31,680,000 shares of common stock to the Investors. The effect of the transaction was to make TOE Japan and its subsidiaries (“TOE Group”) wholly-owned subsidiaries of the Registrant, and to cause a change of control of the Registrant.

TOE Japan was formed in 2003. It initially acted as an agent for authors and cartoonists and was mainly involved in the publishing of books. In 2007 TOE Japan entered into the production segment of the entertainment industry with the production of animated films such as Straight Jacket, a co-production with Manga Entertainment (Starz Entertainment Group)

In 2007, as TOE Japan’s growth continued in Japan, it formed its first subsidiary outside of Japan (“overseas”) in the United Kingdom and opened an office in London. In 2008, TOE set up a branch office in Korea and in 2009, TOE Japan set up a subsidiary in Singapore and a branch office in Russia (incorporated in 2011). In 2010 TOE Group set up a sales office in Los Angeles. These offices were set up in order to facilitate business expansion in those markets. These offices have limited staff and mainly operate with the assistance of the main office in Ebisu,

Japan. Our representative in the London office has recently resigned leaving the office dormant until we can find a replacement.

Currently we are engaged in two industry segments (i) film entertainment, which consists principally of production and distribution of animated and live action feature films, including distribution of such films on DVD’s and Blu-ray Discs (jointly referred to as “DVD”), and (ii) publishing and distribution of books

In addition TOE Group possesses the intellectual property rights of 24 films, including both animated and live action. TOE Group derives its revenue from these rights through the receipts of royalties. Depending on the nature of the intellectual property, royalty revenues can be derived from various distribution channels as stated below.

We derive our revenue from the production and distribution of animated and live action films and television programs. We receive a percentage of the ticket revenue generated by the theatrical release of our films. In addition we receive revenue from post theatrical release which includes the sale and/or license of DVD’s and Blu-ray Discs. The sale or rental of these products generally occurs in a variety of retail outlets such as video specialty stores, mass merchants, and convenience stores, and recently, films have become available for rental by mail from various companies and by downloading from the internet.

Normally the post theatrical release occurs 3 to 6 months after the theatrical release and broadcasting on television.

Additional revenue is generated from pay-per-view television which allows cable and satellite television subscribers to purchase individual programs, including recently released films, on a “per use” basis. The subscriber fees are typically divided among the program distributor, the pay-per-view operator and the cable system operator; pay television which allows subscribers to view premium channels that are offered by cable and satellite system operators for a monthly subscription fee; broadcast television which provides programming over the air; and basic cable which is a fee based service that provides programming via cable or satellite transmission. Broadcasters, cable and satellite systems pay fees to us for the right to air programming a specified number of times. However, revenue generated from this source is currently rather insignificant for TOE.

In addition to content produced by us, we may on occasion purchase the license right to create and distribute DVD and Blu-ray Discs of products produced by other companies. Distribution is divided between outsources and internal distribution.

Our profitability is based on our ability to control the cost of production through careful selection of the production houses and other subcontractors, monitoring of ongoing projects as to cost and budget, and selection of the most appropriate distribution channel for our products.

Our initial business was that of representing authors and creative talent. As a result of the relationships we established, we also began to engage in publishing their works. In addition to the works that are created by authors we represent, we also acquire the rights to translate foreign (non-Japanese) titles to be published in Japan.

In the book publishing sector, our revenues are derived from the sale of books we publish to publication wholesalers and in some instances also from sales directly to retailers when such sales will not compete with the distributor. Our profitability in this portion of our business is based on our ability to control the cost of production through careful selection of the printers and publication wholesalers for each book published.

Critical Accounting Policies

Basis of presentation

As of December 31, 2012 the Company has an accumulated deficit of $7,123,122 and its current liabilities exceed its current assets by $4,514,612. Included in non-current assets at December 31, 2012 is $1,654,587 of film costs which will be expensed against future revenues and will not require the use of cash. Included in current liabilities at December 31, 2012 is $248,150 of deferred revenue, which accounted for approximately 3% of the current liabilities, and represents projects in production. The deferred revenue does not represent a cash liability. Excluding the deferred revenue, at December 31, 2012 we would have had a working capital deficit of $4,266,462. In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of Estimates

Foreign Currency Translation



	2012	2011
Period-end ¥: $1 exchange rate	86.58	77.74
Average period ¥ : $1 exchange rate	79.99	78.88
Period-end £: $1 exchange rate	139.52	119.81
Average period £: $1 exchange rate	127.14	126.61
Period-end SG$: $1 exchange rate	70.78	59.76
Average period SG$: $1 exchange rate	64.28	63.12
Period-end Rub: $1 exchange rate	2.87	2.43
Average period Rub: $1 exchange rate	2.54	2.68

Fair Value

These tiers include:

·Level 1—defined as observable inputs such as quoted prices in active markets;

·Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

·Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the re-measurement at fair value is performed.

