| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The accompanying condensed consolidated financial
statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Consolidation The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. Use of Estimates The preparation of financial statements in
conformity with GAAP 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 expenses
during the reporting period. Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop
the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable
assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ
from those estimates. The most significant estimates to be made by
management in the preparation of the consolidated financial statements relate to revenues realized and costs incurred for films
and television programs; valuing equity instruments issued; the realization of deferred tax assets; accruals for contingent liabilities;
impairment assessments for investments in films and television programs, equity investments and intangible assets. Film, Television Programs, and Music Production
Costs Film, television program, and music production
costs are capitalized in accordance with Accounting Standards Codification 926, Entertainment - Films. Capitalized amounts are
stated at the lower of cost, less accumulated amortization, or fair value. These costs represent capitalized costs for the production
of films and other entertainment projects. In addition to the films, television programs and music that the Company may produce,
costs of productions in development are capitalized as development costs and are transferred to production costs when the project
is set for production. Films, television programs and music in development include costs of acquiring film rights to books,
stage plays or original screenplays and costs to adapt such projects, as well as amounts paid to musical artists. Projects in development
are written off if they are determined not to be recoverable, and are evaluated for impairment at each reporting period. Once a project is released to consumers, the
capitalized costs are amortized on an individual project basis in the proportion that the current revenue for each project bears
to the estimated remaining unrecognized revenue to be received from all sources for each project as of the beginning of the current
fiscal year. Revenue and cost forecasts are periodically reviewed by management and revised when warranted. The carrying value of film costs are reviewed
for impairment each reporting period on a project-by-project basis. If events or changes in circumstance indicate that the fair
value of the capitalized costs on a specific project is less than the carrying value, an impairment charge is recognized in the
amount by which the unamortized costs exceed the project’s fair value. The Company has not completed any projects
as of January 31, 2021 and has not recognized any impairment charges. Revenue Recognition Film and Television Program Revenues The Company’s film and television program
business is expected to generate revenues principally from the licensing of content in domestic theatrical exhibition, home entertainment
(e.g., digital media and packaged media), television, and international market places. Revenue will be recognized upon transfer of
control of promised services or goods to customers in an amount that reflects the consideration that the Company expects to receive
in exchange for those services or goods. Revenues do not include taxes collected from customers on behalf of taxing authorities,
such as sales tax and value-added tax. Revenues
from the licensing of film and television content and the sales and licensing of music will be recognized when the content has
been delivered and the license period has begun, as discussed above. Revenues from the licensing of symbolic intellectual property
(i.e., licenses of motion pictures or television characters, brands, storylines, themes or logos) will be recognized over the
corresponding license term. Commissions will be recognized as such services are provided. Licensing
Arrangements. Fixed
Fee or Minimum Guarantees: The Company’s fixed fee or minimum guarantee licensing arrangements may, in some
cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to
exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance
obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement
is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices.
The amounts related to each performance obligation (i.e., title, window, media or territory) will be recognized when the content
has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which
the customer is able to begin to use and benefit from the content. Sales
or Usage Based Royalties: Sales or usage based royalties will represent amounts due to the Company based on the “sale”
or “usage” of the Company’s content by the customer, and revenues which will be recognized at the later of when
the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been
allocated and has been satisfied (or partially satisfied). Generally, when the Company licenses completed content (with standalone
functionality, such as a movie, or television show), its performance obligation will be satisfied prior to the sale or usage. When
the Company licenses intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), its
performance obligation will generally be satisfied in the same period as the sale or usage. The actual amounts due to the Company
under these arrangements will generally not be reported to the Company until after the close of the reporting period. The Company
will record revenue under these arrangements for the amounts due and not yet reported to the Company based on estimates of the
sales or usage of these customers and pursuant to the terms of the contracts. Such estimates will be based on information from
the Company’s customers, historical experience with similar titles in that market or territory, the performance of the title
in other markets, and/or data available in the industry. Revenues
by Market or Product Line.
Theatrical.
Home Entertainment.
Digital Media. Digital
Transaction Revenue Sharing Arrangements: Licenses
of Content to Digital Platforms:
Packaged Media.
Television.
International.
Other. Revenues
from the licensing of film and television content and the sales and licensing of music will be recognized when the content has
been delivered and the license period has begun, as discussed above. Revenues from the licensing of symbolic intellectual property
(i.e., licenses of motion pictures or television characters, brands, storylines, themes or logos) will be recognized over the corresponding
license term. Commissions will be recognized as such services are provided. Deferred Revenue. Payment
terms are expected to vary by location and type of customer and the nature of the licensing arrangement, however, other than multi-year
license arrangements; payments will generally be due within 60 days after revenue is recognized. For certain multi-year
licensing arrangements, primarily in the television, digital media, and international markets, payments may be due over a longer
period. When the Company expects the period between fulfillment of the Company’s performance obligation and the receipt of
payment to be greater than a year, a significant financing component will be present. In these cases, such payments will be discounted
to present value based on a discount rate reflective of a separate financing transaction between the customer and the Company,
at contract inception. The significant financing component will be recorded as a reduction to revenue and accounts receivable initially,
with such accounts receivable discount amortized to interest income over the period to receipt of payment. The Company does not
assess contracts with deferred payments for significant financing components if, at contract inception, the Company expects the
period between fulfillment of the performance obligation and subsequent payment to be one year or less. In other
cases, customer payments may be made in advance of when the Company fulfills its performance obligation and recognizes revenue.
