RIVF 10-Q
Rivulet Entertainment, Inc. (RIVF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
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For the Quarterly Period Ending
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For the transition period from _________ to _________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
OTC pkn |
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 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]
Indicate by check mark whether the registrant has submitted electronically 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.
Yes [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” non-accelerated filer “smaller reporting company” or “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | [_] | Accelerated filer | [_] |
| [X] | Smaller reporting company | ||
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 16, 2025,
Rivulet Entertainment, Inc.
Form 10-Q
For the Quarter ended September 30, 2024
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ITEM 1. | ||
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| Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and June 30, 2024 | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | |
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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ITEM 3. | ||
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ITEM 4. | ||
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ITEM 1. | ||
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ITEM 1A. | ||
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ITEM 5. | ||
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ITEM 6. | ||
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Rivulet Entertainment, Inc.
Condensed Consolidated Balance Sheets
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| 2024 (2) |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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Prepaid expenses |
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Other current assets |
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Total current assets |
| $ |
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NONCURRENT ASSETS |
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Film costs |
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| $ |
Deposits |
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Equity investment |
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Total noncurrent assets |
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| $ |
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Total assets |
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LIABILITIES AND SHAREHOLDERS' DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable |
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Accrued expenses |
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Notes payable, current |
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Other current liabilities |
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Total current liabilities |
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NONCURRENT LIABILITIES |
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Related party loans, non-current |
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Notes payable, non-current |
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Total noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 2) |
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SHAREHOLDERS' DEFICIT |
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Common stock, par value of $ |
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Additional paid-in capital |
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Shareholders' deficit |
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Total shareholders' deficit |
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Total liabilities & shareholders' deficit |
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See accompanying notes to the unaudited condensed consolidated financial statements.
(1)
(2)
1
Rivulet Entertainment, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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| For the Three Months Ended September 30, | ||
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| 2024 |
| 2023(2) |
Revenues |
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Production cost amortization |
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Gross margin |
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Operating Expense |
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General and administrative |
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Total operating expenses |
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Net loss before other income (expense) |
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Other (expense)/income |
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Other income |
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Interest expense |
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Other (expense)/income |
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Net loss before income taxes |
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Income tax expense |
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Net loss |
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Basic and diluted loss per share |
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Basic and diluted weighted average shares outstanding(1) |
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See accompanying notes to the unaudited condensed consolidated financial statements.
(1)
(2)
2
Rivulet Entertainment, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Deficit
For the Three Months Ended September 30, 2024 and 2023
(Unaudited)
| Common Stock(1) |
| Additional |
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| Shares |
| Amount(2) |
| Paid-in Capital(2) |
| Deficit(2) |
| Total(2) |
Balance, June 30, 2023 |
| $ |
| $ ( |
| $ ( |
| $ ( | |
Net loss |
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Balance, September 30, 2023 |
| $ |
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Balance, June 30, 2024 |
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Recapitalization |
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Related Party Debt Forgiveness |
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Net loss |
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Balance, September 30, 2024 |
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| $ ( |
| $ ( | |
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See accompanying notes to the unaudited condensed consolidated financial statements.
(1)
(2)
3
Rivulet Entertainment, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| 2023 | ||
Cash flows from operating activities: |
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Net loss |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses |
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Other current assets |
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Film costs |
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Deposits |
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Accounts payable |
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Accrued expenses |
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Other current liabilities |
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Net cash flows used in operating activities |
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Cash flows from investing activities: |
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Net cash flows provided by (used in) investing activities: |
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Cash flows from financing activities: |
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Proceeds from notes payable |
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Net cash flows provided by financing activities: |
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Net change in cash |
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Cash, beginning of period |
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Cash, end of period |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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Cash paid for income taxes |
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Supplemental disclosure of non-cash activity: |
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Debt forgiveness related to reverse merger transaction |
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Recapitalization |
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| $ | |
See accompanying notes to the unaudited condensed consolidated financial statements.
