Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

RIVULET MEDIA, INC.

 

Rivulet Media, Inc.

1206 E. Warner Rd, Suite 101-I

Gilbert, Arizona 85296

Attn: Michael Witherill

 

Re: Purchase of Rivulet Media, Inc. Series A Convertible Promissory Notes

 

Gentlemen:

 

The undersigned (“Purchaser”) hereby subscribes to purchase the amount of Series
A convertible promissory notes (“Notes”) of Rivulet Media, Inc., a Delaware
corporation (the “Company”), set forth on the signature page hereof, with a
minimum investment of $25,000. The Notes are convertible into shares of common
stock of the Company (“Shares”) at the option of the Purchaser at a conversion
price of $0.80 per Share and, should the closing price of the Shares as
reflected on the OTC Market reach $1.20 or higher, shall automatically convert
into the number of Shares that results by dividing the outstanding principal
amount and all accrued but unpaid interest by $0.80. This subscription may be
rejected by the Company in its sole discretion.

 

Such purchase of Notes is subject to the terms and conditions set forth in the
Risk Factors attached as Exhibit A and in the Company’s reports filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended. Such purchase of Notes and, following conversion, the Shares,
is also subject to the following paragraphs.

 

1.       Purchase. Subject to the terms and conditions hereof, Purchaser hereby
irrevocably agrees to purchase the amount of Notes set forth on the signature
page hereof and tenders herewith the consideration set forth on the signature
page hereof. Payment in full by cash, certified check, or wire transfer
accompanies the delivery of this Subscription Agreement.

 

2.       Representations and Warranties. Purchaser hereby makes the following
representations and warranties to the Company and Purchaser agrees to indemnify,
hold harmless, and pay all judgments of and claims against the Company from any
liability or injury, including, but not limited to, that arising under federal
or state securities laws, incurred as a result of any misrepresentation herein
or any warranties not performed by Purchaser.

 

  (a)         Purchaser is the sole and true party in interest and is not
purchasing for the benefit of any other person.

 

  (b)         Purchaser has read, analyzed, and is familiar with the Risk
Factors attached as Exhibit A, this Subscription Agreement, and the Investor
Suitability Questionnaire and has retained copies of all such documents.
Purchaser has had an opportunity to discuss the business plans of the Company
with Company management and has had an opportunity to ask questions and received
satisfactory responses from management with respect to the Company.

 

  (c)         Purchaser has read, analyzed, and is familiar with the section of
this Subscription Agreement entitled “Investor Suitability Questionnaire” and
Purchaser hereby warrants that Purchaser either [CHECK ALL THAT APPLY]:

 

o       is an Accredited Investor, as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the “Act”), and all
liabilities necessary to make a verification of net worth have been disclosed to
the person completing the Accredited Investor Verification, if any;

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o       alone or with a purchaser representative(s) has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of the prospective investment; or

 

o       is not a “U.S. person” as that term is defined under Regulation S
promulgated under the 1933 Act.

 

  (d)         Purchaser understands that all books, records, and documents of
the Company relating to this investment have been and remain available for
inspection by Purchaser upon reasonable notice. Purchaser confirms that all
documents requested by Purchaser have been made available, and that Purchaser
has been supplied with all of the additional information concerning this
investment that has been requested. In making a decision to purchase the Notes,
Purchaser has relied exclusively upon information provided in the Risk Factors
attached as Exhibit A and its own independent investigation of the Company’s
books, records, and documents.

 

  (e)         Purchaser is aware that an investment in the Notes is highly
speculative and subject to substantial risks, including those risks set forth in
the Risk Factors attached as Exhibit A. Purchaser is capable of bearing the high
degree of economic risk and burdens of this venture, including, but not limited
to, the possibility of the complete loss of all funds invested, the loss of any
anticipated tax benefits, the lack of a public market, the unavailability of
redemption for the Shares, and limited transferability of the Notes and Shares
that may make the liquidation of this investment impossible for the indefinite
future.

 

  (f)          The offer to sell the Notes was directly communicated to
Purchaser by the Company, or through a person acting on its behalf, in such a
manner that Purchaser was able to ask questions of and receive answers from the
Company concerning the terms and conditions of this transaction. At no time was
Purchaser presented with or solicited by or through any article, notice, or
other communication published in any newspaper or other leaflet, public
promotional meeting, television, radio, or other broadcast or transmittal
advertisement or any other form of general advertising.

 

  (g)         Purchaser, if a corporation, partnership, trust, or other entity,
is authorized and duly empowered to purchase and hold the Notes and, following
conversion, the Shares, has its principal place of business at the address set
forth on the signature page and has not been formed for the specific purpose of
purchasing the Notes.

 

  (h)         The Notes are being purchased solely for Purchaser’s own account
for investment and are not being purchased with a view to the resale,
distribution, subdivision, or fractionalization thereof.

 

  (i)          Purchaser understands that the Notes have not been registered
under the Act or any state securities laws in reliance upon exemptions from
registration for non-public offerings. Purchaser understands that the Notes or
any interest therein may not be, and agrees that the Notes or any interest
therein, will not be, resold or otherwise disposed of by Purchaser unless the
Notes are subsequently registered under the Act and under appropriate state
securities laws or unless the Company receives an opinion of counsel
satisfactory to it that an exemption from registration is available.

 

  (j)          Purchaser has been informed of and understands the following:

 

(1)       There are substantial restrictions on the transferability of the Notes
and Shares under the Act; and

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(2)        No federal or state agency has made any finding or determination as
to the fairness of the Notes for public investment nor any recommendation or
endorsement of the Notes.

 

  (k)         None of the following information has ever been represented,
guaranteed, or warranted to Purchaser expressly or by implication, by any
broker, the Company, or agents or employees of the foregoing, or by any other
person:

 

(1)        The approximate or exact length of time that Purchaser will be
required to hold the Notes;

 

(2)        The percentage of profit and/or amount of or type of consideration,
profit or loss to be realized, if any, as a result of an investment in the
Notes; or

 

(3)        That the past performance or experience of the Company, or
associates, agents, affiliates, or employees of the Company or any other person,
will in any way indicate or predict economic results in connection with the
purchase of the Notes.

 

  (l)          The information set forth in the Investor Suitability
Questionnaire and executed by Purchaser is true, correct and complete.

 

  (m)         Purchaser has not distributed this Subscription Agreement to
anyone, no other person has used the Subscription Agreement, and Purchaser has
made no copies of the Subscription Agreement.

 

  (n)         Purchaser hereby agrees to indemnify the Company, its officers,
its directors, persons who participated in the preparation of this Subscription
Agreement, and any person participating in the offering and hold them harmless
from and against any and all liability, damage, cost (including legal fees and
court costs) and expense incurred on account of or arising out of:

 

(1)       Any inaccuracy in the declarations, representations, and warranties
set forth herein;

 

(2)       The disposition of any of the Notes by Purchaser contrary to the
foregoing declarations, representations, and warranties; and

 

(3)       Any action, suit, or proceeding based upon (i) the claim that said
declarations, representations, or warranties were inaccurate or misleading or
otherwise cause for obtaining damages or redress from the Company; (ii) the
disposition of any of the Notes; or (iii) the breach by Purchaser of any part of
this Subscription Agreement.

 

  (o)         If Purchaser is a corporation, partnership, limited liability
company, trust, or other entity and the Purchaser is not an employee benefit
plan as defined under ERISA (an “Employee Benefit Plan”), “Benefit Plan
Investors,” as that term is defined in the regulations promulgated under ERISA,
own less than twenty-five percent (25%) of the value of each class of equity
interests in the Purchaser (excluding from the computation interests of any
individual or entity with discretionary authority or control over the assets of
the Purchaser). If Purchaser is such an entity and at any time twenty-five
percent (25%) or more of such value is or comes to be held by Benefit Plan
Investors (a “25% Purchaser”), Purchaser shall immediately notify the Company in
writing that Purchaser has become a 25% Purchaser. If Purchaser is or becomes a
25% Purchaser or an Employee Benefit Plan, Purchaser understands and agrees that
(i) its subscription may be reduced by the Company (in any manner that the
Company considers appropriate) to an amount that, when aggregated with all other
Benefit Plan Investor participation in the Company, such participation in the
Company is less than twenty-five percent (25%), and (ii) notwithstanding
anything in this Agreement or in the Company Agreement to the contrary, the
Company shall have the right to require Purchaser to withdraw any or all of its
investment at any time or from time to time, if in the exclusive discretion of
the Company, such withdrawal is advisable to limit participation by Benefit Plan
Investors in the Company to less than twenty-five percent (25%). If Purchaser is
an Employee Benefit Plan or a 25% Purchaser, the person signing this Agreement
on behalf of Purchaser also makes the representations and warranties attached
hereto.

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  (p)         If Purchaser is a qualified plan (including a Keogh plan or an
Individual Retirement Account) or is otherwise a Benefit Plan Investor, to the
best of Purchaser’s knowledge, neither the Company nor any affiliate (i) has
investment discretion with respect to the assets being used to purchase the
Notes, (ii) regularly gives individualized investment advice which serves as the
primary basis for the investment decisions made with respect to such assets, or
(iii) is otherwise a fiduciary with respect to such assets.

 

  (q)         Either (i) no part of the assets to be used to purchase the Notes
constitutes assets of any employee benefit plan (as defined in Section 3(3) of
ERISA) that is subject to Title I of ERISA or Section 4975 of the Code, or (ii)
part of the assets to be used to purchase the Notes constitutes assets of one or
more employee benefit plans subject to Title I of ERISA or Section 4975 of the
Code and such purchase is eligible for coverage under one or more statutory or
administrative exemptions from the prohibited transaction rules of ERISA and the
Code.

 

  (r)          Neither Purchaser nor, to its knowledge after making due inquiry,
any person or entity controlled by Purchaser, or if Purchaser is other than a
natural person, any person or entity controlled by, controlling or under common
control with Purchaser nor any person having a beneficial interest in Purchaser:

 

(1)       is a person or entity listed in Executive Order No. 13224 (September
23, 2001) issued by the President of the United States (Executive Order Blocking
Property and Prohibiting Transactions with Persons Who Commit, Threaten to
Commit, or Support Terrorism), any related enabling legislation or any other
similar Executive Orders (collectively, the “Executive Order”), or if Purchaser
is other than a natural person, is a person or entity listed in the Annex to
Section 1(b), (c) or (d) of the Executive Order;

 

(2)       is named on the List of Specially Designated Nationals and Blocked
Persons (the “SDN List”) maintained by the U.S. Office of Foreign Asset Control
(“OFAC”), Department of the Treasury, and/or on any other similar list (“Other
Lists”) maintained by OFAC pursuant to any authorizing statute, Executive Order
or regulation (collectively, “OFAC Laws and Regulations”);

 

(3)       is a “Designated National” as defined in the Cuban Assets Control
Regulations, 31 C.F.R. Part 515 (“Cuban Designated Nationals”) (the SDN List,
the Other Lists and Cuban Designated Nationals are referred to in this
Agreement, collectively, as the “Lists”);

 

(4)       is a foreign shell bank or is otherwise a bank with no physical
presence in any country, e.g., no place of business at a fixed address in a
country in which it is authorized to do business with full time employees and
records and which is subject to inspection by its licensing authority; or

 

(5)       is (i) a current or former senior official in the executive,
legislative, administrative, military, or judicial branch of a foreign
government (whether elected or not), a senior official of a major foreign
political party, or a senior executive of a foreign government-owned commercial
enterprise, (ii) a corporation, business or other entity that has been formed
by, or for the benefit of, any such individual (iii) an immediate family member
of any such individual, or (iv) a person who is widely and publicly known (or is
actually known by Purchaser) to maintain a close personal relationship with any
such individual (collectively, an “SFPF”).