The Company valued the convertible bonds using Level 3 criterion. As of December 31, 2012, the valuations resulted in a gain on derivatives of $ 3,062.

Fair Value of Financial Instruments with Conversion Features

The convertible bonds reached maturity and were not converted. The conversion feature has expired and is no longer available.

Investments in Animations Films

Investments in animation films includes the Company’s investments in co-production animation films which are generally less than 50% owned by the Company and are produced by the other investors of the ventures. Prior to August 1, 2012, the Company accounted for investments in animated films for which it had an interest greater than 20% and exercised influence over the investment using the equity . Under the equity method, the initial investment is recorded at cost and adjusted annually to recognize the Company’s share of earnings and losses of the entity method. As a result of the Company’s inability to fund certain requirements of its investment it no longer exercises any influence over the co-productions. On August 1, 2012, the Company ceased accounting for its investment in animated films under the equity method, and began accounting for the investment utilizing the cost method.

Film Costs and Revenues

Film Cost Recognition and Impairments

and the amount of participations and residuals to be recognized as costs of revenues for a given film in a particular period. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

Collaborative Arrangements

Comprehensive Income

Recent Pronouncements

Results of Operations

Our revenue for the nine and three month periods ended December 31, 2012 and 2011 was $16,079,082, $19,348,337, $5,968,279 and $8,584,505 respectively. Our net income/(loss) for the nine and three month periods ended December 31, 2012 and 2011 was $(2,398,136), $1,270121, $(506,088) and $176,079 respectively. Our comprehensive income/(loss) for the nine and three month periods ended December 31, 2012 and 2011 was $(2,101,569), $952,709, $(56,039) and $135,802 respectively. Through December 31, 2012 our cumulative net losses and cumulative comprehensive loss were $(7,123,122) and $(258,116), respectively.

RESULTS OF OPERATION FOR THE NINE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 2011

(References to 2012 and 2011 are to the nine months ended December 31, 2012 and 2011 respectively, unless otherwise specified.)

Total Revenue decreased $3,269,255 (17%) from $19,348,337 for 2011 to $16,079,082 for 2012. Revenue from film entertainment decreased $3,184,555 (20%) from $16,064,673 for 2011 to $12,880,118 for 2012. Revenue from book publishing and distribution decreased $84,700 (3%) from $3,283,664 for 2011 to $3,198,964 for 2012.

The decrease in revenue from film entertainment is due to a reduction in the number of new producing film contracts in 2012 compared to 2011. As a result of cash flow constraints we were involved in fewer productions and in particular, have substantially reduced our involvement in animation projects. Until such time as our cash flow improves we will engage in fewer and smaller

productions than we did in 2011, and expect to have only limited involvement in animation projects.

During 2012 our book division released a total of 44 new books which generated $2,324,459 of the total book revenue of $3,198,964 as compared to 18 new books which generated $2,121,630 of the total book revenue of $3,283,664 in 2011.

We do not anticipate significant growth in revenue until such time as our cash flow improves from operations or from additional funding. We are currently exploring additional funding. At this point in time we do not have an estimate as to when we will resume our growth.

Total cost of revenue decreased $859,038 (5%) from $15,813,873 in 2011 to $14,954,835 in 2012. In terms of percentage of revenue, cost of revenue was 93% in 2012 as compared to 81% in 2011.

Cost of revenue for our film entertainment segment decreased $2,067,790 from $14,503,492 for 2011 as compared to $12,435,702 in 2012. As a percentage of revenue, cost of revenue decreased 6% from 90% in 2011 to 96% in 2012.

Cost of revenue is calculated using a fraction in which the denominator is an estimate of the ultimate revenue that a production will produce and the numerator is the revenue achieved for the accounting period. The unamortized film cost for the project is then multiplied by the percentage calculated. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, have an impact on our financial results for that period. For example, prior to a film’s release, we often will test market the film to the film’s targeted demographic. If the film is not received favorably, we may then (i) reduce the film’s estimated ultimate revenues, (ii) revise the film, which could cause the production costs to increase or (iii) perform a combination of both. Similarly, a film that generates lower-than-expected theatrical revenues in its initial weeks of release would have its theatrical and home video ultimate revenues adjusted downward. (See Film Costs and Revenues included in Critical Accounting Policies and Estimates above for a more detailed explanation of the accounting).