(1)
4
Rivulet Entertainment, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For The Three Months Ended September 30, 2024
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
On July 7, 2024 (the "Closing Date"), Rivulet Entertainment, Inc. ("The Company" or "Rivulet") completed its acquisition of certain wholly owned subsidiaries of Rivulet Media, Inc. In consideration for the acquisition of the entities, the Company agreed to transfer approximately $10 million and 97 million shares to the current owners of Rivulet Media, Inc. On May 19, 2025 the agreement was amended to reduce the cash portion of the purchase price from $10,000,000 to $6,450,000. Furthermore, the conditions subject to closing and the default provisions were eliminated. As of the date of this filing, the Company has transferred $2,950,000 to the former owners of Rivulet Media, Inc. and had an outstanding balance of $3,500,000, which was classified as other current liabilities on our condensed consolidated Balance Sheets as of September 30, 2024. The transaction was accounted for as a reverse merger whereby the combined entities of Rivulet Media, Inc. were determined to be the accounting acquirer/legal acquiree and Rivulet Entertainment, inc. was determined to be the accounting acquiree/legal acquirer. As such, the historical financial statements presented in the filing (for the period ended June 30, 2024 and for the three months ended September 30, 2023) are those of the combined entities of Rivulet Media, Inc. that were transferred as part of the merger agreement.
The Company produces, distributes and markets feature-length films, television series and mini-series, and television movies, from initial creative development through principal photography, postproduction, distribution and ancillary sales.
The business strategy of Rivulet Entertainment, Inc. as it relates to films, television series, mini-series, and television movies is to enter into contracts with well-known actors and actresses, acquire scripts able to attract large audiences that have been overlooked by blockbuster producers, focus on cost control measures, obtain favorable tax credits and financing opportunities. Unlike many smaller producers, Rivulet is not targeting "artsy" niche markets but films that appeal to a wide audience. The Company's business plan as an independent film producer is to fully leverage all of its guaranteed contracts that it negotiates upfront for a film to be produced. This strategy permits the Company to raise less equity capital and obtain short-term bridge loans thereby permitting much larger budgets than historically could be obtained by independent film producers. Management believes this strategy enables the Company to produce films with budgets of up to $50 million although historically the Company has spent less than $10 million on each of its films to date. This strategy also permits the Company to forego the risks associated with a speculative movie venture which may or may not repay its funding sources by pre-selling contracts to distributors such as Netflix who are looking for content to reach its viewers. The Company can also determine whether to sell its domestic or international rights to another production company if unanticipated cash needs develop while in production.
We intend to grow and diversify our portfolio of content to capitalize on demand from emerging and traditional platforms throughout the world. We will attempt to maintain a disciplined approach to acquisition, production, and distribution of product by balancing our financial risks against the probability of commercial success for each project. We pursue the same disciplined approach to investments in, and acquisition of, libraries and other assets complementary to our business. We believe that our strategic focus on content and creation of innovative content distribution strategies will enhance our competitive position in the industry, ensure optimal use of our capital, build diversified foundation for future growth, and generate significant long-term value for our stockholders.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These accompanying condensed consolidated unaudited financial statements have been presented in United States dollars (“$” or “USD”) and are prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information and with Article 8 of Regulation S-X. In addition, as a film production company, the Company also complies with the incremental guidance in Accounting Standards Codification
5
(“ASC”) 926, Entertainment-Films. All comparative period financial information reflects the results of the former Rivulet Media, inc. entities under common control that were transferred as part of the transaction.
In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary for a fair statement of the Company's financial condition and operating results as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the interim results and trends in the interim financial statements may not be representative of those for the full year or any future period.