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  (s)         Neither Purchaser nor, to its knowledge after making due inquiry,
any holder of a beneficial interest in it (i) is under investigation by any
governmental authority for, or has been charged with or convicted of, money
laundering (18 U.S.C. §§ 1956 and 1957), drug trafficking, terrorist-related
activities, or other money laundering predicate crimes or a violation of the
Bank Secrecy Bank (“BSA”) laws (31 U.S.C. § 5311 et seq.) and regulations, (ii)
has been assessed civil penalties under these or related laws, or (iii) has had
its funds seized or forfeited in an action under these or related laws.

 

  (t)          The funds invested by Purchaser in the Notes are derived from
legal sources. If Purchaser is other than a natural person, Purchaser has taken,
and will continue to take, reasonable measures appropriate to the circumstances,
with respect to each of its stockholders, members, partners or other investors
(collectively, “Entity Investors”) in Purchaser, to assure that funds invested
in it by such Entity Investors are derived from legal sources and that these
measures will be in accordance with all applicable BSA laws, regulations and
government guidance on BSA compliance and on the prevention and detection of
money laundering violations under 18 U.S.C. §§ 1956 and 1957) (collectively,
“Anti-Money Laundering Laws”).

 

  (u)         If Purchaser is a financial institution or financial intermediary,
Purchaser has taken, and will continue to take, reasonable steps, consistent
with industry practice for comparable organizations and in any event as required
by law, to ensure that it is and shall be in compliance with all current and
future Anti-Money Laundering Laws, and laws, regulations, and government
guidance for the prevention of terrorism, terrorist financing and drug
trafficking.

 

  (v)         Purchaser agrees to provide the Company, promptly upon request,
all information that the Company reasonably deems necessary or appropriate to
comply with applicable U.S. anti-money laundering and anti-terrorist laws and
regulations and OFAC Laws and Regulations. Purchaser consents to the disclosure
to U.S. regulators and law enforcement authorities by the Company and its
affiliates and agents of such information about Purchaser that the Company
reasonably deems necessary or appropriate to comply with applicable U.S.
anti-money laundering and anti-terrorist laws and regulations and OFAC Laws and
Regulations.

 

  (w)         If Purchaser is a financial institution or financial intermediary,
Purchaser agrees to adopt and maintain adequate policies, procedures and
controls to ensure that it is, and that each holder of any beneficial interest
in it is, in compliance with all OFAC Laws and Regulations, Executive Orders and
related government guidance (such OFAC policies, procedures and controls are
collectively referred to as “Purchaser OFAC Policies”). Purchaser further agrees
to make its Purchaser OFAC Policies and the respective policies, procedures and
controls for persons or entities becoming and being Entity Investors in
Purchaser (such policies, procedures and controls are collectively referred to
as “Entity Investor OFAC Policies”), together with the information collected
thereby concerning Purchaser and such Entity Investors, available to the Company
for its review and inspection from time to time during normal business hours and
upon reasonable prior notice, and Purchaser agrees to deliver copies of the same
to the Company from time to time upon request. The Company will keep Purchaser
OFAC Policies and the Entity Investor OFAC Policies, and the information
collected thereby, confidential subject to customary exceptions for legal
process, auditors, regulators or as otherwise reasonably required by the Company
for enforcement of its rights and/or in connection with reasonable business use
for holding and dealing with its assets and investments.

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  (x)         If Purchaser is other than a natural person and if Purchaser OFAC
Policies and the Entity Investor OFAC Policies referred to in subparagraph 5(w)
above, and the measures referred to in subparagraph 5(w) above to assure that
Purchaser’s and each Entity Investor’s funds are derived from legal sources,
shall not provide, in the reasonable determination of the Company, adequate
means to assure that persons or entities that are listed on any of the Lists, or
that are designated persons under any of the Executive Orders, or whose funds
are not derived from legal sources, are excluded from becoming or being Entity
Investors in Purchaser, the Company shall notify Purchaser of its determination.
If such policies, procedures and controls, as applicable, and such measures are
not modified to the satisfaction of the Company within 30 days following notice
to Purchaser of the Company’s determination, Purchaser acknowledges that the
Company, in addition to all of their other rights and remedies, may declare that
a breach of this Agreement exists with respect to Purchaser.

 

  (y)         Purchaser acknowledges and agrees that if, following its
investment in the Company, the Company reasonably believes that Purchaser has
breached its representations and warranties or its agreements set forth in this
Agreement, or a breach of this Agreement otherwise has been declared to exist
with respect to Purchaser, the Company has the right or may be obligated to
freeze the investment to prohibit additional investments, to segregate the
assets constituting the investment in accordance with applicable OFAC Laws and
Regulations, to decline any redemption requests, or to redeem Purchaser’s
investment. Purchaser further acknowledges that it will have no claim against
the Company, or any of its respective affiliates, officers, directors,
shareholders, employees and agents for any form of damages as a result of any of
the foregoing actions.

 

  (z)         If Purchaser is other than a natural person, Purchaser shall
require each person that proposes to acquire any interest in Purchaser to sign
an agreement with such representations, warranties, and covenants substantially
in the form of paragraph 2 of this Agreement and to deliver the same to
Purchaser.

 

Purchaser agrees to notify the Company promptly if there is any change with
respect to the representations provided in this paragraph 2. The foregoing
representations and warranties of Purchaser are complete, true, and accurate as
of the date of this Agreement and shall survive delivery of this Agreement to
the Company for all purposes. If any of such representations and warranties
shall not be true and accurate in any respect following the execution and
delivery of this Agreement, Purchaser shall give prompt written notice of such
fact to the Company, specifying which representations and warranties are not
true and accurate and the reasons therefor.

 

3.       Setoff. Notwithstanding the provisions of the last preceding section or
the enforceability thereof, the undersigned hereby grants to the Company the
right to setoff against any amounts payable by the Company to the undersigned,
for whatever reason, of any and all damages, costs, and expenses (including, but
not limited to, reasonable attorneys’ fees) which are incurred on account of or
arising out of any of the items referred to in clauses (1) through (3) of
Section 2(n).

 

4.Restrictions on Transferability of Notes and Shares and Compliance with the
Securities Act.

 

(a)       Restrictions on Transferability. Purchaser acknowledges that neither
the Notes nor the Shares have been registered under the Act or any state blue
sky laws, and that the transferability of an interest in the Notes or Shares is
restricted by applicable federal and state securities laws.

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(b)       Restrictive Legend. The certificate representing the Notes or Shares,
if any, and any other securities issued in respect thereto upon any
distribution, recapitalization, merger, consolidation or similar event, are
expected (unless otherwise permitted by the provisions of this Section or by
applicable law) to be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any legend required under
applicable state securities laws):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY BE SOLD
OR TRANSFERRED ONLY IF THE SECURITIES ARE REGISTERED UNDER THE ACT OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.

 

5.       Transferability of Subscription Agreement. Purchaser agrees not to
transfer or assign the obligations or duties contained in this Subscription
Agreement or any of Purchaser’s interest herein.

 

6.       Regulation D and Regulation S. Notwithstanding anything herein to the
contrary, every person or entity who, in addition to or in lieu of Purchaser, is
deemed to be a purchaser pursuant to Regulation D or Regulation S promulgated
under the Act or otherwise, does hereby make and join in the making of all the
covenants, representations, and warranties made by Purchaser.

 

7.       Acceptance. Execution and delivery of this Subscription Agreement and
tender of the payment referenced in Section 1 above shall constitute Purchaser’s
irrevocable offer to purchase the amount of Notes indicated, which offer may be
accepted or rejected by the Company in its discretion for any cause or for no
cause. Acceptance of this offer by the Company shall be indicated by the
execution hereof by the Company.

 

8.       Binding Agreement. Purchaser agrees that Purchaser may not cancel,
terminate, or revoke this Subscription Agreement or any agreement Purchaser
makes hereunder, and that this Subscription Agreement shall survive upon the
death or disability of Purchaser and shall be binding upon and inure to the
benefit of the heirs, successors, assigns, executors, administrators, guardians,
conservators, or personal representatives of Purchaser.

 

9.       Incorporation by Reference. The statement of the amount of Notes
subscribed and related information set forth on the signature page are
incorporated as integral terms of this Subscription Agreement.

 

10.     Notices. Notices and other communications under this Subscription
Agreement shall be in writing and shall be deemed delivered when received or, if
by U.S. mail, when deposited in a regularly maintained receptacle, by Certified
First Class Mail, postage prepaid, addressed:

 

  (a)       if to Purchaser, at the address shown on the signature page hereof
unless the Purchaser has advised the Company, in writing, of a different address
as to which notices shall be sent under this Subscription Agreement; and

 

  (b)       if to the Company, at the address first above stated, to the
attention of the CFO or to such other address or to the attention of other such
officer, as the Company shall have furnished to Purchaser.

 

11.     Legal Counsel. Purchaser has had the opportunity to consider the terms
of this Subscription Agreement and the executive summary with Purchaser’s legal
counsel and has either obtained the advice of legal counsel in connection with
Purchaser’s execution hereof or does hereby expressly waive its right to seek
such legal counsel in connection with this transaction and furthermore has
relied on its legal advisor to provide advice as to the tax consequences to
Purchaser upon making the purchase.

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12.     Miscellaneous. This Subscription Agreement and the documents and
agreements referenced herein embody the entire agreement and understanding
between the Company and the other parties hereto and supersede all prior
agreements and understandings relating to the subject matter hereof. It is the
intent of the parties hereto that all questions with respect to the construction
and interpretation of this Subscription Agreement and the rights and liabilities
of the parties hereto shall be determined in accordance with the laws of the
State of Delaware, without regard to principles of conflicts of laws thereof
that would call for the application of the substantive law of any jurisdiction
other than the State of Delaware. Each of the parties hereto irrevocably and
unconditionally agrees (i) to be subject to the jurisdiction of the courts of
the State of Arizona, (ii) that service of process may be made on such party by
prepaid certified mail with a validated proof of mailing receipt constituting
evidence of valid service, and (iii) that service made pursuant to clause (ii)
above shall have the same legal force and effect as if serviced upon such party
personally within the State of Arizona. The headings in this Subscription
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Subscription Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.

