Quarterly Report for Quarter Ending March 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Form 10-Q. To that extent, the information discussed below solely reflects the results of the combined entities that were transferred as part of the agreement with Rivulet Entertainment, Inc. This document contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. When used in this document, the words "expects", "anticipates", "intends" and "plans" and similar expressions are intended to identify certain of these forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Our actual results could differ materially from those discussed in this document.

Liquidity and Capital Resources

The Company had notes payable, which were used to fund our film production, totaling $18,337,509 as of March 31, 2025. Further, the Company still has a $3,500,000 outstanding balance to Rivulet Media, inc. stemming from the merger transaction.

The Company will incur significant capital costs as it continues to produce feature length films, such as "The Dink". In order to continue to produce films, the Company will need to raise funds through additional borrowings until such time as our operating revenues from the sale of films are sufficient to meet our cost structure, and ultimately provide profitable operations. There is no assurance we will be successful in raising additional capital or achieving profitable operations.

Going Concern

The Company had cash of $100,633 as of March 31, 2025, negative working capital of $22.6 million and shareholders' deficit of $9.2 million. Further, during the nine months ended March 31, 2025, the Company incurred a net loss of $4.2 million and cash flow used in operations of $9.3 million for the nine month period ended March 31, 2025. As such, the Company concluded that there is substantial doubt about its ability to continue as a going concern. The Company hopes to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern through its future sales of movie rights and future capital raises.

Cash Flows

The following tables summarize the results of our cash flows for the below respective periods:

		For the Nine Months Ended March 31,
		2025				2024
Net (loss) income		$	(4,181,134	)		$	(120,402	)
Net cash flows provided by (used in) operating activities			(9,253,018	)			(5,650,246	)
Net cash flows provided by (used in) investing activities:			-				-
Net cash flows provided by (used in) financing activities:			9,251,930				5,648,038
Net change in cash			(1,088	)			(2,208	)
Cash, beginning of period			101,721				2,683
Cash, end of period		$	100,633			$	475

Operating Activities

Net cash used in operating activities was approximately $9.3 million for the nine months ended March 31, 2025. Cash used in operating activities resulted from a net loss for the nine months ended March 31, 2025 of approximately $4.2 million, a decrease in cash from changes in operating assets and liabilities of approximately $15.5 million and amortization of film costs of approximately $10.5 million. Film cost amortization is a non-cash expense and is a reconciling item between net loss and cash flow used in operations.

Net cash used in operating activities was approximately $5.6 million for the nine months ended March 31, 2024. Cash used in operating activities resulted from net loss for the nine months ended March 31, 2024 of approximately $0.1 million and a decrease in cash from changes in operating assets and liabilities of approximately $5.5 million.

Investing Activities

There were no investing activities during either the nine months ended March 31, 2025 or 2024.

Financing Activities

Net cash provided by financing activities was approximately $9.3 million for the nine months ended March 31, 2025 and consisted of proceeds from notes payable in the amount of approximately $19.3 million and payments on notes payable in the amount of approximately $10.0 million.

Net cash provided by financing activities was approximately $5.6 million for the nine months ended March 31, 2024 and consisted of proceeds from notes payable in the amount of approximately $11.5 million and payments on notes payable in the amount of approximately $5.8 million.

Results of Operations

Our financial results for the three and nine months ended March 31, 2025 and 2024 are summarized as follows:

		For the Three Months Ended March 31,								For the Nine Months Ended March 31,
		2025				2024				2025				2024
Revenues		$	-			$	-			$	10,000,000			$	-
Film cost amortization			-				-				10,468,247				-
Gross margin		$	-			$	-			$	(468,247	)		$	-
Operating Expense
General and administrative		$	326,385			$	9,246			$	3,074,162			$	120,402
Total operating expenses		$	326,385			$	9,246			$	3,074,162			$	120,402
Net loss before other income (expense)			(326,385	)			(9,246	)			(3,542,409	)			(120,402	)
Other income (expense)		$	(228,154	)		$	-			$	(638,725	)		$	-
Net (loss) income before income taxes			(554,539	)			(9,246	)			(4,181,134	)			(120,402	)
Income tax expense			-				-				-				-
Net (loss) income		$	(554,539	)		$	(9,246	)		$	(4,181,134	)		$	(120,402	)

For the Three Months Ended March 31, 2025 compared to the Three Months Ended March 31, 2024

Revenues

The Company recognized no revenues during the three months ended March 31, 2025 or three months ended March 31, 2024.