Our estimates of ultimate revenue were lower in 2012 than in 2011. This resulted in a higher cost of revenue.

Cost of revenue for our book increased $1,208,752 from $1,310,381 in 2011 to $2,519,133. As a percentage of revenue, cost of revenue increased 39% from 40% in 2011 to 79% in 2012.

The increase in cost of revenue is attributable to our disposal during 2012 of unsold inventories which we evaluated to be unsalable.

Total gross profit decreased $2,410,217 (68%) from $3,534,464 in 2011 to $1,124,247 in 2012. In terms of percentage of revenue, the gross profit percentage decreased to 7% for 2012 as compared to18% for 2011.Gross profit decreased in 2012 as compared to 2011 because of the fact that we had both a decrease in total revenues and an increase in cost of revenue in 2012 as compared to 2011.

Selling, general and administrative expenses including depreciation decreased $2,180 (less than 1%) from $2,166,257 for 2011 to $2,164,077 for 2012.

The following is a summary of selling general and administrative expenses excluding depreciation for the nine months ended December 31, 2012 and 2011.


	2012		2011		Difference
Personnel costs	$	1,270,632	$	1,199,289	$	71,343
Rental		255,333		292,778		(37,445)
Professional fees		161,678		3,627		158,051
Travel and entertainment		89,682		119,206		(29,524)
Other		360,805		524,960		(164,155)
	$	2,138,130	$	2,139,860	$	(1,730)

Our most significant cost is personnel costs which include salaries, benefits and payroll taxes. These costs increased $71,343 (6%) from $1,199,289 in 2011 to $1,270,632 in 2012, primarily as a result of an increase in the number of employees in the first quarter of our fiscal year. We had an average of 30 employees for the nine months ended December 31, 2012 and 2011. The increase was due primarily to an increase in commissions paid and staff recruitment cost offset by decrease in officers’ salaries.

Rental expenses decreased as a result of downsize our office space. We have reduced our rental cost by approximately $20,000 per month.

Legal and professional fees increased $158,051 (4,357%) from $3,627 in 2011 to $161,678 in 2012 as a result of the merger which took place in 2012 and the cost of acquiring the revolving line of credit.

Travel and entertainment decreased $29,524 (24%) from $119,206 in 2011 to $89,682 in 2012. The decrease directly relates to our efforts to minimize operating expenses which will be continued through the remainder of the current fiscal year.

Other selling, general and administrative expenses include items such as consulting fees, financing fees, office expenses, software related costs, telephone and a variety of other miscellaneous costs. None of these costs individually increased or decreased significantly.

We anticipate that we will incur higher general and administrative expenses as a public company than we incurred in the past as a private company. We expect that our professional fees, cost of transfer agent, investor relations costs and other stock related costs will increase. We are currently reviewing all of our costs in order to reduce overhead expenses.

Other expense increased $559,416 (570%) from $98,103 in 2011 to $657,519 in 2012. The increase in expenses resulted from a write off investments in animated films in the amount of $461,810 and an increase in interest expense.

Our income (loss) from operations before tax decreased $2,967,453 from income of $1,270,104 in 2011 to a loss of $(1,697,349) in 2012. The increase in income from operations was the result of the fact that we had a decrease in revenue and the resulting decrease in gross profit.

In light of continued losses, at December 31, 2012 we could no longer be more than 50% assured that we would receive the benefit from deferred tax assets carried on our balance sheet. Accordingly, we reserved for 100% of the deferred tax asset and recorded tax expense of $700,787.

The net (loss) increased $3,668,229from $1,270,121in 2011 to $(2,398,138) in 2012.

RESULTS OF OPERATION FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2011

(References to 2012 and 2011 are to the three months ended December 31, 2012 and 2011 respectively, unless otherwise specified.)

Total Revenue decreased $2,616,226 (31%) from $8,584,505 for 2011 to $5,968,279 for 2012 as a result of a decrease in revenue from both film entertainment and book publishing. Revenue from film entertainment decreased $1,388,790 (22%) from $6,448,556 for 2011 to $5,059,766 for 2012, and revenue from book publishing decreased $1,227,436 (56%) from $2,135,949 for 2011 to $908,513 for 2012.

The decrease in revenue in film entertainment is due to a reduction in the number of new producing film contracts in 2012 as compared to 2011. Our cash constraints required us to cut back in the number of new film productions, and since October, 2012, our film production activities have been focused on feature film production, and we have had very limited involvement in animation projects. Until such time as our cash flow improves or we are able to raise substantial additional working capital, we will engage in fewer and smaller productions than we did in 2011, will focus solely on feature film production, and do not expect to resume our involvement in animation projects.