 

13.     Subscription Payments. All subscription payments should be made payable
to “Rivulet Media, Inc.” in the amount of Notes purchased (minimum investment of
$25,000). All funds received will be transferred into the Company’s checking
account at any time following acceptance by the Company. We are offering the
Notes until the earliest of (i) December 31, 2020; (ii) the date on which an
aggregate of $900,000 of Notes have been sold; or (iii) termination by the Board
of Directors of the Company.

 

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, Purchaser has executed this Subscription Agreement on the
date set forth on the signature page.

 

Purchaser desires to take title in the Notes as follows (check one):

 

______ (a) Individual (one signature required on page 10);       ______ (b)
Husband and Wife as community property (one signature is required on page 10 if
interest is held in one name, i.e., managing spouse; two signatures are required
on page 10 if interest is held in both names);       ______ (c) Joint Tenants
with rights of survivorship (both parties must sign on page 10);       ______
(d) Tenants in Common (both parties must sign on page 10);       ______ (e)
Trust (trustee(s) must sign on page 11);       ______ (f) Partnership or Limited
Liability Company (general partners(s), manager(s), or authorized member(s) must
sign on page 12);       ______ (g) Corporation (authorized officer must sign on
page 14);       ______ (h) Employee Benefit Plan (authorized officer must sign
on page 15);       ______ (i) Individual Retirement Account (authorized party
must sign on page 15);       ______ (j) Keogh Plan (authorized party must sign
on page 15);       ______ (k) Other Tax-Exempt Entities (authorized parties must
sign on page 15).

 

The exact name(s) under which title to the Notes is to be taken is as follows:

 

     

 

(Please print)

9

 

SUBSCRIPTION AGREEMENT

SIGNATURE PAGE

FOR INDIVIDUAL PURCHASERS,

JOINT TENANTS, AND TENANTS IN COMMON

 

Dollar Amount of Notes Subscribed: $  

 

Investor #1   Investor #2       Signature   Signature       Social Security
Number   Social Security Number       Print or Type Name   Print or Type Name  
    Residence Address   Residence Address                  

 

Individual Acknowledgment

 

State of  __________________ )   ) ss: County of _________________ )

 

On this ___ day of ______________, 20__, ________________________ and
___________________ personally appeared before me and swore to be the person(s)
whose name is subscribed to the within instrument and acknowledged to me that
he/she/they executed the same, and that the same is true to the best of
his/her/their knowledge, information, and belief.

 

SEAL     Notary Public in and for Said County and State

 

My Commission expires:   

 

Subscription accepted:

 

Rivulet Media, Inc.

 

By:      Michael Witherill, President

10

 

SUBSCRIPTION AGREEMENT

SIGNATURE PAGE

FOR TRUST PURCHASERS

 

Dollar Amount of Notes Subscribed: $   

 

Executed at ______________________________________,   

 

this ______________ day of  ____________________________________________,
____________________________________________________.

 

  Name of Trust (Please print or type)   Name of Trustee (Please print or type)
  Date Trust was formed:    

 

By:    Trustee’s signature 

 

Taxpayer Identification Number:   

 

Trustee’s Address:           

 

Attention:   

 

ACKNOWLEDGMENT IF SUBSCRIBER IS A TRUST

 

STATE OF __________________ )   ) ss: COUNTY OF _________________ )

 

On the ____ day of ___________________, 20__ personally appeared before me,
__________________, who being duly sworn did say that he/she is the trustee of
the ___________________________, a trust, and that said instrument was signed in
behalf of said trust by authority of the applicable trust instrument and he/she
acknowledged to me that said trust executed the same.

 

SEAL     Notary Public in and for Said County and State

 

My Commission expires:   

 

Subscription accepted:

 

Rivulet Media, Inc.

 

By:      Michael Witherill, President

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SUBSCRIPTION AGREEMENT

SIGNATURE PAGE

FOR PARTNERSHIP AND LIMITED LIABILITY COMPANY PURCHASERS

 

Dollar Amount of Notes Subscribed: $   

 

Executed at ______________________________________,   

 

this ______________ day of  ____________________________________________,
____________________________________________________.

  Name of Partnership or Limited Liability Company (Please print or type)

 

By:      Signature of General Partner, Manager, or authorized Member

 

   (Print or Type Name)

 

By:      Signature of additional General Partner, Manager, or authorized Member
(if required by Partnership Agreement or Limited Liability Company Agreement)

 

   (Print or Type Name)

 

By:      Signature of additional General Partner, Manager, or authorized Member
(if required by Partnership Agreement or Limited Liability Company Agreement)

 

   (Print or Type Name)

 

Taxpayer Identification Number:   

 

Business Mailing Address:           

 

Attention:   

12

 

ACKNOWLEDGMENT IF SUBSCRIBER IS A PARTNERSHIP

OR LIMITED LIABILITY COMPANY

 

STATE OF __________________ )   ) ss: COUNTY OF _________________ )

 

On the___ day of ____________________, 20__, personally appeared before me,
_________________ and ______________________ who being duly sworn (or affirmed)
did say that he/she/they are the ___________________________ of the
partnership/limited liability company that executed the within instrument and
such instrument was signed by him/her/them on behalf of said partnership/limited
liability company and acknowledged to me that said partnership/limited liability
company executed the same.

 

SEAL     Notary Public in and for Said County and State

 

My Commission expires:    

 

Subscription accepted:

 

Rivulet Media, Inc.

 

By:       Michael Witherill, President

13

 

SUBSCRIPTION AGREEMENT

SIGNATURE PAGE

FOR CORPORATE PURCHASERS

 

Dollar Amount of Notes Subscribed: $   

 

Executed at ______________________________________,   

 

this ______________ day of  ____________________________________________,
____________________________________________________.

 

Name of Corporation (Please print or type)

 

By:      Signature of authorized agent

 

Title:   

 

Taxpayer Identification Number:    

 

Address of Principal Corporate Offices:           

 

Mailing Address:   

 

(if different)   

 

Attention:   

 

ACKNOWLEDGMENT IF PURCHASER IS A CORPORATION

 

STATE OF __________________ )   ) ss: COUNTY OF _________________ )

 

On the _____ day of ___________________________, 20__, personally appeared
before me, ___________________________ who being duly sworn (or affirmed) did
say that he/she is the ___________________________ of
___________________________, and that said instrument was signed by him on
behalf of said Corporation by authority of its bylaws (or of a resolution of its
board of directors, as the case may be), and he/she acknowledged to me that said
corporation executed the same.

 

SEAL     Notary Public in and for Said County and State

 

My Commission expires:   

 

Subscription accepted:

 

Rivulet Media, Inc.

 

By:      Michael Witherill, President

14

 

SUBSCRIPTION AGREEMENT

SIGNATURE PAGE IF PURCHASER IS AN

EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT, KEOGH

PLAN, OR OTHER ENTITY

 

Dollar Amount of Notes Subscribed: $   

 

Executed at ______________________________________,   

 

this ______________ day of  ____________________________________________,
____________________________________________________.

 

Name of Entity (Please print or type)

 

By:       Signature of authorized agent       Title

 

Taxpayer Identification Number:   

 

Address of Principal Offices:   

 

Mailing Business Address:       

 

Attention:   

 

ACKNOWLEDGMENT IF PURCHASER IS AN

EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT, KEOGH

PLAN OR OTHER ENTITY

 

STATE OF __________________ )   ) ss: COUNTY OF _________________ )

 

On the _____ day of ________________, 20__, personally appeared before me,
___________________ of ______________________, and that said instrument was
signed by him/her on behalf of said entity, and he/she acknowledged to me that
said entity executed the same.

 

SEAL     Notary Public in and for Said County and State

 

My Commission expires:   

 

Subscription accepted:

 

Rivulet Media, Inc.

 

By:      Michael Witherill, President

15

 

RIVULET MEDIA, INC.

INVESTOR SUITABILITY QUESTIONNAIRE

______________________

ALL INFORMATION FURNISHED IN THIS

QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY

 

Rivulet Media, Inc. (the “Company”) will use the responses to this questionnaire
to qualify prospective investors for purposes of federal and state securities
laws. Please complete, sign, date and return (facsimile or scan acceptable) one
copy of this questionnaire as soon as possible to the Company.

 

Your answers will be kept confidential at all times. However, by signing this
questionnaire, you agree that the Company may present this questionnaire to such
parties as it deems appropriate to establish the availability of exemptions from
registration under state and federal security laws.

 

NOTE: Individual investors should complete the questionnaire beginning with Part
I on this page while non-individual investors such as corporations,
partnerships, trusts and other entities should complete the questionnaire
beginning with Part II on page 4.

 

I. INDIVIDUAL INVESTORS:

 

(Investors other than natural persons (for example, corporations, limited
liability companies,
partnerships and trusts) should turn to Part II on page 4)

 

1.       Amount of Investment

 

Please indicate the amount of your proposed investment:   

 

2.       Personal

 

Name:      (EXACT NAME UNDER WHICH TITLE TO NOTES SHOULD BE TAKEN)

 

Residence Address:   

 

City, State Zip:   

 

Home Telephone:   

 

Home Facsimile:   

 

Email Address:   

 

Date of Birth:   

 

3.       Business

 

Occupation:   

 

Number of Years:   

 

Present Employer:   

 

Position/Title:   

 

Business Address:   

 

City, State Zip:   

 

Business Telephone:   

 

Business Facsimile:   

1

 

4.       Residence Information

 

(a)      Set forth in the space provided below the state(s) in which you have
maintained your principal residence during the past three years and the dates
during which you resided in each state.

   

 

(b)      Are you registered to vote in, or do you have a driver’s license issued
by, or do you maintain a residence in any other state? If yes, in which
state(s)?

 

 

5.       Income

 

(a)      Do you reasonably expect either your own income from all sources during
the current year to exceed $200,000 or the joint income of you and your spouse
(if married) from all sources during the current year to exceed $300,000?

 

o Yes o No

 

If no, please specify amount: _______________

 

(b)     What percentage of your income as shown above is anticipated to be
derived from sources other than salary?

 

 

(c)     Was either your yearly income from all sources during each of the last
two years in excess of $200,000 or was the joint income of you and your spouse
(if married) from all sources during each of such years in excess of $300,000?

 

o Yes o No

 

If no, please specify amount for:

 

Last Year: ________________

 

Year Before Last: ________________

 

6.       Net Worth

 

Will your net worth as of the date you purchase the securities offered, together
with the net worth of your spouse, be in excess of $1,000,000? (Note that “net
worth” includes all of the assets owned by you and your spouse in excess of
total liabilities, excluding the fair market value of your principal residence
from assets but including as a liability any debt on your principal residence
that is in excess of the fair market value.)