Cost of Service

Cost of service was $0 for the three months ended March 31, 2025 and 2024. Cost of service relates solely to the amortization of capitalized film costs.

General and Administrative

General and administrative expense for the three months ended March 31, 2025 and 2024 totaled $326,385 and $9,246, respectively. General and administrative costs for the three months ended March 31, 2025 of $326,385 consisted of professional fees of $116,632, payroll costs of $100,720, office expenses of $31,397, external communication costs of $13,461, travel, meals and entertainment costs of $1,223 and other expenses of $62,952.

General and administrative costs for the three months ended March 31, 2024 of $9,246 consisted of bank charges of $6,577 and other costs of $2,669.

The increase in general and administrative for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily related to general organizational ramp-up to administratively support the Company's in-production and pre-production films.

Other (expense) income

For the three months ended March 31, 2025, other (expense) income totaled $228,154 which consisted of interest expense of $228,290 and other income of $136. For the three months ended March 31, 2024, other (expense) income was $0. The increase in other (expense) income was primarily related to the increase in notes payable during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.Portions of our interest costs related to notes payable are capitalized in accordance with Accounting Standards Codification ("ASC") 926, Entertainment-Films and therefore are expensed through the amortization of capitalized film costs. For the three months ended March 31, 2025 and 2024, the Company capitalized $0.3 million of interest expense to film costs related to various picture film productions.

For the Nine Months Ended March 31, 2025 compared to the Nine Months Ended March 31, 2024

Revenues

The Company recognized $10.0 million in revenues during the nine months ended March 31, 2025. There were no recognized revenues during the nine months ended March 31, 2024. The increase in revenues recognized during the nine months ended March 31, 2025 as compared to the nine months ended March 31, 2024 was due to the sale of a film during the current year period for $10.0 million.

Cost of Service

Cost of service was $10.5 million for the nine months ended March 31, 2025. The cost of service relates solely to the amortization of capitalized film. As the Company does not expect to generate additional revenues from the film the entire film cost balance was amortized and all of the necessary participation costs were accrued during the period. The Company did not incur any cost of service during the nine months ended March 31, 2024.

General and Administrative

General and administrative expense for the nine months ended March 31, 2025 and 2024 totaled $3,074,162 and $120,402, respectively. General and administrative costs for the nine months ended March 31, 2025 of $3,074,162 consisted of participation costs of $1,995,058, professional fees of $461,855, music and musician expenses $87,275, travel & meals and entertainment of $95,780, payroll costs of $251,208, external communication of $53,232 and other expenses of $129,754.

General and administrative costs for the nine months ended March 31, 2024 of $120,402 consisted of participation costs of $100,000, pre-production costs of $7,500 and other expenses of $12,902.

The increase in general and administrative for the nine months ended March 31, 2025 as compared to the nine months ended March 31, 2024 was primarily related to participation costs recognized in the amount of $1,995,058 in the current period, related to a film sale. The remainder of the increases were primarily due to general organizational ramp-up to administratively support the Company's in-production and pre-production films.

