Crimson Forest Entertainment Group Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - Crimson Forest Entertainment Group Inc.	ex31-2.htm
EX-32.2 - Crimson Forest Entertainment Group Inc.	ex32-2.htm
EX-31.1 - Crimson Forest Entertainment Group Inc.	ex31-1.htm
EX-32.1 - Crimson Forest Entertainment Group Inc.	ex32-1.htm

U.S. Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended May 31, 2015

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

For the Transition Period From__________to ____________

0-55142

(Commission File Number)

CRIMSON FOREST ENTERTAINMENT GROUP INC.

(Exact name of small business issuer as specified in its charter)

Nevada		27-2838091
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

8335 Sunset Blvd., Suite #238

West Hollywood, California 90069

(Address of principal executive offices)

(323) 337-9086

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) 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 such 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. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted 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 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 [ ]		Smaller reporting company [X]
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Number of shares of common stock outstanding as of May 31, 2015: 39,755,000.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		3

Consolidated Balance Sheets as of May 31, 2015 (unaudited) and February 28, 2015		3

Unaudited Consolidated Statements of Operations and Other Comprehensive Loss for the three months ended May 31, 2015 and 2014		4

Unaudited Consolidated Statements of Cash Flows for the three months ended May 31, 2015 and 2014		5

Notes to Unaudited Consolidated Financial Statements		6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		17

ITEM 4. CONTROLS AND PROCEDURES		17

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		18

ITEM 1A. RISK FACTORS		18

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		18

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		18

ITEM 4. MINE SAFETY DISCLOSURES		18

ITEM 5. OTHER INFORMATION		18

ITEM 6. EXHIBITS		18

SIGNATURES		19

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2015 AND FEBRUARY 28, 2015

	May 31, 2015			February 28, 2015
	(Unaudited)
ASSETS
Current Asset
Cash	$	9,310		$	107,901
Other Receivable		390,898			601,021
Prepaid Project Cost		-			272,718
Total Current Assets		400,208			981,640
Other Assets
Film Costs		1,411,640			1,259,036
Organization Costs		3,269			3,785
Other Assets		220			220
Total Assets	$	1,815,337		$	2,244,681

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities	$	204,610		$	33,942
Loans payable - related parties		690,719			1,098,497
Total Current Liabilities		895,329			1,132,439
Long Term Liabilities
Convertible debt – related parties		1,800,000			1,750,000
Accrued Interest		41,274			24,336
Total Liabilities		2,736,603			2,906,775

Stockholders’ Deficit:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; none issued and outstanding		-			-
Common stock, $0.0001 par value, 500,000,000 shares authorized; 39,755,000 shares issued and outstanding		3,976			3,976
Additional paid-in capital		65,604			65,604
Accumulated deficit		(990,846	)		(731,674	)
Total Stockholders’ Deficit		(921,266	)		(662,094	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,815,337		$	2,244,681

The accompanying notes are an integral part of the unaudited consolidated financial statements.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATION
AND OTHER COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MAY 31, 2015 AND 2014

	Three Months Ended May 31,
	2015			2014
Net Revenues	$	-		$	-
Cost of Revenue		-			-
Gross profit		-			-

Operating Expenses:
General and administrative expenses		229,984			193,652
Total operating expenses		229,984			193,652

Loss From Operations		(229,984	)		(193,652	)

Other Expense:
Other Income		(12	)		-
Interest Expense		29,200			-
Total other expense		29,188			-

Operating Loss		(259,172	)		(193,652	)

Provision for income tax		-			-

Net Loss	$	(259,172	)	$	(193,652	)

Net income (loss) per common share - basic and diluted	$	(0.01	)	$	(0.00	)

Weighted average shares outstanding - basic and diluted		39,755,000			39,755,000

The accompanying notes are an integral part of the unaudited consolidated financial statements.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 31, 2015 AND 2014