 

o Yes o No

 

If not, please specify amount: __________________

 

7.       Education

 

Please describe your educational background and degrees obtained, if any.

   

2

 

8.       Affiliation

 

If you have any pre-existing personal or business relationship with the Company
or any of its officers, directors or controlling persons, please describe the
nature and duration of such relationship.

       

 

9.       Business and Financial Experience

 

(a)     Please describe in reasonable detail the nature and extent of your
business, financial and investment experience which you believe gives you the
capacity to evaluate the merits and risks of the proposed investment and the
capacity to protect your interests.

       

 

(b)     Are you purchasing the securities offered for your own account and for
investment purposes only?

 

o Yes o No

 

If no, please state for whom you are investing and/or the reason for investing.

   

 

10.     Financial Advisors

 

In evaluating this investment, will you use the services of any of the following
advisors? (If so, please identify, providing address and telephone number.)

 

Accountant:           

 

Attorney:           

 

Other:           

 

PLEASE TURN TO PART III ON PAGE 6 AND SIGN AND DATE THIS QUESTIONNAIRE

3

 

II. NON-INDIVIDUAL INVESTORS:*

 

(Please answer Part II only if the purchase is proposed to be

undertaken by a corporation, partnership, trust or other entity)

 

*       If the investment will be made by more than one affiliated entity,
please complete a copy of this questionnaire for EACH entity.

 

1.       Identification

 

Name:      (EXACT NAME UNDER WHICH TITLE TO NOTES SHOULD BE TAKEN)

 

Address of Principal Place of Business:   

 

City, State Zip:   

 

Jurisdiction of Formation or Incorporation:   

 

Type of Entity (corporation, partnership, trust, etc.):   

 

Contact Person:   

 

Telephone Number:   

 

Facsimile Number:   

 

Internet Address:   

 

Was entity formed for the purpose of this investment?

 

o Yes o No

 

If the answer is YES, then ALL shareholders, partners or other equity owners
must answer Part I of this Questionnaire. If the above answer is no, please
continue completing this form.

 

2.       Amount Of Investment

 

Please indicate the amount of your proposed investment: $   

 

State the investing entity’s net worth at the time the securities will be
purchased: $   

 

3.       Business

 

Please check the appropriate box to indicate which of the following accurately
describes the nature of the business conducted by the investing entity:

 

o      a corporation, organization described in Section 501(c)(3) of the
Internal Revenue Code, a Massachusetts or similar business trust or a
partnership, in each case, not formed for the purpose of this investment, with
total assets in excess of $5,000,000;

 

o      private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940 (a U.S. venture capital fund which invests
primarily through private placements in non-publicly traded securities and makes
available (either directly or through co-investors) to the portfolio companies
significant guidance concerning management, operations or business objectives);

 

o      a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

 

o      an investment company registered under the Investment Company Act of 1940
or a business development company as defined in Section 2(a)(48) of that Act;

4

 

o      a bank as defined in Section 3(a)(2) or a savings and loan association or
other institution defined in Section 3(a)(5)(A) of the Securities Act of 1933
acting in either an individual or fiduciary capacity;

 

o      an insurance company as defined in Section 2(13) of the Securities Act of
1933;

 

o      an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 whose investment decision is made by a
fiduciary which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or whose total assets exceed
$5,000,000, or, if a self-directed plan, a plan whose investment decisions are
made solely by persons who are accredited investors;

 

o      an entity not located in the U.S. and whose equity owners are neither
U.S. citizens nor U.S. residents;

 

o      a trust with total assets in excess of $5,000,000 whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the
Securities Act of 1933.

 

o      Other. Describe (and ALL shareholders, partners or other equity owners
must answer Part I of this Questionnaire):

 

   

 

4.       Investment Experience

 

Please provide information detailing the business, financial and investment
experience of the entity and investment manager of such entity.

       

 

[Signature Page Follows]

5

 

III. SIGNATURE

 

The above information is true and correct in all material respects and the
undersigned recognizes that the Company and its counsel are relying on the truth
and accuracy of such information in reliance on the exemption contained in
Subsection 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The undersigned agrees to notify the Company promptly of
any changes in the foregoing information which may occur prior to the
investment.

 

Executed at ___________________, on _________________, 20__.

 

 

  (Signature)           (Name)           (Title if signing on behalf of an
entity)

6

 

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF

25% PERSONS AND EMPLOYEE BENEFIT PLANS

 

1.       If Purchaser is an Employee Benefit Plan, such person is either a named
fiduciary of the Employee Benefit Plan (as defined in Section 402(a)(2) of
ERISA) or an investment manager of the Employee Benefit Plan (as defined in
Section 3(38) of ERISA) with full authority under the terms of the Employee
Benefit Plan and full authority from all Employee Benefit Plan beneficiaries, if
required, to cause the Employee Benefit Plan to invest in the Company. Such
investment has been duly approved by all other named fiduciaries whose approval
is required, if any, and is not prohibited or restricted by any provisions of
the Employee Benefit Plan or of any related instrument.

 

2.       Such person has independently determined that the investment by the
Employee Benefit Plan or 25% Purchaser in the Company satisfies all requirements
of Section 404(a)(1) of ERISA, specifically including the “prudent man”
standards of Section 404(a)(1)(B) and the “diversification” standard of Section
404(a)(1)(C), and will not be prohibited under any of the provisions of Section
406 of ERISA or Section 4975(c)(1) of the Code. Such person has requested and
received all information from the Company that such person, after due inquiry,
considered relevant to such determinations. In determining that the requirements
of Section 404(a)(1) are satisfied, such person has taken into account the risk
of a loss of the Employee Benefit Plan’s or 25% Purchaser’s investment and that
an investment in the Company will be relatively illiquid, and funds so invested
will not be readily available for the payment of employee benefits. Taking into
account these factors, and all other factors relating to the Company, the
undersigned has concluded that investment in the Company constitutes an
appropriate part of the Employee Benefit Plan’s or 25% Purchaser’s overall
investment program.

 

3.       Such person will notify the Company, in writing, of (A) any
termination, merger or consolidation of the Employee Benefit Plan or the 25%
Purchaser, (B) any amendment to any such Employee Benefit Plan or any related
instrument that materially affects the authority of any named fiduciary or
investment manager to authorize plan investments, and (C) any alteration in the
identity of any named fiduciary or investment manager, including such person,
who has the authority to approve plan investments.

 

4.       The Company and its affiliates do not render any investment advice on a
regular basis pursuant to a mutual understanding, arrangement or agreement,
written or otherwise, between the Employee Benefit Plan or any Employee Benefit
Plan investing in the 25% Purchaser and any of such parties who will act in
regard to the Company and none of such parties renders any investment advice to
any such Employee Benefit Plan that furnishes a primary basis for investment
decisions with respect to assets of any such Employee Benefit Plan.

 

5.       Purchaser agrees to notify the Company within thirty (30) days if any
of the foregoing representations are no longer true. If the Company or any
officer, director, employee or agent of the Company is ever held to be a
fiduciary, it is agreed that, in accordance with Sections 405(b)(1), 405(c)(2),
and 405(d) of ERISA, the fiduciary responsibilities of that person shall be
limited to such person’s duties in administering the business of the Company,
and such person shall not be responsible for any other duties with respect to
any Employee Benefit Plan or any Employee Benefit Plan investing in the 25%
Purchaser (specifically including evaluating the initial or continued
appropriateness of any such Employee Benefit Plan’s investment in the Company
under Section 404(a)(1) of ERISA).

7

 

EXHIBIT A

RISK FACTORS

 

There are investment considerations and significant risks associated with
purchasing and holding the Notes and, following conversion, the Shares of
Rivulet Media, Inc. (the “Company,” “we,” or “us”), including without limitation
those discussed below. Each prospective investor should carefully consider the
possibility that its entire investment may be lost. Each prospective investor
should thoroughly and carefully evaluate these investment considerations and
risk factors, preferably with the advice of counsel. There can be no assurance
that the Company will achieve positive investment returns. The risks and
uncertainties described below are not the only risks facing the Company and
additional risks and uncertainties may also harm its business.

 

These risk factors include forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
You can identify forward-looking statements by the words “expects,” “projects,”
“believes,” “anticipates,” “intends,” “plans,” “predicts,” “estimates,” and
similar expressions. The forward-looking statements are based on management’s
current expectations, estimates, and projections. Readers are cautioned not to
place undue reliance on any forward-looking statements as they speak only of the
Company’s views as of the date the statement was made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

 

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy
statements, and other information including annual, quarterly, and current
reports on Forms 10-K, 10-Q, and 8-K with the Securities and Exchange Commission
(the “Commission”). Reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained at the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of
such material can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a web site on the Internet
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the
Commission through the Electronic Data Gathering, Analysis and Retrieval System
(“EDGAR”). Readers are encouraged to review such filings for additional
information about the Company.

 

The Company is subject to various risks that may materially harm its business,
financial condition, and results of operations. The risks and uncertainties
described below, while inclusive of all risks we believe to be material at this
time, may not be the only ones. If any of these risks or uncertainties actually
occurs, the Company’s business, financial condition or operating results could
be materially harmed. Except for historical information, the information
contained in these risk factors and in our SEC reports are “forward looking”
statements about our expected future business and performance. Our actual
operating results and financial performance may prove to be very different from
what we might have predicted as of the date of this registration statement.

 

General risks related to our business

 

We will need to raise significant additional capital. The Company will need
substantial capital to make and produce motion pictures currently in development
or production. The Company has not established any external sources of liquidity
with financial institutions or other unrelated third parties. The Company does
not anticipate that it will in the future establish any external sources of
financing. As the Company has no sources of financing other than this offering,
the Company may not have enough funds to continue its operations, and in that
event would need to raise additional capital from other sources sooner than
expected.

8

 

We will need to raise substantial additional cash to operate our subsidiary,
Rivulet Films, Inc. We may be unable to raise additional capital on commercially
acceptable terms, if at all, and if we raise capital through additional equity
financing, existing stockholders, will have their ownership interests diluted.
Our failure to generate adequate funds from operations or from additional
sources would harm our business.

 

        The Company is largely controlled by two stockholders, and thus other
stockholders have limited oversight of the Board of Directors; officer salaries
are significant. Two stockholders, Klusman Family Holdings and Debbie Rasmussen
(wife of Mike Witherill), hold a majority or near-majority of our Shares. As a
result, other stockholders will largely be unable to exercise any direct
management or control functions with respect to the Company’s operations. The
Board of Directors is elected by the stockholders, and has discretion over a
wide variety of decisions. Since a majority or near-majority of shares are held
by two stockholders, other stockholders may have little if any ability to
influence the election of directors. As officer salaries are determined entirely
by the Board of Directors, there is no assurance they will reflect market rates
of similarly situated companies. Aaron Klusman, our CEO, and Mike Witherill, our
president, will each be paid $360,000 per year, so a significant portion of the
proceeds of this offering will be used to pay such salaries.