Other (expense) income

For the nine months ended March 31, 2025, other income (expense) totaled $638,725 which consisted of interest expense of $640,837 and other income of $2,112. For the nine months ended March 31, 2024, other income (expense) totaled $0. The increase in other (expense) income was primarily related to the increase in notes payable during the nine months ended March 31, 2025 as compared to the nine months ended March 31, 2024. Portions of our interest costs related to notes payable are capitalized in accordance with Accounting Standards Codification ("ASC") 926, Entertainment-Films and therefore are expensed through the amortization of capitalized film costs. For the nine months ended March 31, 2025 and 2024, the Company capitalized $1.5 million and $0.4 million of interest expense to film costs related to various picture film productions.

Critical Accounting Estimates

Impairment of Capitalized Production Costs

The Company will test its unamortized production costs whenever events or changes in circumstances indicate that the fair value of a film may be less than its unamortized costs. If the Company determines that the fair value of a film is less than its unamortized production costs, then the unamortized capitalized costs for the film will be written down by the amount exceeding the film's fair value. The unit of account for impairment testing is the individual film being produced and the fair value is determined using a discounted cash flow technique.

Recognition of Revenue from Contracts with Customers

The Company recognizes revenue from its contracts with customers in accordance with the core principle outlined in ASC 606, Revenue from Contracts with Customers. Specifically, "to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services". To that extent, the Company recognizes revenue in accordance with the ASC Topic by applying the following five steps:

	●	Step 1-Identify the contract(s) with a customer
	●	Step 2-Identify the performance obligations in the contract
	●	Step 3-Determing the transaction price
	●	Step 4-Allocate the transaction price to the performance obligations in the contract
	●	Step 5-Recognize revenue when (or as) the Company satisfies a performance obligation

The Company's contracts with its customers currently contain a single performance obligation comprised of a license to motion picture rights. In accordance with ASC 606, the Company ( i.e. the "licensor") has concluded that the license transfer should i) be considered functional intellectual property and ii) that customers (the "licensees" or "distributors") are therefore granted a right to access of the Company's intellectual property throughout the license period. As such, revenue is recognized at a point in time upon the Company's delivery of the license to the licensee. The Company does not currently provide any form of extended payment terms to its customers and, as such, a fixed payment is typically received from the customer within 90 days after the license is transferred.

In determining the transaction price, the Company's contracts with its customers do not include a significant financing component, non-cash consideration or consideration payable to the customer. However, the Company's contracts typically will include sales-based or usage-based royalties that are triggered by the attainment of certain levels of box office receipts or video on demand ("VOD") purchases. To that extent, in accordance with ASC 606-10-55, the Company will recognize the sales-based or usage-based royalties only when the later of the following events occur-a) the subsequent sale or usage occurs or b) the performance obligation to which the sales-based or usage-based royalty has been satisfied.

As it pertains to incremental costs of obtaining a contract, the Company does not incur any type of sales commissions.

Investments in Equity Securities

The Company accounts for its investments in equity securities without a readily determinable fair value at cost minus impairment in accordance with ASC 321, Investments-Equity Securities. Further, the Company will continue to recognize its investments without a readily determinable fair value at cost minus impairment until the investment does not qualify to be measured as such. To that extent, the Company will re-assess at the end of each reporting period whether the investment still qualifies to be recognized at cost minus impairment.

In addition to assessing whether the investments still qualify to be recognized at cost minus impairment, the Company will also make a qualitative assessment at the end of each reporting period considering impairment indicators to evaluate whether the investment is impaired. If the qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value, then the investment will be written down to fair value. The Company did not recognize any impairments for the nine months ended March 31, 2025 and 2024.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires incremental disclosures related to a public entity's reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 did not have a material impact on its combined financial statements.

In December 2023, the FASB issued ASU 2023-09-Income Taxes (Topic 740)-Improvements to Income Tax Disclosures, which requires entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. The guidance should be applied prospectively and is effective for annual periods beginning after December 15, 2024. The Company does not expect the issued standard will have a material impact on its combined financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require disclosure, in the notes to combined financial statements, of specified information about certain costs and expenses at each interim and annual reporting period. The amendments are effective for annual periods beginning after December 15, 2026, and reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact that the new ASU will have on its combined financial statements.