During the three months ended December 31, 2012, our book division released a total of 18 books. Almost all of our sales in our book division were from new releases whereas in 2011 there was a mix of new and old.

Total cost of revenue decreased $1,791,175 (24%) from $7,526,523 in 2011 to $5,735,348 in 2012. In terms of percentage of revenue, cost of revenue was 96% in 2012 as compared to 88% in 2011.

Cost of revenue for our film entertainment segment decreased $1,607,114 from $6,550,096 for 2011 as compared to $4,942,982 in 2012. As a percentage of revenue, cost of revenue for our film entertainment segment was approximately 98% for 2012 as compared to102% in 2011.

During the 2011 we adjusted our estimate of ultimate revenue which resulted in a higher cost of revenue.

Cost of revenue for our book publishing division decreased $184,061 from $976,427 in 2011 to $792,366. As a percentage of revenue, cost of revenue increased 41% from 46% in 2011 to 87% in 2012.

The increase in cost of revenue is attributable to our disposal during 2012 of unsold inventories which we evaluated to be unsalable.

Total gross profit decreased $825,051 (78%) from $1,057,982 in 2011 to $232,931 in 2012. In terms of percentage of revenue, the gross profit percentage decreased to 4% for 2012 as compared to12% for 2011. Gross profit decreased in 2012 as compared to 2011 because of the fact that we had both a decrease in total revenues and an increase in cost of revenue in 2012 as compared to 2011.

Selling, general and administrative expenses including depreciation decreased $2,180 (less than 1%) from $858,663 for 2011 to $639,215 for 2012.

The following is a summary of selling general and administrative expenses excluding depreciation for the three months ended December 31, 2012 and 2011.


	2012		2011		Difference
Personnel costs	$	360,913	$	407,825	$	(46,912)
Rental		42,760		99,314		(56,554)
Professional fees		61,013		(2,548)		63,561
Travel and entertainment		16,417		19,729		(3,312)
Other		154,038		331,234		(177,196)
	$	635,141	$	855,554	$	(220,413)

Our most significant cost is personnel costs which include salaries, benefits and payroll taxes. These costs decreased $46,912 (11%) from $407,825 in 2011 to $360,913 in 2012. We had an average of 30 employees for the three months ended December 31, 2011 and an average of 23 for the three months ended December 31, 2012. In addition to the decrease in number of staff we also had salary cuts during the period in 2012. The most significant reduction was in officer salaries.

Rental expenses decreased as a result of downsize our office space. We have reduced our rental cost by approximately $20,000 per month. This should effect all future periods.

Professional fees increased $63,561 (1,919%) from $(2,584) in 2011 to $61,013 in 2012 as a result of the merger which took place in 2012, the cost of being a public company and the cost of acquiring the revolving line of credit.

Travel and entertainment and other selling, general and administrative expenses, which includes items such as office expenses, software related costs, telephone and a variety of other miscellaneous costs decreased $180,508 (51%). None of these costs individually increased or decreased significantly.

We are currently reviewing all of our costs in order to reduce overhead expenses.

Other expense increased $102,336 (44%) from $23,257 in 2011 to $125,593 in 2012. The increase in expenses resulted primarily

from a write off of assets abandoned when we moved to smaller office space and an increase in interest expense.

Our income (loss) from operations before tax decreased $707,939 from income of $176,062 in 2011 to a loss of $(531,877) in 2012. The increase in income from operations was the result of the fact that we had a decrease in revenue and the resulting decrease in gross profit.

Liquidity and Capital Resources

At December 31, 2012, we had a working capital deficit of $4,514,612, as compared to a working capital deficit of $6,773,922 at March 31, 2012. Of the working capital deficit at December 31, 2012, $248,150 was in deferred revenue and does not represent a cash liability. This amount will be included in future revenue. In addition, $1,654,587 was in film costs and this asset will not result in our receipt of cash. This amount will be used as a cost of revenue in the future. Excluding the amounts for deferred revenue, we would have had working capital deficit of $4,266,462 at December 31, 2012.

During the nine months ended December 31, 2012, operating activities used cash of $302,426 and for the nine months ended December 31, 2011, we provided cash from operations of $933,976. This was primarily due to the loss in 2012.

During the nine months ended December 31, 2012, investing activities used $1,135,686 of cash and for the nine months ended December 31, 2011, investing activities used $1,122,792 of cash. In 2011, we invested in excess of $1,140,223 in animated film projects and in 2012 we invested approximately $1,131,324.