Principles of Consolidation
The Company evaluates the need to consolidate other entities based on the guidance set forth in ASC 810, Consolidation (“ASC 810”). To that extent, the Company will consolidate entities in which it has a controlling financial interest based on the guidance in the ASC topic. As of September 30, 2024, Rivulet Entertainment, Inc. consolidated included the following wholly owned subsidiaries:
| Entity Name | Year of Incorporation | Percentage Ownership |
| Nutcracker, LLC | 2023 | 100% |
| Kicklight, LLC | 2023 | 100% |
| Good News, LLC | 2021 | 100% |
| Please Baby Please LLC | 2020 | 100% |
| Mistress Movie, LLC | 2020 | 100% |
| LAC2 Productions, LLC | 2022 | 100% |
| Acolyte Productions, LLC | 2022 | 100% |
| Storyland Productions, LLC | 2021 | 100% |
| Da Vinci, LLC | 2023 | 100% |
| Garden, LLC | 2023 | 100% |
| Storyland Animation, LLC | 2021 | 100% |
| Rivulet Media Ventures, LLC | 2023 | 100% |
| The Dink Productions, LLC | 2024 | 100% |
Going Concern
The Company had cash of $
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company's 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 condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable, the results of which form the basis for the amounts recorded in the condensed consolidated financial statements.
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Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash or cash equivalents.
Film Costs
In accordance with ASC 926, Entertainment-Films, the Company reports production costs incurred as a separate asset on its condensed consolidated balance sheets ("Film costs"). Production costs include all direct negative costs incurred in the physical production of a film, such as compensation of cast and rental facilities on location, as well as allocations of production overhead and capitalized interest (if any). Further, costs incurred related to significant changes to a film are added to production costs and subsequently charged to expense when the Company recognizes the related revenue.
Amortization of Production Costs
As the Company's films are monetized on their own, the Company amortizes production costs using the individual-film-forecast-computation method. Pursuant to that method, unamortized production costs as of the beginning of the current fiscal year are multiplied by the individual-film-forecast-computation method fraction. To that extent, the Company will begin amortization of capitalized production costs when a film is released, and it begins to recognize revenue from that film. The Company will review and revise its estimate of ultimate revenue as of each reporting date to reflect the most currently available information. Changes to the estimate of ultimate revenue, if any, are accounted for prospectively. Amortization of production costs is presented as production cost amortization on the face of our condensed consolidated statements of operations.
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.
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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.
Exploitation and Participation Costs
The Company accounts for advertising costs in accordance with ASC 720-35, Other Expenses-Advertising Costs. All other direct costs incurred in connection with the distribution of a film are expensed as incurred. In addition, the Company will begin to accrue (expense) participation costs when i) a film is released and ii) it begins to recognize revenue from the film. Participation costs are accrued (expensed) using the individual-film-forecast-computation method. The Company incurred participation costs of $0 and $100,000 for the three months ended September 30, 2024 and 2023, respectively, which is included in general and administrative expense on the condensed consolidated statements of operations.
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 three months ended September 30, 2024 and 2023.
General and Administrative Expenses
Our general and administrative expenses primarily consist of personnel and related costs, including employee salaries, legal fees relating to corporate matters, accounting and audit related costs, insurance, corporate communications, information technology, participation costs and related expenses.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company is
8
currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. As of September 30, 2024, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
·Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
·Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
·Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The reporting amount of our cash represents fair value due to its liquid nature. Further, the stated amounts of related and non-related notes payable also represent fair value as the borrowings are issued at prevailing market rates. As of September 30, 2024 and June 30, 2024, the Company did not have any assets measured at fair value on a recurring basis that would require disclosure based on the fair value hierarchy outlined in ASC 820.
Related Party Disclosures
The Company discloses all related party transactions in accordance with the guidance in ASC 850, Related Party Disclosures. To that extent, amounts of related party transactions are stated on the face of our condensed consolidated balance sheets, condensed consolidated statements of operations and condensed consolidated statements of cash flows (as applicable).