 

We rely heavily on our management to become profitable. The Company is subject
to all the substantial risks inherent in the commencement of a new business
enterprise. We anticipate that our expenses will increase in the foreseeable
future. These efforts may prove more expensive than we currently anticipate and
we may not succeed in increasing our revenues sufficiently to offset these
higher expenses. There can be no assurance that we will be profitable in the
future.

 

Although our President has substantial business experience in the motion picture
industry, our CEO has no experience in the motion picture industry and thus
there can be no assurance that he will be successful in managing the Company and
implementing our business plan. The likelihood of the Company’s success must be
considered in light of the problems, expenses, difficulties, complications, and
delays frequently encountered in connection with the startup of new businesses
and the environment in which the Company operates.

 

As a result of our limited operating history, our plan for growth, and the
competitive nature of the markets in which we plan to compete, we cannot
accurately predict the Company’s future revenue, capital requirements, and
operating expenses. We may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenue. Our operating expenses may
increase significantly. To the extent that these expenses precede or are not
rapidly followed by a corresponding increase in revenue or additional sources of
financing, our business, operating results, and financial condition may be
materially and adversely affected.

 

If we acquire, combine with or invest in other businesses, we will face certain
risks inherent in such transactions. We have in the past considered and will
continue, from time to time, to consider, opportunistic strategic transactions,
which could involve acquisitions, combinations or dispositions of businesses or
assets, or strategic alliances or joint ventures with companies engaged in
businesses that are similar or complementary to ours. Any such strategic
combination could be material, be difficult to implement, disrupt our business
or change our business profile significantly. Any future strategic transaction
could involve numerous risks, including:

 

  ● potential disruption of our ongoing business and distraction of management;

9

 

  ● potential loss of actors, actresses, or other person from our productions;  
   

  ● difficulty integrating the acquired businesses or segregating assets to be
disposed of;      

  ● exposure to unknown and/or contingent or other liabilities, including
litigation arising in connection with the acquisition, disposition, and/or
against any businesses we may acquire;      

  ● reputational or other damages to our business as a result of a failure to
consummate such a transaction; and      

  ● changing our business profile in ways that could have unintended
consequences.

 

If we enter into significant strategic transactions in the future, related
accounting charges may affect our financial condition and results of operations,
particularly in the case of any acquisitions. In addition, the financing of any
significant acquisition may result in changes in our capital structure,
including the incurrence of additional indebtedness. Conversely, any material
disposition could reduce our indebtedness or require the amendment or
refinancing of our outstanding indebtedness or a portion thereof. We may not be
successful in addressing these risks or any other problems encountered in
connection with any strategic transactions. We cannot be sure that if we make
any future acquisitions, investments, strategic alliances, or joint ventures or
enter into any business combination that they will be completed in a timely
manner, or at all, that they will be structured or financed in a way that will
enhance our creditworthiness or that they will meet our strategic objectives or
otherwise be successful. We also may not be successful in implementing
appropriate operational, financial, and management systems and controls to
achieve the benefits expected to result from these transactions. Failure to
effectively manage any of these transactions could result in material increases
in costs or reductions in expected revenues, or both. In addition, if any new
business in which we invest or which we attempt to develop does not progress as
planned, we may not recover the funds and resources we have expended and this
could have a negative impact on our businesses or our company as a whole.

 

The recent novel coronavirus (COVID-19) outbreak could materially adversely
affect our financial condition and results of operations. If the COVID-19
pandemic continues for an undetermined period, it may have a material adverse
effect on our business. For example, as long as COVID-19 pandemic continues, we
will have a limited ability to produce any films or television programs. The
spread of COVID-19 may cause us to modify our business practices, and we may
take further actions as may be required by government authorities or that we
determine are in the best interests of our employees and our business. There is
no certainty that such measures will be sufficient to mitigate the risks posed
by the virus, and our ability to perform critical functions could be harmed.

 

These and similar, and perhaps more severe, disruptions in our operations could
negatively impact our business, operating results, and financial condition. In
addition, quarantines, stay-at-home, executive and similar government orders, or
the perception that such orders, shutdowns, or other restrictions on the conduct
of business operations could occur, could severely affect the motion picture
industry and audience behavior, or our ability to produce our film and
television productions.

 

The spread of COVID-19, which has caused a broad impact globally, may materially
affect us economically. While the potential economic impact brought by, and the
duration of, COVID-19 may be difficult to assess or predict, it has
significantly disrupted global financial markets, and may limit our ability to
access capital, which could in the future negatively affect our liquidity. A
recession or market correction resulting from the spread of COVID-19 could
materially affect our business and the value of our Shares.

 

The ultimate impact of the COVID-19 outbreak or a similar health epidemic is
highly uncertain and subject to change. We do not yet know the full extent of
potential delays or impacts on our business or the global economy as a whole.
However, the effects could have a material impact on our operations, and we will
continue to monitor the COVID-19 situation closely.

10

 

Motion Picture and Television Industry Risks

 

Our business requires a substantial investment of capital. The production,
acquisition, and distribution of motion pictures and television programs
requires a significant amount of capital. A significant amount of time may
elapse between the Company’s expenditure of funds and the receipt of revenues
from its motion pictures or television programs. This time lapse may require the
Company to fund a significant portion of its capital requirements from its
financing sources. Although the Company intends to reduce the risks of its
production exposure through financial contributions from distributors, tax
credit programs, government and industry programs, other studios and
co-financiers and other sources, the Company cannot be sure that it will be able
to successfully implement these arrangements or that it will not be subject to
substantial financial risks relating to the production, acquisition, completion,
and release of future motion pictures and television programs. In addition, if
the Company increases (through internal growth or acquisition) its production
slate or its production budgets, the Company may be required to increase
overhead and/or make larger up-front payments to talent and, consequently, bear
greater financial risks. Any of the foregoing could have a material adverse
effect on the Company’s business, financial condition, operating results,
liquidity, and prospects.

 

The costs of producing and marketing feature films is high and may increase in
the future, and the uncertainties inherent in their production could result in
the expenditure of significant amounts on films that are abandoned or
significantly delayed. Films are expensive to produce. The production,
completion, and distribution of feature films is subject to a number of
uncertainties, including delays and increased expenditures due to creative
problems, technical difficulties, talent availability, accidents, natural
disasters, or other events beyond the Company’s control. Because of these
uncertainties, the projected costs of a feature film at the time it is set for
production may increase, the date of completion may be substantially delayed or
the film may be abandoned due to the exigencies of production. In extreme cases,
a film in production may be abandoned or significantly modified (including as a
result of creative changes) after substantial amounts have been spent, causing
the write-off of expenses incurred with respect to the film.

 

The costs of producing and marketing feature films generally increase from year
to year, which may make it more difficult for the Company’s films to generate a
profit or compete against other films. Revenues may not be sufficient to offset
an increase in the cost of motion picture production and marketing, which could
have a material adverse effect on the Company’s business, financial condition,
operating results, liquidity, and prospects.

 

Budget overruns may adversely affect the Company’s business. While the Company’s
business model requires that it be efficient in the production of its motion
pictures, actual motion picture production costs may exceed their budgets. The
production, completion, and distribution of motion pictures can be subject to a
number of uncertainties, including delays and increased expenditures due to
disruptions or events beyond the Company’s control. As a result, if a motion
picture incurs substantial budget overruns, the Company may have to seek
additional financing from outside sources to complete production or fund the
overrun itself. The Company cannot make assurances regarding the availability of
such financing or on terms acceptable to the Company, nor can the Company be
sure that it will recoup these costs. Increased costs incurred with respect to a
particular film may result in any such film not being ready for release at the
intended time and the postponement to a potentially less favorable date, all of
which could cause a decline in box office performance, and, thus, the overall
financial success of such film. Budget overruns could also prevent a picture
from being completed or released. Any of the foregoing could have a material
adverse effect on the Company’s business, financial condition, operating
results, liquidity, and prospects.

11

 

Limitations on control of joint ventures may adversely impact Company
operations. The Company may hold interests in certain businesses as a joint
venture or in partnership with non-affiliated third parties. As a result of such
arrangements, the Company may be unable to control the operations, strategies
and financial decisions of such joint venture or partnership entities which
could, in turn, result in limitations on the Company’s ability to implement
strategies that the Company may favor and may limit the Company’s ability to
transfer its interests. Consequently, any losses experienced by these entities
could adversely impact the Company’s results of operations and the value of the
Company’s investment.

 

The Company’s success depends on external factors in the motion picture
industry.

 

The Company’s success depends on the commercial success of motion pictures,
which is unpredictable. Generally, the popularity of the Company’s motion
pictures depends on many factors, including the critical acclaim they receive,
the format of their initial release (for example, theatrical or
direct-to-video), their actors and other key talent, their genre and their
specific subject matter, audience reaction, the quality and acceptance of motion
pictures that its competitors release into the marketplace at or near the same
time, critical reviews, the availability of alternative forms of entertainment
and leisure activities, general economic conditions and other tangible and
intangible factors, many of which the Company does not control and all of which
may change. The Company cannot predict the future effects of these factors with
certainty. In addition, because a motion picture’s performance in ancillary
markets, such as home video and pay and free television, is often directly
related to its box office performance or television ratings, poor box office
results ratings may negatively affect future revenue streams. The Company’s
success will depend on the experience and judgment of the Company’s management
to select and develop new investment and production opportunities. The Company
cannot make assurances that the Company’s motion pictures will obtain favorable
reviews or ratings or that the Company’s motion pictures will perform well at
the box office or in ancillary markets. The failure to achieve any of the
foregoing could have a material adverse effect on the Company’s business,
financial condition, operating results, liquidity, and prospects.

 

A variety of uncontrollable events may reduce demand for the Company’s
entertainment products or otherwise adversely affect the Company’s business.
Demand for Company products is highly dependent on the general environment for
entertainment and other leisure activities. The environment for these activities
can be significantly adversely affected in the U.S. or worldwide as a result of
a variety of factors beyond the Company’s control, including pandemics or
epidemics, terrorist activities, military actions, adverse weather conditions,
natural disasters, or other health concerns. Such events could have a material
adverse effect on the Company’s business and results of operations. Similarly,
an outbreak of a particular infectious disease such as Covid-19 could negatively
affect the public’s willingness to see the Company’s films in theaters. Finally,
the ongoing effects of global climate change could adversely affect the
Company’s business. Various proposals have been discussed at the federal and
state level to limit the carbon emissions of business enterprises, which if
enacted could result in an increase in the Company’s costs of operations. The
effects of climate change could also have unpredictable effects on consumer
motion picture attendance patterns.