	Three Months Ended May 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(259,172	)	$	(193,652	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Changes in operating assets and liabilities:
(Increase)/Decrease in:
Prepaid Project Cost		272,718			-
Film Costs		(152,604	)		(47,844	)
Other Assets		516			(220	)
Accounts payable and accrued liabilities		170,668			32,901
Accrued interest		16,938			-
Net Cash Provided By (Used In) Operating Activities		49,064			(208,815	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from Acquisition of Crimson Forest		-			764
Other receivable		210,123			-
Net Cash Provided By Investing Activities		210,123			764

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable-related party		-			2,497
Repayment of loans payable-related party		(407,778	)		(20,000	)
Proceeds from issuance of convertible debt		50,000			250,000
Net Cash (Used In) Provided By Financing Activities		(357,778	)		232,497
NET (DECREASE) INCREASE IN CASH		(98,591	)		24,446

CASH - BEGINNING OF PERIOD		107,901			9,500
CASH - ENDING OF PERIOD	$	9,310		$	33,946

SUPPLEMENTARY DISCLOSURES:

Cash paid during the period for:
Income tax	$	-		$	-
Interest	$	-		$	-

The accompanying notes are an integral part of the unaudited consolidated financial statements.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. NATURE OF OPERATIONS

The consolidated financial statements include the accounts of Crimson Forest Entertainment Group Inc. (formerly known as East Shore Distributors, Inc.) and its wholly owned subsidiaries, Crimson Forest Entertainment (USA) LLC, Life Unknown The Movie LLC., Crimson Forest Films (Canada) Ltd., Crimson Forest Films (Australia) Pty Ltd., Convergence The Movie LLC, and Nian The Movie LLC (collectively referred as the “Company,” unless the context indicates otherwise).

Crimson Forest Entertainment Group Inc. was incorporated in the State of Nevada on June 11, 2010. The Company was in the business of distributing a variety of consumer products until the execution of a “Security Purchase Agreement” on February 7, 2014. Since then, the new management and board of directors are in the business of financing, producing and acquiring theatrical quality feature films and television series.

On March 3, 2014, the Company entered into a Membership Interest Purchase Agreement with Namaskar Corporation, a California corporation, and a related party of the Company. Subject to the terms and conditions of this agreement, the Company acquired 1,000 membership interest units of Crimson Forest Entertainment (USA) LLC (“Crimson Forest”), a California limited liability company with a purchase price of $1,000. Subsequent to the acquisition, Crimson Forest became a 100% owned subsidiary of the Company.

During March 2014, the Company founded a wholly owned entity, Unknown Caller LLC (“UCL”), a California limited liability company, with initial capital contribution of $5,500. On January 8, 2015, the Company has changed its legal name to Life Unknown The Movie LLC (“LUML”).

On November 19, 2014, the Company founded a wholly owned entity, Crimson Forest Films (Canada) Ltd. (“Crimson Forest Canada”) in British Columbia, Canada. As of May 31, 2015, the Company has no material operating activities.

On November 24, 2014, the Company founded a wholly owned entity, Crimson Forest Films (Australia) Pty Ltd. (“Crimson Forest Australia”) in Australia with initial capital contribution of $1,000. As of May 31, 2015, the Company has no material operating activities.

2. RISKS AND UNCERTAINTIES

The Company’s operations will be subject to normal entertainment industry risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and notes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidation financial statements and notes thereto for the fiscal year ended February 28, 2015 included in the Company’s Form 10-K. In the opinion of management, the interim financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. The operating results and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Company has elected to adopt early Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Revenue Recognition

The Company recognizes revenue from the sale (minimum guarantee or non-refundable advances) or licensing arrangement (royalty agreements) of a film in accordance with ASC 926 “Revenue Recognition, Entertainment – Films”. Revenue will be recognized only when all of the following criteria have been met:

a) Persuasive evidence of a sale or licensing arrangement with a customer exists.

b) The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery. (i.e. the “notice of delivery” (“NOD”) has been sent and there is a master negative available for the customer).

c) The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale.

d) The arrangement fee is fixed or determinable.

e) Collection of the arrangement fee is reasonably assured.