Segment Reporting
The Company currently operates in a single operating segment. Operating segments are reported in a manner consistent with the internal reporting provided to the Company’s chief operating decision maker (“the CODM”). The Company’s CODM, which is its Chief Executive Officer, views the Company’s operations and manages its business as a single operating segment, which is currently movie film production.
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Commitments and Contingencies
The Company accounts for contingencies in accordance with ASC 450-20, Contingencies. Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. The Company is not currently involved in any legal proceedings that could require either accrual or disclosure.
In addition to the stated interest rates on the loans, certain of our notes payable include a net profit participation feature whereby the lender may receive an additional return based on the performance of the film underwritten by the loan. Certain of these loans are collateralized by interests in film rights the Company owns.
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 the Company’s condensed consolidated 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 condensed consolidated 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.
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NOTE 3 – FILM COSTS COMPONENTS
Components of production costs for films predominantly monetized on their own were as follows:
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| As of | ||
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| September 30, 2024 |
| June 30, 2024 |
Released |
| $ |
| $ |
Completed and not released |
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In production |
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Preproduction |
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Total |
| $ |
| $ |
|
|
|
|
|
NOTE 4 – DEPOSITS
As of September 30, 2024 and June 30, 2024, the Company held deposits of $
The deposits are refundable upon fulfillment of the Company's obligations under the terms of the agreements or upon termination of the agreements. As of September 30, 2024 and June 30, 2024, the Company is in compliance with all applicable union requirements, and no deposits are subject to forfeiture. The Company monitors its compliance with these agreements on an ongoing basis to ensure all obligations are met.
NOTE 5 – INVESTMENT IN EQUITY SECURITIES
During June of 2023 the Company made a $
The carrying amount of our investment in Casa Azul was $
11
NOTE 6 – NOTES PAYABLE AND RELATED PARTY LOANS
The Company enters into loan agreements with both related and non-related parties in order to fund their ongoing film production activities. To that extent, the Company had the following outstanding debt as of September 30, 2024 and June 30, 2024:
|
| September 30, 2024 |
| June 30, 2024 |
|
|
|
|
|
Current notes payable; Issued December 2023-January 2024; |
| $ |
| $ |
Current notes payable; Issued July 2024-September 2024; |
|
| ||
Non-current notes payable; Issued June 2023-May 2024; |
|
| ||
Non-current notes payable; Issued July 2024-September 2024; |
|
| ||
Non-current notes payable; Issued July 2024-September 2024; |
|
| ||
Tax credit assignment loans; Issued January of 2024; |
|
| ||
Related party notes payable to a beneficial owner; Issued October-November of 2023; |
|
| ||
Related party notes payable to parent company; |
|
| ||
Total notes payable |
|
| ||
Less current maturities |
| ( |
| ( |
Total notes payable, non-current portion |
| $ |
| $ |
|
|
|
|
|
As of September 30, 2024, certain notes totaling $4,140,000, were in technical default as a result of non-payment. However, per the terms of the notes, the default interest rate of 25% cannot be triggered unless a default notice is received from the lender(s). Notes totaling $2,450,000 were paid-down during October 2024. Subsequently, a default notice was received for $1,500,000 in notes during November of 2024 at which time the interest rate on the notes increased from 15% to 25%. These notes totaling $1,500,000 of the notes were paid off during the three months ended March 31, 2025. The remaining $190,000 were still in default as of the time of this filing and bore an interest rate of 25%.
During the three months ended September 30, 2024, the Company entered into certain note agreements totaling $
Additionally, during the three months ended September 30, 2024, the Company entered into certain note agreements totaling $
In addition to the stated interest rates on the loans, certain loans include a net profit participation feature whereby the lender may receive an additional return based on the performance of the film underwritten by the loan. Certain of these loans are collateralized by interests in film rights the Company owns. Additionally, certain of these notes are guaranteed by an individual who is a related party. To that extent, none of the participation features were triggered as of September 30, 2024. In addition, certain tax credit assignment loans totaling $750,000 were entered into during fiscal year 2024 whereby the lenders agreed to be paid (on a dollar per dollar basis) from the proceeds of a refundable tax credit related to the production of the Nutcracker film. While the tax credit was not received as of September 30, 2024, the Company expects to receive the credit in the near future and has therefore classified the tax assignment loans as current. In order to receive this tax credit, the Company must have an audit performed on the required financial information, which is currently in-process.