During the nine months ended December 31, 2012, financing activities provided $1,268,509 of cash and for the nine months ended December 31, 2011, financing activities provided $603,675 of cash. For the nine months ended December 31, 2012 new bank borrowings, both short and long term, of $1,099,116 were offset by repayments of $1,030,607 as compared to borrowings of $1,978,627 and repayments of $1,614,148 for the nine months ended December 31, 2011. In addition our new revolving line of credit provided $1,200,000 during the nine months ended December 31, 2012.

We are dependent on third party financing to provide the liquidity to fund future projects. In the past this funding has been provided by bank loans which have been guaranteed by our Chief Executive Officer and some of which have had an additional guarantee of a third party commercialized credit guarantee company. There can be no assurances that we will be able to continue financing projects in this manner. We are currently exploring other alternatives which might include equity financing.

In addition to the bank financing, in prior years we issued convertible bonds, to a shareholder of ours, in the original amount of ¥84,000,000 (approximately US$1,103,758). The bonds bear interest at a fluctuating rate of interest equal to the prime lending rate for long-term credit established by Mizuho Corp bank as of the first day of each interest payment period plus 0.3%, based on prime rate. The convertible bonds matured on December 31, 2012 and the holder agreed to extend the due date until March 31, 2013. The bonds are no longer convertible.

On November 12, 2012 the Company borrowed $1,200,000 from an unrelated third party.

Under the terms of the Credit Agreement, the Company is required to direct all payments received on account to a lock box account under the control of the Lender. The Lender is authorized, on a weekly basis, to apply funds in the lock box account toward payment of fees and interest due and owing by the Company, to the establishment of a reserve in the amount of twenty percent (20%) of the amount of the revolving loan commitment, and, in its sole discretion, to prepayments of the outstanding principal due on the loan. Any funds remaining on deposit in the lock box account after payment of the foregoing items are required to be disbursed on a weekly basis to the Company.

There are no material relationships between the Company or any of its affiliates and the Lender, other than with respect to the Credit Agreement.

Summary

Generally speaking, the production of video footage such as animation and movies takes approximately 2 years from planning to being screened to the public. As a result of our cash flow problems we have reduced our involvement in large production and are currently involved in smaller size animation productions, and since October, 2012, have focused our efforts on book publishing and feature film production. We started a number of projects in the nine months ended December 31, 2012 and will continue to see the results in future periods. As of December 31, 2012 a total of $1,654,587 in costs has been capitalized as film costs which will be offset against future revenue. We also have deferred revenue of $248,150 which will result in revenue in future periods.

In addition, we do not anticipate increasing the number of DVD’s produced nor the number of books produced. We will begin to increase our activity as our cash flow improves.

In the entertainment industry, financial success is based upon audience acceptance of the products produced. Although we are selective in our choice of projects, there can be no guarantee that our productions will be widely received.

In order to minimize our risk of acceptance by audiences, we plan to do sequels of titles that have previously done well and also to prepare new titles with the same production team that produced the hits. Our main target group, the “Otaku”, are known for their

tendency in purchasing of related products.

As a result of our weakened cash flow position caused by delays in closing the loan discussed above as a subsequent event, we were unable to fund certain projects that we had planned. Until such time as we can fund additional projects our growth will be slowed. There is no assurance that we can obtain additional financing for those projects and we will have to fund them form cash flow.

Off-Balance Sheet Arrangements

At December 31, 2012, we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

Not Applicable

ITEM 4.

CONTROLS AND PROCEDURES:

Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company's "disclosure, controls and procedures" (as defined in the Exchange Act Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date"). As a result of the evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures although designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified were not effective. During the period covered by this report the Company lost personnel in the accounting department which caused the Company to not have timely financial information.

The Company will remedy the inadequacy by hiring additional accounting personnel as cash flow permits.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) or any other factors during the three months ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS.

(a)

The following exhibits are filed herewith:



Regulation S-K Number	Exhibit

31.1	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101	INS XBRL Instance Document*

101	SCH XBRL Schema Document*

101	CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101	LAB XBRL Taxonomy Extension Label Linkbase Document*

101	PRE XBRL Taxonomy Extension Presentation Linkbase Document*

101	DEF XBRL Taxonomy Extension Definition Linkbase Document*
*filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

T.O ENTERTAINMENT, INC

By: /S/ Takeichi Honda

Takeichi Honda, Chief Executive Officer

Date: March 12, 2013

By: /S/ Arnold Tinter

Arnold Tinter, Principal Financial Officer

Date: March 12, 2013

Attached files

T.O ENTERTAINMENT, INC. Reports

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