Earnings per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury stock method (by using the average stock price for the period determine the number of shares assumed to be purchased from the exercise of warrants), and convertible debt, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. Because the Company incurred losses for the three months ended May 31, 2015, the number of basic and diluted shares of common stock is the same since any effect from outstanding convertible debt would be anti-dilutive.

Cash

The Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. At May 31, 2015 and February 28, 2015, the Company had no cash equivalents.

Film Costs

The Company capitalizes costs which were used in the production of films according to ASC 926, Entertainment – Films. Pursuant to ASC 926-20-35, the Company will begin to amortize capitalized film cost when a film is released and it begins to recognize revenue from the film. For films produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest and production overhead.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Production overhead includes allocation of costs of individuals or departments with exclusive or significant responsibility for the production of films. Production overhead does not include general and administrative expenses.

Unamortized film costs are tested for impairment when there is an indication that the fair value of the film may be less than unamortized costs. Consistent with the rules for recognizing impairment of long-lived assets in ASC 926, the standard sets forth examples of events or changes in circumstances that indicate that the entity must assess whether the fair value of the film (whether it has been completed or is still in production) is less than the carrying amount of its unamortized film costs.

1. An adverse change in the expected performance of the film prior to its release

2. Actual costs substantially in excess of budgeted costs

3. Substantial delays in completion or release schedules

4. Changes in release plans, such as a reduction in the initial release pattern

5. Insufficient funding or resources to complete the film and to market it effectively

6. Actual performance subsequent to release fails to meet prerelease expectations. (ASC 926-20-35-12)

As of May 31, 2015 and February 28, 2015, the carrying value of the film costs was $1,411,640 and $1,259,036, respectively.

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

	●	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

	●	Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

	●	Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The Company’s financial instruments consisted primarily of cash, film costs, accounts payable, and loans payable – related party. The carrying amounts of the Company’s financial instruments generally approximate their fair values as of May 31, 2015 and February 28, 2015, respectively, due to the short-term nature of these instruments.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the statements of operations. There were no unrecognized tax benefits for the three months ended May 31, 2015 and 2014 since a valuation allowance has offset the deferred tax asset resulting from the net operating losses.

None of the Company’s federal or state income tax returns are currently under examination by the Internal Revenue Service (“IRS”) or state authorities. However, fiscal years 2014, 2013, 2012 and 2011, remain subject to examination by the IRS and respective states.

Recent Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively. The Company elected early adoption of ASU 2014-10. The adoption of ASU 2014-10 removed the development stage entity financial reporting requirements from the Company.

There are no recent accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements.

4. OTHER RECEIVABLE

As of May 31, 2015 and February 28, 2015, other receivable consisted of the following:

		May 31, 2015			February 28, 2015
Total accumulated capitalized costs	$	3,529,100		$	3,147,590
Less: 40% Est. shared of costs of the Company		(1,411,640	)		(1,259,036	)
60% of the Project cost is borne by CFA		2,117,460			1,888,554
Less: Project advances from CFA		(199,720	)		(199,720	)
Line of credit from EWB		(1,526,842	)		(1,087,813	)
Other receivable from CFA	$	390,898		$	601,021

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On July 3, 2014, the Company entered into a Co-Production Agreement with China Film Assist Co., Ltd. (“CFA”), a limited company having its principal place of business in Beijing, Peoples Republic of China (“PRC”). In the Agreement, the Company and CFA agree to finance, market and distribute, an English-language feature film tentatively entitled “Unknown Caller” (the “Picture”). Unknown Caller LLC (which subsequently changes its name to Life Unknown The Movie LLC) (“UCL”), which is the joint venture entity that will produce the Picture, agrees to perform all production work on the Picture. The financial contributions of the Company and CFA depend on the selection of the main lead actor identified in the Agreement. If such actor is the person identified in the agreement, 60% of the contributions would be attributed by CFA. If the main lead actor is anyone other than the person specified in the agreement, the contributions would be split equally. The Company is entitled to the distribution rights in the Picture in all regions and territories outside of those controlled by CFA, which consist of Mainland China, Taiwan, Hong Kong, Macao, Singapore, Korea, Japan, Australia, New Zealand and Malaysia) in all media (including without limitation licensing, merchandising and soundtrack distribution rights) in perpetuity. The Company has the right to appoint and assign an international sales agent on behalf of both parties for all sales outside of mainland China. The sales agency fees may not be more than 15% of all marketing and distribution expenses, which are capped at USD$100,000 and to be shared by the Company and CFA according to the sales revenue in each of their respective territories and in proportion to the overall international sales. Proceeds collected from exploitation of the Picture from any and all sources on a worldwide basis either by the Company and CFA, are to be distributed on the basis of their respective distribution rights. The total budget amount is $6,000,000. Should the actual spent budget exceed the budgeted amount, then it is the Company’s sole responsibility to make up the difference over the budgeted amount.