The Company had approximately $7.9 million in related party debt to its former parent company as of June 30, 2024. However, in accordance with the merger agreement all of the debt was forgiven as of the merger consummation date.
12
The debt forgiveness was recognized as an increase to additional paid in capital. Upon settlement of the transaction an additional $0.2 million of liabilities were forgiven, resulting in total liability forgiveness of $8.1 million.
Maturities on debt are as follows:
October 1, 2024 - June 30, 2025 |
| $ | |
July 1, 2025 - June 30, 2026 |
|
| |
Total payments |
| $ | |
|
|
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
Rivulet Media, Inc.
As part of the merger transaction, the transferred entities had $7,888,316 of intercompany loans with Rivulet Media, Inc. as of June 30, 2024. The intercompany loans did not include a stated interest rate or due date. Further, as a result of the transaction, the loans were forgiven by Rivulet Media, Inc. as of the merger consummation date. Upon settlement of the transaction an additional $189,649 of liabilities were forgiven, resulting in total liability forgiveness of $
Beneficial Owner
During the year ended June 30, 2024, the Company entered into a $
Advances
During the three months ended September 30, 2024, the Company advanced funds to a person of Management at Rivulet Entertainment, Inc. in the amount of $
NOTE 8 – REVERSE MERGER
During July of 2024, certain combined entities of Rivulet Media, Inc. entered into a reverse merger with Rivulet Entertainment, Inc. In accordance with ASC 805, Business Combinations, it was determined that the combined entities should be considered the accounting acquirer and Rivulet Entertainment, Inc. should be considered the accounting acquiree.
In determining the number of shares outstanding as of the merger completion date, the Company utilized the guidance in ASC 805-40, Reverse Acquisitions. Specifically, while the combined entities (that were transferred as part of the transaction) did not have any shares outstanding as of the merger date, the Company established an exchange ratio based on the number of shares issued by Rivulet Entertainment, Inc. to effectuate the merger divided by the number of shares outstanding of Rivulet Media, Inc. consolidated immediately prior to the merger as follows:
Number of shares issued to effectuate the merger | A | |
Rivulet Media inc. consolidated shares outstanding-pre merger | B | |
Exchange ratio | A/B |
Further, for the recapitalization shares issued amount, the Company determined the implicit number of shares that Rivulet Media, Inc. would have had to issue in order to provide Rivulet Entertainment, Inc. with an approximate 12% interest in the combined company and multiplied that amount times the established exchange ratio as follows:
Gross implicit shares issued by Rivulet Media, inc. | A | |
Exchange ratio | B | |
13
Net implicit shares issued | A*B |
NOTE 9 – SHAREHOLDERS’ EQUITY
As of September 30, 2024 the Company was authorized to issue multiple series of preferred stock, as outlined below. There were no preferred shares issued or outstanding as of September 30, 2024.
Series A Preferred Stock: (
The Series A Preferred stock had the following rights and privileges:
·Are without voting powers on any matter presented to the common stockholders of the Company for their action or consideration. Series A stockholders are entitled to vote on matters relating to modifications, adjustments, waivers, or other changes or matters relating to Series A stock. Each Series A stock share shall have one (1) vote on matters relating to Series A stock.
·May be subject to redemption at such time or times and at such prices determined by the Board of Directors;
·Are entitled to receive dividends (which may be cumulative or non-cumulative) at 10% per annum payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock;
·May have rights upon the dissolution of, or upon any distribution of the assets of, the Corporation;
·Are not convertible;
·May be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation; and
·May have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, in each case as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock.