 

Changes in the United States, global or regional economic conditions could
adversely affect the Company’s results of operations and financial condition.
The global economy experienced a significant contraction in the past. Any future
decrease in economic activity in the U.S. or in other regions of the world in
which the Company does business could significantly and adversely affect its
results of operations and financial condition in a number of ways. Any decline
in economic conditions may reduce the performance of the Company’s theatrical
releases, thereby reducing the Company’s revenues and earnings. Further,
bankruptcies or similar events by theater chains, other participants in the
Company’s distribution chain or other sources of revenue may cause the Company
to incur bad debt expense at levels higher than historically experienced or
otherwise cause the Company’s revenues to decrease. In periods of generally
increasing prices, or of increased price levels in a particular sector such as
the energy sector, the Company may experience a shift in consumer demand away
from the entertainment products the Company offers, which could also adversely
affect the Company’s revenues and, at the same time, increase the Company’s
costs.

12

 

Licensed distributors’ failure to promote the Company’s programs may adversely
affect the Company’s business. The Company generally does not control the timing
and manner in which the Company’s licensed distributors distribute the Company’s
motion pictures; their decisions regarding the timing of release and promotional
support are important in determining success. Any decision by those distributors
not to distribute or promote one of the Company’s motion pictures or to promote
the Company’s competitors’ motion pictures to a greater extent than they promote
ours could have a material adverse effect on the Company’s business, financial
condition, operating results, liquidity and prospects.

 

The Company could be adversely affected by strikes or other union job actions.
The Company is directly or indirectly dependent upon highly specialized union
members who are essential to the production of motion pictures. A strike by, or
a lockout of, one or more of the unions that provide personnel essential to the
production of motion pictures could delay or halt the Company’s production
activities, or could cause a delay or interruption in our release of new motion
pictures, which could have a material adverse effect on our business, financial
condition, operating results, liquidity, and prospects.

 

The Company’s success is primarily dependent on audience acceptance of its
films, which is extremely difficult to predict and, therefore, inherently risky.
The Company cannot predict the economic success of any of the Company’s motion
pictures because the revenue derived from the distribution of a motion picture
(which does not necessarily directly correlate with the production or
distribution costs incurred) depends primarily upon its acceptance by the
public, which cannot be accurately predicted. The economic success of a motion
picture also depends upon the public’s acceptance of competing films, the
availability of alternative forms of entertainment and leisure-time activities,
general economic conditions, and other tangible and intangible factors, all of
which can change and cannot be predicted with certainty.

 

The economic success of a motion picture is largely determined by the Company’s
ability to produce content and develop stories that appeal to a broad audience
and by the effective marketing of the motion picture. The theatrical performance
of a film is a key factor in predicting revenue from post-theatrical markets. If
the Company is unable to accurately judge audience acceptance of the Company’s
film content or to have the film effectively marketed, the commercial success of
the film will be in doubt, which could result in costs not being recouped or
anticipated profits not being realized. Moreover, the Company cannot be sure
that any particular feature film will generate enough revenue to offset its
distribution, fulfillment services and marketing costs, in which case the
Company would not receive any revenues for such film from its distributors.

 

The Company’s business is currently substantially dependent upon the success of
a limited number of film releases each year and the unexpected delay or
commercial failure of any one of them could have a material adverse effect on
the Company’s financial results and cash flows. The Company generally expects to
release one or two feature films per year. The unexpected delay in release or
commercial failure of just one of these films could have a significant adverse
impact on the Company’s results of operations and cash flows in both the year of
release and in the future. Historically, feature films that are successful in
the domestic theatrical market are generally also successful in the
international theatrical, home entertainment and television markets, although
each film is different and there is no way to guarantee such results. If the
Company’s films fail to achieve domestic box office success, their international
box office and home entertainment success and the Company’s business, results of
operations and financial condition could be adversely affected. Further, the
Company can make no assurances that the historical correlation between domestic
box office results and international box office and home entertainment results
will continue in the future. In fact, over the last several years domestic
theatrical results and foreign theatrical results have become less directly
correlated than in the past.

13

 

The Company faces substantial competition in all aspects of its business. Motion
picture and television production and distribution are highly competitive
businesses. The Company faces competition from companies within the
entertainment business and from alternative forms of leisure entertainment, such
as travel, sporting events, outdoor recreation, video games, the internet and
other cultural and computer-related activities. The Company competes with the
major studios, numerous independent motion picture production companies,
television networks, pay television systems and digital media platforms for the
acquisition of literary and film properties, the services of performing artists,
directors, producers and other creative and technical personnel and production
financing, all of which are essential to the success of the Company’s
entertainment businesses. In addition, the Company’s motion pictures compete for
audience acceptance and exhibition outlets with motion pictures produced and
distributed by other companies.

 

As a result, the success of any of the Company’s motion pictures is dependent
not only on the quality and acceptance of a particular film, but also on the
quality and acceptance of other competing motion pictures released into the
marketplace at or near the same time. Given such competition, the Company
operates with a different business model than many others. The Company typically
emphasizes a lower cost structure, risk mitigation, reliance on financial
partnerships and innovative financial strategies. The Company’s cost structures
are designed to utilize the Company’s flexibility and agility as well as the
entrepreneurial spirit of the Company’s employees, partners and affiliates, in
order to provide creative entertainment content to serve diverse audiences
worldwide.

 

The Company is smaller and less diversified than many of its competitors. Unlike
the Company, an independent distributor and producer, most of the major U.S.
studios are part of large diversified corporate groups with a variety of other
operations, including television networks and cable channels that can provide
both the means of distributing their products and stable sources of earnings
that may allow them to better offset fluctuations in the financial performance
of their motion picture operations. In addition, the major studios have more
resources with which to compete for ideas, storylines and scripts created by
third parties as well as for actors, directors and other personnel required for
production. The resources of the major studios may also give them an advantage
in acquiring other businesses or assets, including film libraries, that the
Company might also be interested in acquiring.

 

The motion picture industry is highly competitive and at times may create an
oversupply of motion pictures in the market. The number of motion pictures
released by the Company’s competitors, particularly the major studios, may
create an oversupply of product in the market, reduce the Company’s share of box
office receipts and make it more difficult for the Company’s films to succeed
commercially. The limited supply of motion picture screens compounds this
product oversupply problem. Oversupply may become most pronounced during peak
release times, such as school holidays and national holidays, when theater
attendance is expected to be highest. As a result of changes in the theatrical
exhibition industry, including reorganizations and consolidations, and major
studio releases occupying more screens, the number of screens available to the
Company when the Company wants to release a picture may decrease. If the number
of motion picture screens decreases, box office receipts, and the correlating
future revenue streams, such as from home entertainment and pay and free
television, of the Company’s motion pictures may also decrease. Although the
Company seeks to release its films during peak release times, the Company cannot
guarantee that it will be able to release all of its films during those times
and, therefore, may miss potentially higher gross box-office receipts. In
addition, a substantial majority of the motion picture screens in the U.S.
typically are committed at any one time to only 10 to 15 films distributed
nationally by major studio distributors. If the Company’s competitors were to
increase the number of films available for distribution and the number of
exhibition screens remained unchanged, it could be more difficult for the
Company to release its films during optimal release periods. Moreover, the
Company cannot guarantee that the Company can release all of its films when they
are otherwise scheduled due to production or other delays, or a change in the
schedule of a major studio. Any such change could adversely impact a film’s
financial performance. In addition, if the Company cannot change the Company’s
schedule after such a change by a major studio because the Company is too close
to the release date, the major studio’s release and its typically larger
promotion budget may adversely impact the financial performance of the Company’s
films.

14

 

Other risks in the motion picture industry

 

The Company must successfully respond to rapid technological changes and
alternative forms of delivery or storage to remain competitive. The
entertainment industry in general continues to undergo significant developments
as advances in technologies and new methods of product delivery and storage, or
certain changes in consumer behavior driven by these developments, emerge.
Consumers are spending an increasing amount of time on the internet and on
mobile devices, and are increasingly viewing content on a time-delayed or
on-demand basis from the internet, on their televisions and on handheld or
portable devices. If the Company cannot successfully exploit these and other
emerging technologies, it could have a material adverse effect on the Company’s
business, financial condition, operating results, liquidity and prospects.

 

Global economic turmoil and regional economic conditions in the U.S. could
adversely affect the Company’s business. Global economic turmoil may cause a
general tightening in the credit markets, lower levels of liquidity, increases
in the rates of default and bankruptcy, levels of intervention from the U.S.
federal government and other foreign governments, decreased consumer confidence,
overall slower economic activity and extreme volatility in credit, equity and
fixed income markets. Currently, due to the onset of COVID-19, we understand
that the world economy is experiencing a severe recession. The decrease in
economic activity in the U.S. and in other regions of the world in which the
Company does business could adversely affect demand for the Company’s films,
thus reducing the Company’s revenues and earnings. A continued decline in
economic conditions could reduce performance of the Company’s theatrical
releases. In addition, an increase in price levels generally, could result in a
shift in consumer demand away from the entertainment the Company offers, which
could also adversely affect the Company’s revenues and, at the same time,
increase the Company’s costs. Moreover, financial institution failures may cause
the Company to incur increased expenses or make it more difficult to finance any
future acquisitions, or engage in other financing activities. The Company cannot
predict the timing or the duration of any downturn in the economy and the
Company is not immune to the effects of general worldwide economic conditions.

 

The Company’s operating results can fluctuate significantly. The Company expects
significant fluctuations in the Company’s future quarterly and annual operating
results because of a variety of factors, including the following:

 

  ● the potential varying levels of success of the Company’s feature films;    
 

  ● the timing of the domestic and international theatrical releases and home
entertainment release of the Company’s feature films;      

  ● the Company’s distribution arrangements with the Company’s distributors
permit the Company’s distributors to collect distribution fees and to recoup
distribution costs, including print and advertising costs, and cause the Company
to recognize significantly less revenue and expenses from a film in the period
of a film’s initial theatrical release than the Company otherwise would absent
these agreements; and

15

 

  ● the timing of development expenses and varying levels of success of the
Company’s new business ventures.

 

The Company may incur significant write-offs if its feature films and other
projects do not perform well enough to recoup production, marketing and
distribution costs. The Company is required to amortize capitalized production
costs over the expected revenue streams as the Company recognizes revenue from
the associated films or other projects. The amount of production costs that will
be amortized each quarter depends on, among other things, how much future
revenue the Company expected to receive from each project. Unamortized
production costs are evaluated for impairment each reporting period on a
project-by-project basis. If estimated remaining revenue is not sufficient to
recover the unamortized production costs, the unamortized production costs will
be written down to fair value. In any given quarter, if the Company lowers its
previous forecast with respect to total anticipated revenue from any individual
feature film or other project, the Company may be required to accelerate
amortization or record impairment charges with respect to the unamortized costs,
even if the Company has previously recorded impairment charges for such film or
other project. Such accelerated amortization or impairment charges would
adversely impact the Company’s business, operating results and financial
condition.