This may primarily occur under television production contracts, in which payments may be received as the production progresses,
international motion picture contracts, where a portion of the payments are received prior to the completion of the movie and prior
to license rights start dates, and pay television contracts with multiple windows with a portion of the revenues deferred until
the subsequent exploitation windows commence. These arrangements will not contain significant financing components because
the reason for the payment structure is not for the provision of financing to the Company, but rather to mitigate the Company’s
risk of customer non-performance and incentivize the customer to exploit the Company’s content. Cash The Company maintains its cash balances with
financial institutions with high credit ratings and in accounts insured by the Federal Deposit Insurance Corporation (the “FDIC”).
The Company may periodically have cash balances in banks in excess of FDIC insurance limits. The Company has not experienced any
losses to date resulting from this practice. Investment in Marketable Securities The Company’s investment in marketable
securities consists primarily of corporate equities with a quoted market price that are classified as trading securities. Marketable
securities are stated at fair value as determined by the closing price of each security at each balance sheet date. Unrealized
gains and losses on these securities are included in operations for the applicable period. Concentration of Risk The Company may periodically contract with
consultants and vendors to provide services related to the Company’s business activities. Agreements for these services may
be for a specific time period or for a specific project or task. Costs and expenses incurred that represented
10% or more of costs for the three months ended January 31, 2021 consist of legal fees of $90,142 incurred with the Company’s
corporate law firm, which represented 17% of total general and administrative costs for such period, and an area standards agreement
of $63,738 incurred with the Company’s IATSE union liaison, which represented 12% of total general and administrative costs
for such period Costs and expenses incurred that represented
10% or more of costs for the six months ended January 31, 2021 consist of legal fees of $147,287 incurred with the Company’s
corporate law firm, which represented 15% of total general and administrative costs for such period, audit fees of $92,665 incurred
with the Company corporate audit firm, which represented 9% of total general and administrative cost for such period, and an area
standards agreement of $63,738 incurred with the Company’s IATSE union liaison, which represented 6% of total general and
administrative costs for such period. Income Taxes The Company accounts for income taxes under
an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred
tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets
and liabilities. The Company records a valuation allowance to
reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine
that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred
tax assets would be credited to operations in the period such determination was made. Alternatively, should the Company determine
that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to operations in the period such determination was made. The Company’s wholly-owned subsidiary,
Rivulet Films, converted from a pass-through limited liability corporation to a “C” corporation effective April 13,
2020. As the Company’s net operating losses
in the respective jurisdictions in which it operates have yet to be utilized, all previous tax years remain open to examination
by the respective taxing authorities. The Company had no unrecognized tax benefits
as of January 31, 2021 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months. The Company accounts
for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation,
and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects
of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the
reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the
position are recognized. As of January 31, 2021, the Company had no uncertain tax positions, and will continue to evaluate for
uncertain tax positions in subsequent periods. In future periods, any interest and penalties related to uncertain tax positions
will be recognized as a component of income tax expense. Stock-Based Compensation The Company periodically issues common stock
and stock options to officers, directors, employees, contractors and consultants for services rendered. Options vest and expire
according to terms established at the issuance date of each grant. Stock grants, which are generally time vested, are measured
at the grant date fair value and charged to operations ratably over the vesting period. The Company accounts for stock-based payments
to officers, directors, employees, contractors and consultants by measuring the cost of services received in exchange for equity
awards utilizing the grant date fair value of the awards, with the cost recognized as compensation expense over the period during
which the individual is required to perform services in exchange for the award, which is generally over the vesting period of the
award. The fair value of stock options granted as
stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables,
the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair
market value of the common stock on the grant date, and the estimated volatility of the common stock. Estimated volatility is based
on the historical volatility of the Company’s common stock over an appropriate calculation period, or, if not available,
by reference to the volatility of a representative sample of comparable public companies. The risk-free interest rate is based
on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common stock is determined by reference
to the quoted market price of the Company’s common stock on the grant date. The Company recognizes the fair value of stock-based
compensation awards in in the Company’s consolidated statements of operations. Through January 31, 2021, stock-based compensation
costs have been included in general and administrative costs. The Company issues new shares of common stock to satisfy stock option
exercises. Fair Value of Financial Instruments The authoritative guidance with respect to
fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories,
as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is
also required. Level 1. Observable inputs such as quoted prices
in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial
assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives. Level 2. Inputs, other than quoted prices included
within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable
market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives,
mutual funds, and fair-value hedges. Level 3. Unobservable inputs in which there
is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial
assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment
funds and are measured using present value pricing models. The Company will determine the level in the
fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant
to the fair value measurement in its entirety. In determining the appropriate levels, the Company will perform an analysis of the
assets and liabilities at each reporting period end. The Company’s financial instruments include
investment in marketable securities, prepaid expenses, deposits, accounts payable, accrued expenses, and due to related parties.