Series B Preferred Stock: (
The Series B Preferred stock had the following rights and privileges:
·Are entitled to vote on any matter presented to the common stockholders of the Company for their action or consideration. Each share of Series B Preferred shall have twenty-five (25) votes. Series B stockholders are also entitled to vote on matters relating to modifications, adjustments, waivers, or other changes or matters relating to Series B stock. Each Series B stock share shall have one (1) vote on matters relating to Series B stock.
·May be subject to redemption at such time or times and at such prices as determined by the Board of Directors;
·Are not entitled to receive dividends;
·May have such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation;
·Shall have the right to convert any or all of the Holders’ Series B stock into 25 fully paid and non-assessable shares of common stock for each share of Series B Preferred stock
·May be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts;
·May be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation; and
14
·May have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, in each case as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock.
Series C Preferred Stock: (
The Series C Preferred stock had the following rights and privileges:
·Shall be entitled to vote on any matter presented to the common stockholders of the Company for their action or consideration. Each share of Series C Preferred shall have one (1) vote. Series C stockholders are also entitled to vote on matters relating to modifications, adjustments, waivers, or other changes or matters relating to Series C stock. Each Series B stock share shall have one (1) vote on matters related to Series C stock.
·May be subject to redemption at such time or times and at such prices as determined by the Board of Directors;
·Are entitled to receive dividends of 10% per annum;
·May have such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation;
·Shall have the right to convert any or all of the holders’ Series C stock into one (1) fully paid and non-assessable share of common stock for each share of Series C Preferred stock and Series C Preferred shares shall automatically convert on the one for one basis after five (5) years from the date of purchase.
·May be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts;
·May be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation; and
·May have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, in each case as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock.
NOTE 10 – SUBSEQUENT EVENTS
In accordance with ASC 855, Subsequent Events, the Company has evaluated events and transactions subsequent to September 30, 2024 through the date these consolidated financial statements were issued. Other than the below, there are no subsequent events identified that would require disclosure in these condensed consolidated financial statements.
License of Nutcracker
During October of 2024, the
Debt Payments
Various notes payable totaling approximately $12.0 million were repaid subsequent to September 30, 2024.
Debt Issuance
Debt Facility
15
On October 16, 2024 the
Note Issuances
Subsequent to September 30, 2024, the Company issued notes payable totaling $
Subsequent to September 30, 2024, the Company issued notes payable in the amount of $
Subsequent to September 30, 2024, the Company issued notes payable of approximately $
Litigation
During June of 2025, the
Item 2. 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 $10,041,064 as of September 30, 2024. 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 $79,049 as of September 30, 2024. Further, the Company incurred a net loss of $603,364, negative working capital of $9.7 million, stockholders' deficit of $1.2 million and cash flow used in operations of $1.0 million for the interim period ended September 30, 2024. As such, the Company concluded that there is substantial 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
16
The following tables summarize the results of our cash flows for the below respective periods:
|
| For the Three Months Ended September 30, | ||||
|
| 2024 |
| 2023 | ||
Net loss |
| $ | (603,364) |
| $ | (95,004) |
Net cash flows used in operating activities: |
|
| (963,736) |
|
| (62,935) |
Net cash flows provided by (used in) investing activities: |
|
| - |
|
| - |
Net cash flows provided by financing activities: |
|
| 941,064 |
|
| 60,295 |
Net change in cash |
|
| (22,672) |
|
| (2,640) |
Cash, beginning of period |
|
| 101,721 |
|
| 2,683 |
Cash, end of period |
| $ | 79,049 |
| $ | 43 |
|
|
|
|
|
|
|
Operating Activities
Net cash used in operating activities was ($963,736) for the three months ended September 30, 2024. Cash used in operating activities resulted from a net loss for the three months ended September 30, 2024 of ($603,364) and changes in operating assets and liabilities of ($360,372).