 

Business interruptions could adversely affect the Company’s operations. The
Company’s operations are vulnerable to outages and interruptions due to fire,
floods, power loss, telecommunications failures and similar events beyond the
Company’s control. A long-term power outage could disrupt the Company’s
operations. Prices for electricity have in the past risen dramatically and may
increase in the future. An increase in prices would increase the Company’s
operating costs, which could in turn adversely affect the Company’s
profitability. There can be no assurance that insurance procured by the Company
for completion of its motion pictures will be sufficient to compensate the
Company for losses that may occur or that such insurance may continue to be
available on affordable terms. Any losses or damages incurred by the Company
could have a material adverse effect on the Company’s business and results of
operations.

 

The Company faces risks from doing business internationally. The Company intends
to contract with distributors that distribute motion picture and television
productions outside the U.S. through various output agreement and third party
licensees, and derives revenues from these sources. At the present time, no such
distribution agreements are in place. However, when international distribution
contracts are entered into, the Company’s business will be subject to certain
risks inherent in international business, many of which are beyond the Company’s
control. These risks include:

 

  ● laws and policies affecting trade, investment and taxes, including laws and
policies relating to the repatriation of funds and withholding taxes, and
changes in these laws;      

  ● changes in local regulatory requirements, including restrictions on content;
differing cultural tastes and attitudes;      

  ● differing degrees of protection for intellectual property;      

  ● financial instability and increased market concentration of buyers in
foreign television markets;      

  ● the instability of foreign economies and governments;      

  ● fluctuating foreign exchange rates;      

  ● the spread of communicable diseases in such jurisdictions, which may impact
business in such jurisdictions; and      

  ● war and acts of terrorism.

16

 

Events or developments related to these and other risks associated with
international trade could adversely affect the Company’s revenues from non-U.S.
sources, which could have a material adverse effect on the Company’s business,
financial condition, operating results, liquidity and prospects.

 

The seasonality of the Company’s businesses could exacerbate negative impacts on
its operations. The Company’s business will normally be subject to seasonal
variations based on the timing of theatrical motion picture and home
entertainment releases. Release dates are determined by several factors,
including timing of vacation and holiday periods and competition in the market.
Also, revenues in the Company’s consumer products business will be influenced by
both seasonal consumer purchasing behavior and the timing of theatrical releases
and generally peak in the fiscal quarter of a film’s theatrical release.
Accordingly, if a short-term negative impact on the Company’s business occurs
during a time of high seasonal demand (such as natural disaster or a terrorist
attack during the time of one of the Company’s theatrical or home entertainment
releases), the effect could have a disproportionate effect on the Company’s
results for the year.

 

The Company’s success depends on a CEO and certain key employees. The Company
success will depend to a significant extent on the connections, reputation,
expertise and performance of primarily its CEO, its President, and, to a lesser
extent on its Vice-President of Development and its production and creative
personnel. The Company does not currently have any “key person” life insurance
policies on its CEO, President, or any of its employees. The Company has not
entered into employment agreements with its CEO, President, or top executive
officers and production executives and they can therefore leave the Company at
any time without obligation. In addition, competition for the limited number of
business, production and creative personnel necessary to create and distribute
the Company’s entertainment content is intense and may grow in the future. The
Company’s inability to retain or successfully replace, where necessary, its CEO,
President, and other key employees could have a material adverse effect on the
Company’s business, financial condition, operating results, liquidity and
prospects. Also, the CEO, President, and other officers are not required to
devote their full time to the Company and may have conflicting time commitments
to other entities in the same industry.

 

To be successful, the Company needs to attract and retain qualified personnel.
The Company’s success continues to depend to a significant extent on its ability
to identify, attract, hire, train and retain qualified professional, creative,
technical and managerial personnel. Competition for the caliber of talent
required to produce and distribute Company motion pictures continues to
increase. The Company cannot be sure that it will be successful in identifying,
attracting, hiring, training and retaining such personnel in the future. If the
Company was unable to hire, assimilate and retain qualified personnel in the
future, such inability would have a material adverse effect on the Company’s
business, financial condition, operating results, liquidity and prospects.

 

Intellectual property risks and risks of litigation and other liability

 

Protecting and defending against intellectual property claims may have a
material adverse effect on the Company’s business. Our future ability to compete
will depend, in part, upon successful protection of the Company’s intellectual
property. The Company will attempt to protect proprietary and intellectual
property rights to the Company’s productions through available copyright laws
and licensing and distribution arrangements with reputable international
companies in specific territories and media for limited durations. Despite these
precautions, existing copyright laws afford only limited practical protection in
certain countries where the Company’s motion pictures are distributed. As a
result, it may be possible for unauthorized third parties to copy and distribute
the Company’s productions or certain portions or applications of the Company’s
intended productions, which could have a material adverse effect on the
Company’s business, financial condition, operating results, liquidity and
prospects.

17

 

Litigation may also be necessary to enforce the Company’s intellectual property
rights or to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or invalidity. Any such
litigation, infringement or invalidity claims could result in substantial costs
and the diversion of resources and could have a material adverse effect on the
Company’s business, financial condition, operating results, liquidity and
prospects. The Company cannot be sure that infringement or invalidity claims
will not materially adversely affect the Company’s business, financial
condition, operating results, liquidity and prospects.

  

Copyright protection is a serious problem in the home entertainment distribution
industry because of the ease with which DVDs and Blu-ray discs may be
duplicated. Video piracy continues to be prevalent across the entertainment
industry. The Company may take legal actions to enforce copyright protection
when necessary.

 

The Company’s more successful and popular film products may experience higher
levels of infringing activity, particularly around key release dates. Alleged
infringers may claim that their products are permitted under fair use or similar
doctrines, that they are entitled to compensatory or punitive damages because
the Company’s efforts to protect its intellectual property rights are illegal or
improper, and that the Company’s significant intellectual property are invalid.
Such claims, even if meritless, may result in adverse publicity or costly
litigation. The Company intends to vigorously defend the Company’s copyrights
from infringing products and activity, which can result in litigation. The
Company may receive unfavorable preliminary or interim rulings in the course of
litigation, and there can be no assurance that a favorable final outcome will be
obtained in all cases. Regardless of the validity or the success of the
assertion of any such claims, The Company could incur significant costs and
diversion of resources in enforcing the Company’s intellectual property rights
or in defending against such claims, which could have a material adverse effect
on the Company’s business, financial condition, operating results, liquidity and
prospects.

 

Others may assert intellectual property infringement claims against the Company.
One of the risks of the motion picture business is the possibility that others
may claim that the Company’s productions and production techniques
misappropriate or infringe the intellectual property rights of third parties
with respect to their previously developed films, series, stories, characters,
other entertainment or intellectual property. Irrespective of the validity or
the successful assertion of such claims, the Company could incur significant
costs and diversion of resources in defending against them, which could have a
material adverse effect on the Company’s business, financial condition,
operating results, liquidity and prospects.

 

The Company’s business involves risks of liability claims for media content,
which could adversely affect its business, results of operations and financial
condition. As a distributor of media content, the Company may face potential
liability for:

 

  ● defamation;      

  ● invasion of privacy;      

  ● negligence;      

  ● copyright infringement (as discussed above); and      

  ● other claims based on the nature and content of the materials distributed.

 

These types of claims have been brought, sometimes successfully, against
producers and distributors of media content. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company’s business, financial condition,
operating results, liquidity and prospects.

18

 

Piracy of motion pictures may reduce the gross receipts from the exploitation of
the Company’s films. Motion picture piracy is extensive in many parts of the
world, including South America, Asia, and certain Eastern European countries,
and is made easier by technological advances and the conversion of motion
pictures into digital formats. This trend facilitates the creation, transmission
and sharing of high quality unauthorized copies of motion pictures in theatrical
release on DVDs, Blu-ray discs, from pay-per-view through set-top boxes and
other devices and through unlicensed broadcasts on free television and the
internet. The proliferation of unauthorized copies of these products will likely
have an adverse effect on the Company’s business, because these products reduce
the revenue the Company receives from the Company’s productions. Additionally,
in order to contain this problem, the Company may have to implement elaborate
and costly security and anti-piracy measures, which could result in significant
expenses and losses of revenue. The Company cannot be sure that even the highest
levels of security and anti-piracy measures will prevent piracy.

 

In particular, unauthorized copying and piracy are prevalent in countries
outside of the U.S., Canada and Western Europe, whose legal systems may make it
difficult for the Company to enforce intellectual property rights. While the
U.S. government has publicly considered implementing trade sanctions against
specific countries that, in its opinion, do not make appropriate efforts to
prevent copyright infringements of U.S. produced motion pictures, there can be
no assurance that any such sanctions will be enacted or, if enacted, will be
effective. In addition, if enacted, such sanctions could impact the amount of
revenue that the Company realizes from the international exploitation of motion
pictures. If no embargoes or sanctions are enacted, or if other measures are not
taken, the Company may lose revenue as a result of motion picture piracy.

 

The increased consumer acceptance of entertainment content delivered
electronically and consumer acquisition of the hardware and software for
facilitating electronic delivery may also lead to greater public acceptance of
unauthorized content. The Company’s distributors will be substantially
responsible for enforcing the Company’s intellectual property rights with
respect to all of the Company’s films subject to the Company’s distribution
agreements and are required to maintain security and anti-piracy measures
consistent with the highest levels each maintains for its own motion pictures in
each territory in the world. Other than the remedies the Company has in such
agreements, the Company has no way of requiring its distributors to take any
anti-piracy actions, and the Company’s distributors’ failure to take such
actions may result in the Company having to undertake such measures itself,
which could result in significant expenses and losses of indeterminate amounts
of revenue. Even if applied, there can be no assurance that the highest levels
of security and anti-piracy measures will prevent piracy.

 

Music Industry Risks

 

The recorded music industry has been declining and may continue to decline,
which may adversely affect our prospects and our results of operations. The
recorded music industry has experienced negative growth rates on a global basis
since 1999 and the worldwide recorded music market has contracted considerably.
Illegal downloading of music, CD piracy, industrial piracy, economic recession,
bankruptcies of record wholesalers and retailers, and growing competition for
consumer discretionary spending and retail shelf space may have all contributed
to the decline in the recorded music industry. Additionally, the period of
growth in recorded music sales driven by the introduction and penetration of the
CD format has long ended. While CD sales still generate a significant portion of
the recorded music revenues globally, CD sales continue to decline industry-wide
and we expect that trend to continue. However, new formats for selling recorded
music product have been created, including the legal downloading and streaming
of digital music and revenue streams from these new channels have emerged. These
new digital revenue streams are important as they are partially offsetting
declines in physical sales and represent a growing area of the business.
However, the industry continues to be negatively impacted as a result of ongoing
digital piracy and the transition from physical to digital sales in the recorded
music business. While it is believed within the recorded music industry that
growth in digital revenues will re-establish a growth pattern for recorded music
sales, the timing of the recovery cannot be established with accuracy nor can it
be determined how these changes will affect individual markets. A declining
recorded music industry is also likely to have a negative impact on the music
publishing business. Digital downloads remain a key revenue stream for the
recorded music industry, and there has been ample growth in the streaming
category, resulting in the latter’s increasing contribution to overall industry
digital revenues.