As of May 31, 2015 and February 28, 2015, the project has received $199,720 and $199,720, respectively, from CFA. In addition, the line of credit from EWB (described below) is being considered an advance from CFA. As of May 31, 2015, CFA funded $1,726,562 to UCL and was obligated to fund an additional $390,898 to UCL.

5. INCOME TAX

The Company recognizes deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. The Company has established a valuation allowance to reflect the likelihood of the realization of deferred tax assets.

The Company has a net operating loss carry forward for tax purposes totaling approximately $991,000 at May 31, 2015, expiring through 2034. U.S. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership).

Significant deferred tax assets at May 31, 2015 and February 28, 2015 are approximately as follows:

	May 31, 2015			February 28, 2015

Gross deferred tax assets:
Net operating loss carry forwards	$	336,000		$	248,000
Total deferred tax assets		336,000			248,000
Less: valuation allowance		(336,000	)		(248,000	)

Net deferred tax asset recorded	$	-		$	-

As of May 31, 2015 and February 28, 2015, the valuation allowances were $336,000 and $248,000, respectively.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The actual tax benefit differs from the expected tax benefit for the three months ended May 31, 2015 and 2014 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes) approximately as follows:

	For The Three Months Ended May 31,
	2015			2014

Deferred tax asset for NOL carry forwards		88,000			66,000
Change in valuation allowance		(88,000	)		(66,000	)

Net deferred income tax expenses (benefit)	$	-		$	-

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of May 31, 2015.

The net change in valuation allowance during the three months ended May 31, 2015 and 2014 was an increase of approximately $88,000 and $66,000, respectively.

6. PROMISSORY NOTE

On August 29, 2014, UCL entered into a Business Loan Agreement, Commercial Security Agreement and Promissory Note with East West Bank (“EWB”). Pursuant to the Loan Agreement, EWB provided UCL with a Variable Rate Draw Down Line of Credit Loan (the “Loan”) for an aggregate amount of USD $3,333,333 due on August 29, 2015. The Loan Agreement provides that UCL may from time to time borrow up to an aggregate amount of $3,333,333 from East West Bank. The Loan was secured by Standby Letter of Credit denominated in Renminbi (“RMB”) for the equivalent of USD $3,333,333, which were issued by East West Bank China (“EWCN”). The Loan is also secured by substantially all of UCL’s tangible and intangible property, including but not limited to UCL’s inventory, accounts, instruments, and equipment. The Loan bears interest on the outstanding daily balance at a variable interest rate based on changes in the daily Wall Street Journal Prime rate, which was 3.25% per annum at the time the Loan Agreement was executed. The agreements contain customary events of default that include, among others, non-payment of principal, interest or fees, violation of certain covenants, defective collateralization, inaccuracy of representations and warranties, and insolvency events.

The Loan proceeds are to be used as followed:

(a) Film Production. $3 million are to be allocated for film production of the Picture.

(b) Loan reserve. For each standby Letter of Credit, 10% of the face amount of the Standby Letter of Credit is required to be maintained as a reserve under the loan and allocated for (1) payment of interest and (2) for differences in the amount of the Loan and the Standby Letter of Credit resulting from fluctuations in the USD/RMB exchanges rate during the term of the loan.