Net cash used in operating activities was ($62,935) for the three months ended September 30, 2023. Cash used in operating activities resulted from net loss for the three months ended September 30, 2023 of ($95,004) and changes in operating assets and liabilities of $32,069.
Investing Activities
There were no investing activities for the three months ended September 30, 2024 and 2023.
Financing Activities
Net cash provided by financing activities was $941,064 for the three months ended September 30, 2024 and consisted of proceeds from notes payable.
Net cash provided by financing activities was $60,295 for the three months ended September 30, 2023 and consisted of proceeds from notes payable.
Results of Operations
Our financial results for the three months ended September 30, 2024 and 2023 are summarized as follows:
|
| For the Three Months Ended September 30, | ||
|
| 2024 |
| 2023 |
Revenues |
| $ - |
| $ - |
Production cost amortization |
| - |
| - |
Gross margin |
| $ - |
| $ - |
|
|
|
|
|
Operating Expense |
|
|
|
|
General and administrative |
| $ 496,578 |
| $ 102,764 |
Total operating expenses |
| $ 496,578 |
| $ 102,764 |
|
|
|
|
|
Net loss before other income (expense) |
| 496,578 |
| 102,764 |
|
|
|
|
|
Other income (expense) |
| $ (106,786) |
| $ 7,760 |
|
|
|
|
|
Net loss before income taxes |
| (603,364) |
| (95,004) |
Income tax expense |
| - |
| - |
Net loss before income taxes |
| $ (603,364) |
| $ (95,004) |
|
|
|
|
|
Revenues
17
There were no recognized revenues during the three months ended September 30, 2024 and 2023.
General and Administrative
General and administrative expense for the three months ended September 30, 2024 and 2023 totaled $496,578 and $102,764, respectively. General and administrative costs for the three months ended September 30, 2024 of $496,578 consisted of professional fees of $187,972, music and musician expenses $87,275, travel & meals and entertainment of $91,598, payroll costs of $53,106, external communication of $34,346 and other expenses of $42,281. General and administrative costs for the three months ended September 30, 2023 of $102,764 consisted of participation costs of $100,000 and other expense of $2,764.
Other (expense) income
For the three months ended September 30, 2024, other income (expense) totaled ($106,786) which consisted of interest expense of ($106,913) and other income of $127.
For the three months ended September 30, 2023, other income (expense) consisted of other income of $7,760.
Critical Accounting Policies
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
18
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 three months ended September 30, 2024 and 2023.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
19
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) and pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September 30, 2024. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms, and that such information is accumulated and is communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. 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.
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervisions of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures. Based upon such evaluation, our chief executive officer and our chief financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were ineffective because of the material weaknesses in our internal control over financial reporting due to a lack of segregation of duties and the lack of formal documentation of our control environment.
Changes in internal control over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During June of 2025, the Company received an OSHA complaint which was made against one of our wholly owned subsidiaries (i.e. "The Nutcracker"). The Company does not believe that there is any merit to the claim. Further, an estimate of the possible loss cannot be made at this time.
Item 1A. Risk Factors
As a smaller reporting Company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
N/A
Item 3. Defaults Upon Senior Securities
20
As of the date of this filing, the Company had defaulted on approximately $203,000 of principal amount of outstanding debt. The total arrearage as of the date of this filing was approximately $238,000, which includes both principal and interest.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
N/A
21
Item 6. Exhibits
Exhibit No. |
| Description |
10.1 |
| |
10.2 |
| |
10.3 |
| |
31.1* |
| |
32.1* |
| |
101.INS* |
| Inline XBRL Instance Document. |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| ** | Furnished, not filed. |
22
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.
| Rivulet Entertainment, Inc. |
| |
|
|
|
|
Date: July 24, 2025 | By: | /s/ Walter Geldenhuys |
|
|
| Walter Geldenhuys |
|
|
| President, Chief Executive Officer and Interim Chief Financial Officer |
|
23