The estimated fair value of these instruments approximates their respective carrying amounts due to the short-term nature of these
instruments. Earnings (Loss) Per Share The Company’s computation of earnings
(loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to
common stockholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS
but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible notes payable, convertible
preferred stock and stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if
later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per
share) are excluded from the calculation of diluted EPS. Loss per common share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted
loss per common share is the same for all periods presented because convertible debt and stock options outstanding were anti-dilutive. At January 31, 2021, the Company excluded the
outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation
of earnings per share, as their effect would have been anti-dilutive.
Convertible promissory note 101,877
Common stock subscription receivable 9,652,000
Common stock options 9,000,000
Total 18,753,877 Weighted average common shares outstanding
has been retroactively restated for all periods presented to reflect the accounting effect of the 2020 Reverse Acquisition Transaction
(see Note 1). Property and Equipment Property and equipment will be recorded at
cost. Major improvements are capitalized, while maintenance and repairs that do not improve or extend the useful life of the respective
assets are charged to expense as incurred. Gains and losses from disposition of property and equipment will be included in income
and expense when realized. Depreciation of property and equipment will be provided using the straight-line method over an estimated
useful life of three years. The Company will recognize depreciation of property and equipment in the Company’s consolidated
statement of operations. Leases Accounting Standards Update (“ASU”)
2016-02, Leases (Topic 842) (“ASU 2016-02”) requires a lessee to record a right-of-use asset and a corresponding lease
liability at the inception of the lease initially measured at the present value of the lease payments. ASU 2016-02 requires recognition
in the statement of operations of a single lease cost that is calculated as a total cost of the lease allocated over the lease
term, generally on a straight-line basis. ASU 2016-02 excludes short-term operating leases with a lease term of 12 months or less
at the commencement date, and that do not include an option to purchase the underlying asset that the lessee is reasonably certain
to exercise. The Company did not have any leases within the scope of ASU 2016-02 at January 31, 2021. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards
Board (the “FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes
how entities measure credit losses for most financial assets, including accounts and notes receivable. ASU 2016-13 will replace
the current “incurred loss” approach with an “expected loss” model, under which companies will recognize
allowances based on expected rather than incurred losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. ASU 2016-13
will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. In March
2019, the FASB issued ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—
Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for
Program Materials (“ASU 2019-02”). ASU 2019-02 aligns the accounting for production costs of an episodic television
series with the accounting for production costs of films by removing the content distinction for capitalization. Accordingly, the
capitalization of production costs for episodic television series is no longer constrained until persuasive evidence of secondary
market revenues exists. This new guidance also updates certain presentation and disclosure requirements for capitalized film and
television costs and requires impairment testing to be performed at a group level for capitalized film and television costs when
the content is predominantly monetized with other owned or licensed content. A film group is defined as the lowest level at which
identifiable cash flows are largely independent of the cash flows of other films and/or license agreements. In addition, under
previous guidance, film and television programs accounted for under the broadcasting accounting standard were carried on the balance
sheet at the lower of cost or net realizable value. This new guidance requires that an entity test a film or television program
for impairment, when impairment indicators are present, at a film group level when the film or license agreement is predominantly
monetized with other films and/or license agreements. The impairment would be measured as the difference between the carrying value
of the film group and its fair value rather than its net realizable value. This new guidance requires that an entity provide new
disclosures about content that is either produced or licensed, and classify cash flows for licensed content as cash flows from
operating activities in the statement of cash flows. ASU 2019-02 was effective for the Company’s fiscal year beginning August
1, 2020, and was required to be adopted on a prospective basis. The adoption of ASU 2019-02 did not have any impact on the Company’s
consolidated financial statement presentation or disclosures subsequent to its adoption. The Company will continue to present all
project development costs, including capitalized costs of acquired programming rights, as non-current assets in its consolidated
balance sheet In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting
for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance
in ASC 740. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020. The adoption of
ASU 2019-12 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures
subsequent to its adoption. In August 2020, the FASB issued ASU 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU
2020-06). ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for
convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion
features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue
to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to
the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting
and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU
2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based
accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the effect that the adoption
of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures subsequent to its
adoption. Management does not believe that any other
recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s
financial statement presentation or disclosures. |