UCL is required to pay the Loan in accordance with the following payment schedule:

(a) UCL shall pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning September 29, 2014, with all subsequent interest payments to be due on the same day of each month after that until the maturity date.

(b) UCL shall pay all outstanding principal plus all accrued unpaid interest on the date which is 30 days prior to the expiration date of the standby letters of credit.

CRIMSON FOREST ENTERTAINMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of May 31, 2015, UCL had an outstanding balance of $1,526,842 under the line of credit with EWB.

7. LOAN PAYABLE-RELATED PARTY

The related parties listed below loaned money to the Company for the purpose of working capital. As of May 31, 2015 and February 28, 2015, due to related party consisted of the following:

As of May 31, 2015, the Company had three loans of $675,000, $12,212 and $3,507 due to Mirare Corporation, which is ultimately owned by Mr. Anthony Lim and Mr. Jonathan Lim. As of February 28, 2015, the Company had three loans of $395,000, $700,000 and $3,497 due to Mirare Corporation, which is ultimately owned by Mr. Anthony Lim and Mr. Jonathan Lim. Mr. Jonathan Lim is the Chief Executive Officer and chairman of the Company. Mr. Anthony Lim is the father of Mr. Jonathan Lim. Those loans are unsecured, bear no interest, and due on demand.

8. CONVERTIBLE DEBT

The Company had the following convertible debt outstanding:

		May 31, 2015				February 28, 2015
Convertible Debt		$	1,800,000			$	1,750,000

Convertible Debt Issued in March 2014

On March 23, 2014, the Company entered a Convertible Notes Purchase Agreement with Portnice Investment Limited, a British Virgin Islands corporation and a related party of the Company. Subject to the terms and conditions of this agreement, the Company may issue up to an aggregate maximum of $2,000,000 in principal amount of Convertible Notes prior to March, 2019. The Convertible Notes pay interest at a rate of 3.8 % per annum, compounded annually, based on a 365 day year. Principal and any accrued but unpaid interest under Convertible Notes shall be due and payable on the earlier of (a) the fifth year anniversary of the issuance date of Convertible Notes (b) the consummation of a Qualified Financing, which involves the issuance of Capital Stock and results in gross proceeds equal to or in excess of $3,000,000.

The Convertible Notes is convertible at the holders’ option into shares of Company common stock at $0.008 per share or at the purchase price of the Capital Stock issued in the Qualified Financing. On March 23, 2014, the Company issued a Convertible Promissory Note in principal amount of $250,000 under this agreement to Portnice Investment Limited. On June 13, 2014, the Company issued a Convertible Promissory Note to Portnice in the principal amount of $250,000. On November 21, 2014, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $250,000. On December 31, 2014, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $1,000,000. On May 28, 2015, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $50,000. As of May 31, 2015 and February 28, 2015, the Convertible Debt amounted to $1,800,000 and $1,750,000, respectively.

Interest expense of the Convertible Notes for the three months ended May 31, 2015 and 2014 amounted to $16,939 and $1,822, respectively.

9. STOCKHOLDER’S EQUITY (DEFICIT)

On March 10, 2014, the Company approved an increase of the Company’s authorized common stock from 100,000,000 to 500,000,000 shares.

Stock Purchase Agreement

On November 3, 2014, the Company entered into a Stock Purchase Agreement with CFA. Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to issue and sell an aggregate of 10,000,000 shares of the Company’s Common Stock to CFA at a price of $0.50 per share for aggregate gross proceeds of $5,000,000.

The transaction was scheduled to close in installments:

i)	10% of the shares shall be purchased upon 5 working days after execution of the Stock Purchase Agreement;

ii)	40% of the shares shall be purchased upon on or before December 15, 2014;

iii)	50% of the shares shall be purchased upon on or before January 15, 2015;

As of May 31, 2015, no CFA had not funded any portion of the $5 million and no shares were issued. We are in negotiations with CFA regarding this Stock Purchase Agreement.

10. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued. Management does not believe there were any other subsequent events have occurred that would require further disclosure or adjustment to the financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as our management’s assumptions and beliefs. Statements that contain words like “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, or variations of such words and similar expressions are forward-looking statements. In addition, any statements that refer to trends in our businesses, future financial results, and our liquidity and business plans are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. There can be no assurance that forward-looking statements will be achieved, and actual results could differ materially from those expressed or implied by forward-looking statements. Important factors that could cause actual results to differ materially include those discussed under “Risk Factors” in our Annual Report on From 10-K for the fiscal year ended February 28, 2014. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.

The Company

Prior to February 2014, we pursued a business of distributing consumer products, including alcohol detection saliva strips, a facial anti-aging cream and a hand moisturizing cream. In February 2014, Samcorp Capital Corporation acquired 91% of our issued and outstanding stock.

On March 3, 2014, we acquired Crimson Forest Entertainment (USA) LLC. On June 20, 2014, we changed our name to “Crimson Forest Entertainment Group Inc.” (referred to herein as the “Company”).

During March 2014, the Company founded a wholly owned entity, Unknown Caller LLC, (“Unknown”) a California limited liability company, with initial capital contribution of $5,500.

With our new management and ownership, we intend to build the Company into a global independent motion picture studio that finances, produces and acquires theatrical quality feature films and televisions series, with budgets up to $25 million, for worldwide distribution. We currently have offices in Los Angeles and Shanghai, and our management will play an integral role in all aspects of the film and television production process.

Our senior management team has substantial experience in the filmed entertainment industry in the United States and China. We believe our management’s experience will allow the Company to successfully conceptualize, produce and distribute various film and television projects worldwide and in the local Chinese market, and position the Company as a valuable partner in the growing Chinese theatrical marketplace.

RESULTS OF OPERATIONS

For the Three Months Ended May 31, 2015 Compared to the Three Months Ended May 31, 2014

										Increase/
	For The Three Months Ended						Increase/			(Decrease)
	May 31,						(Decrease)			Percentage
	2015			2014			U.S. Dollar ($)			(%)
Net Revenues	$	-		$	-		$	-			-
Cost of Revenue		-			-			-			-
Gross profit		-			-			-

Operating Expenses:
General and administrative expenses		229,984			193,652			36,332			18.76
Total operating expenses		229,984			193,652			36,332			18.76

Loss From Operations		(229,984	)		(193,652	)		(36,332	)		18.76

Other Expense:
Other income		(12	)		-			(12	)		(100.00	)
Interest Expense		29,200			-			29,200			100.00
Total other expense		29,188			-			29,188			100.00

Operating Loss		(259,172	)		(193,652	)		(65,520	)		33.83

Provision for income tax		-			-			-			100.00

Net Loss	$	(259,172	)	$	(193,652	)	$	(65,520	)		33.83

Revenue

We had no revenue for the three months ended May 31, 2015 and 2014.

Cost of Revenue

We had no cost of revenue for the three months ended May 31, 2015 and 2014.

Gross Profit

We had no gross profit from sales for the three months ended May 31, 2015 and 2014.

General and Administrative Expenses

General and administrative expenses were $229,984 for the three months ended May 31, 2015, compared to $193,652 for the three months ended May 31, 2014, which represents an increase of $36,332, or 18.76%.This increase was due to the increase in employee expenses, administrative expenses for new movie projects and professional fees related to public company filings and business strategy.

Interest expense.

Interest expense was $29,200 for the three months ended May 31, 2015, compared to $0 for the three months ended May 31, 2014, which represents an increase of $29,200, or 100%. The increase in interest expense was due to increase in interest accrued derived from additional issuances of convertible debt and line of credit with EWB during the three months ended May 31, 2015.

Liquidity & Capital Resources

Our principal sources of liquidity during the three months ended May 31, 2015 include proceeds from issuance of convertible debt and net proceeds from loan from related party.

As of May 31, 2015, we had cash of $9,310 as compared to $107,901 as of February 28, 2015, representing a decrease of $98,591.

The following table sets forth a summary of our cash flows for the three months indicated:

	For The Three Months Ended May 31,
	2015			2014

Net cash provided by (used in) operating activities	$	49,064		$	(208,815	)
Net cash provided by investing activities	$	210,123		$	764
Net cash (used in) provided by financing activities	$	(357,778	)	$	232,497

Net cash provided by operating activities was $49,064 for the three months ended May 31, 2015, compared to the net cash used in operating activities of $208,815 for the three months ended May 31, 2014. The increase of $257,879 was primarily due to increased prepaid project cost of $272,718 for the three months ended May 31, 2015.

Net cash provided by investing activities was $210,123 compared to $764 for three months ended May 31, 2014. The increase of $209,359 was due to the increase other receivable of $210,123 for the three months ended May 31, 2015.

Net cash used in financing activities amounted to $357,778 for the three months ended May 31, 2015, compared to the net cash provided by financing activities of $232,497 for the three months ended May 31, 2014, representing a decrease of $590,275. The decrease was primarily due to the repayment of loan to related party of $407,778 for the three months ended May 31, 2015.

On March 23, 2014, the Company entered into a financing agreement with Portnice Investment Limited for the amount of $2,000,000 to be used for operational and project development expenses. The financing agreement was executed as a convertible note purchase agreement with Portnice Investment Limited whereby the company may sell and issue up to an aggregate maximum of $2,000,000 in principal amount of Convertible Notes prior to March 3, 2019. The Notes bear an interest rate equal to 3.8% per annum, compounded annually, based on a 365 day year. On March 23, 2014, the Company issued a Convertible Promissory Note in principal amount of $250,000 under this agreement to Portnice Investment Limited. On June 13, 2014, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $250,000. On November 21, 2014, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $250,000. On December 31, 2014, the Company issued an additional Convertible Promissory Note to Portnice in the principal amount of $1,000,000. As of May 31, 2015, the Convertible Debt had a balance of $1,800,000.

The Loan proceeds are to be used as followed:

(a) Film Production. $3 million are to be allocated for film production of the Picture.

UCL is required to pay the Loan in accordance with the following payment schedule:

(b) UCL shall pay all outstanding principal plus all accrued unpaid interest on the date which is 30 days prior to the expiration date of the standby letters of credit.

As of May 31, 2015, UCL had an outstanding balance of $1,526,842 under the line of credit with EWB.

The transaction was scheduled to close in installments:

i)	10% of the shares shall be purchased upon 5 working days after execution of the Stock Purchase Agreement;

ii)	40% of the shares shall be purchased upon on or before December 15, 2014;

iii)	50% of the shares shall be purchased upon on or before January 15, 2015;

As of May 31, 2015, no CFA had not funded any portion of the $5 million and no shares were issued. We are in negotiations with CFA regarding this Stock Purchase Agreement.

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact its financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.

In the three months ended May 31, 2015, the Company elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

Recent Accounting Pronouncements

Other than Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, there are no recent accounting pronouncements expected to affect the Company.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our chief executive officer / chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our chief executive officer / chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer / chief financial officer, as appropriate, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q 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 legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended February 28, 2015. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company previously entered into a convertible note purchase agreement with Portnice Investment Limited for the maximum amount of $2,000,000, under which the Company may sell and issue up to an aggregate maximum of $2,000,000 in principal amount of Convertible Notes prior to March 3, 2019. During the quarter ending May 31, 2015, on May 28, 2015, the Company issued a Convertible Promissory Note in principal amount of $50,000 under this agreement to Portnice Investment Limited. The convertible notes were sold to an accredited investor, as that term is defined in the Securities Act of 1933, as amended (the “Securities Act”), were not registered under the Securities Act or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

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.

	CRIMSON FOREST ENTERTAINMENT GROUP INC.

Date: July 20, 2015	By:	/s/ Jonathan Lim
		Jonathan Lim
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: July 20, 2015	By:	/s/ Jonathan Lim
		Jonathan Lim
		Chief Financial Officer
		(Principal Financial Officer)

INDEX TO EXHIBITS

31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Crimson Forest Entertainment Group Inc. - FORM 10-Q - July 20, 2015

Attached files

Crimson Forest Entertainment Group Inc. Reports