19

 

There may be downward pressure on our pricing and our profit margins and
reductions in shelf space. There are a variety of factors that could cause us to
reduce our prices and reduce our profit margins. They are, among others, the
negotiating leverage of mass merchandisers, big-box retailers and distributors
of digital music, the increased costs of doing business with mass merchandisers
and big-box retailers as a result of complying with operating procedures that
are unique to their needs and any changes in costs or profit margins associated
with new digital business, including the impact of ad-supported music services,
some of which may be able to avail themselves of “safe harbor” defenses against
copyright infringement actions under copyright laws. In addition, we will be
dependent on a small number of leading digital music services, which allows them
to significantly influence the prices we can charge in connection with the
distribution of digital music. Over the course of the last decade, U.S.
mass-market and other stores’ share of U.S. physical music sales has continued
to grow. While we cannot predict how future competition will impact music
retailers, as the music industry continues to transform it is possible that the
share of music sales by a small number of leading mass-market retailers such as
Wal-Mart and Target and digital music services such as Apple’s iTunes and Google
Play will continue to grow, which could further increase their negotiating
leverage and put pressure on profit margins.

 

Our prospects and financial results may be adversely affected if we fail to
identify, sign, and retain artists and songwriters and by the existence or
absence of superstar releases and by local economic conditions in the countries
in which we operate. We are dependent on identifying, signing, and retaining
recording artists with long-term potential, whose debut albums are well received
on release, whose subsequent albums are anticipated by consumers and whose music
will continue to generate sales for years to come. The competition among record
companies for such talent is intense. Competition among record companies to sell
records is also intense. We are also dependent on signing and retaining
songwriters who will write the hit songs of today and the classics of tomorrow.
Our competitive position is dependent on our ability to attract and develop
artists whose work can achieve a high degree of public acceptance. Our financial
results may be adversely affected if we are unable to identify, sign, and retain
such artists under terms that are economically attractive to us. Our financial
results may also be affected by the existence or absence of superstar artist
releases during a particular period. Some music industry observers believe that
the number of superstar acts with long-term appeal, both in terms of catalog
sales and future releases, has declined in recent years. Additionally, our
financial results are generally affected by the worldwide economic and retail
environment.

 

We may have difficulty addressing the threats to our business associated with
home copying and digital downloading. The combined effect of the decreasing cost
of electronic and computer equipment and related technology such as CD burners
and the conversion of music into digital formats have made it easier for
consumers to obtain and create unauthorized copies of recordings in the form of,
for example, “burned” CDs and MP3 files. A significant number of Internet users
globally access unauthorized digital sites/services on desktop-based devices on
a regular basis. In addition, while growth of music-enabled mobile consumers
offers distinct opportunities for music companies such as ours, it also opens
the market up to risks from behaviors such as “sideloading” and mobile app-based
downloading of unauthorized content and illegitimate user-created ringtones. A
substantial portion of our revenue will come from the sale of audio products
that are potentially subject to unauthorized consumer copying and widespread
digital dissemination without an economic return to us. The impact of digital
piracy on legitimate music sales is hard to quantify but we believe that illegal
filesharing has a substantial negative impact on music sales.

20

 

Organized industrial piracy may lead to decreased sales. The global organized
commercial pirate trade is a significant threat to content industries, including
the music sector. A 2011 study by Frontier Economics cited by IFPI, estimates
that digitally pirated music, motion pictures and software is valued at $30
billion to $75 billion and IFPI’s 2014 Digital Music Report valued advertising
revenues generated by piracy sites at $227 million. In addition, a 2010 economic
study conducted by Tera Consultants in Europe found that if left unabated,
digital piracy could result in an estimated loss of 240 billion Euros in retail
revenues for the creative industries—including music—in Europe over the period
from 2008 to 2015. Unauthorized copies and piracy have contributed to the
decrease in the volume of legitimate sales. They will have an adverse effect on
our business.

 

We will be substantially dependent on a limited number of digital music
services, in particular Apple’s iTunes Music Store, for the online sale of our
music recordings and they are able to significantly influence the pricing
structure for online music stores. We will derive an increasing portion of our
revenues from sales of music through digital distribution channels. We are
currently dependent on a small number of leading digital music services that
sell consumers digital music. Currently, the largest U.S. online music store,
iTunes, typically charges U.S. consumers prices ranging from $0.69 to $1.29 per
single-track download. We have limited ability to increase our wholesale prices
to digital service providers for digital downloads as Apple’s iTunes controls
65%-75% of the legitimate digital music track download business in the United
States according to third-party estimates. If Apple’s iTunes were to adopt a
lower pricing model or if there were structural changes to other download
pricing models, we may receive substantially less per download for our music,
which could cause a material reduction in our revenues, unless it is offset by a
corresponding increase in the number of downloads. Additionally, Apple’s iTunes
and other digital music services at present accept and make available for sale
all the recordings that we and other distributors deliver to them. However, if
digital music services in the future decide to limit the types or amount of
music they will accept from music-based content owners like us, our revenues
could be significantly reduced.

 

We may be unable to compete successfully in the highly competitive markets in
which we operate and we may suffer reduced profits as a result. The industries
in which we operate are highly competitive, have experienced ongoing
consolidation among major music companies, are based on consumer preferences and
are rapidly changing. Additionally, they require substantial human and capital
resources. We compete with other recorded music companies and music publishers
to identify and sign new recording artists and songwriters who subsequently
achieve long-term success and to renew agreements with established artists and
songwriters. In addition, our competitors may from time to time increase the
amounts they spend to lure, or to market and promote, recording artists and
songwriters or reduce the prices of their products in an effort to expand market
share. We may lose business if we are unable to sign successful recording
artists or songwriters or to match the prices of the products offered by our
competitors. Our music publishing business competes not only with other music
publishing companies, but also with songwriters who publish their own works. Our
business is to a large extent dependent on technological developments, including
access to and selection and viability of new technologies, and is subject to
potential pressure from competitors as a result of their technological
developments. For example, our recorded music business may be further adversely
affected by technological developments that facilitate the piracy of music, by
an inability to enforce our intellectual property rights in digital
environments, and by a failure to develop successful business models applicable
to a digital environment. Our business also faces competition from other forms
of entertainment and leisure activities, such as cable and satellite television,
motion pictures and videogames in physical and digital formats.

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A significant portion of our music publishing revenues is subject to rate
regulation either by government entities or by local third-party collection
societies throughout the world and rates on other income streams may be set by
governmental proceedings, which may limit our profitability. Mechanical
royalties and performance royalties are the two largest sources of income to our
music publishing business and mechanical royalties are a significant expense to
our recorded music business. In the United States, mechanical royalty rates are
set pursuant to an administrative rate-setting process under the U.S. Copyright
Act, unless rates are determined through voluntary industry negotiations, and
performance royalty rates are set by performing rights societies and subject to
challenge by performing rights licensees. Mechanical royalties are paid at a
rate of 9.1 cents per song per unit in the United States for physical formats
(e.g., CDs and vinyl albums) and permanent digital downloads (recordings in
excess of five minutes attract a higher rate) and 24 cents for ringtones.
Outside the United States, mechanical and performance royalty rates are
typically negotiated on an industry-wide basis. In most territories outside the
United States, mechanical royalties are based on a percentage of wholesale
prices for physical product and based on a percentage of consumer prices for
digital products. The mechanical and performance royalty rates set pursuant to
such processes may adversely affect us by limiting our ability to increase the
profitability of our music publishing business. If the mechanical royalty rates
are set too high it may also adversely affect us by limiting our ability to
increase the profitability of our recorded music business. In addition, rates
our recorded music business receives in the United States for, among other
sources of income and potential income, webcasting and satellite radio are set
by an administrative process under the U.S. Copyright Act unless rates are
determined through voluntary industry negotiations. Any reduction in the rates
would adversely affect our recorded music business. It is important as sales
shift from physical to diversified distribution channels that we receive fair
value for all of the uses of our intellectual property as our business model now
depends upon multiple revenue streams from multiple sources. If the rates for
recorded music income sources that are established through legally prescribed
rate-setting processes are set too low, it could have a material adverse impact
on our recorded music business or our business prospects.

 

We face a potential loss of titles to the extent that our recording artists have
a right to recapture rights in their recordings under the U.S. Copyright Act.
The U.S. Copyright Act provides authors (or their heirs) a right to terminate
U.S. licenses or assignments of rights in their copyrighted works in certain
circumstances. This right does not apply to works that are “works made for
hire.” Since the effective date of U.S. federal copyright protection for sound
recordings (February 15, 1972), virtually all of our agreements with recording
artists provide that such recording artists render services under a
work-made-for-hire relationship. A termination right exists under the U.S.
Copyright Act for U.S. rights in musical compositions that are not “works made
for hire.” If any of our commercially available sound recordings were determined
not to be “works made for hire,” then the recording artists (or their heirs)
could have the right to terminate the U.S. federal copyright rights they granted
to us, generally during a five-year period starting at the end of 35 years from
the date of release of a recording under a post-1977 license or assignment (or,
in the case of a pre-1978 grant in a pre-1978 recording, generally during a
five-year period starting at the end of 56 years from the date of copyright). A
termination of U.S. federal copyright rights could have an adverse effect on our
business. From time to time, authors (or their heirs) have the opportunity to
terminate our U.S. rights in musical compositions.

 

Risks related to the offering

 

The Company needs to raise additional capital to repay the Notes as scheduled.
Currently, the Company does not have sufficient funds to repay the Notes within
90 days of issuance and will need to raise additional capital in order to repay
the Notes. The Company has not established any external sources of liquidity
with financial institutions or other unrelated third parties. If the Company in
unable raise the needed additional capital, we will be unable to repay some or
all of the Notes and you could lose your entire investment.

22

 

Tax consequences not determined. The Company has not sought a tax opinion as to
the impact on converting to the Shares at a conversion price below the market
price of the Shares. No independent arms’ length valuation was sought and so the
value of the additional services being provided for the Shares and the tax
ramification of receipt of those Shares have not been determined. Therefore,
Purchaser must rely on his own tax counsel to determine the tax consequence of
this investment.

 

There is no minimum and escrow of funds. There is no requirement that we raise
any minimum amount of funds in this Offering. There will be no escrow of funds
received from investors. We can use all proceeds raised immediately. We will
seek to raise any additional needed capital through other private offerings of
equity and debt securities, collaborative arrangements, strategic alliances, and
equity and debt financings or from other sources. We may be unable to raise any
needed additional capital on commercially acceptable terms, if at all, and if we
raise capital through additional equity financing, existing stockholders,
including purchasers in this Offering, may have their ownership interests
diluted.

 

There is substantial influence by existing stockholders. Our CEO and President
will be able to effectively control matters requiring the approval by
stockholders of the Company, even if the Offering is fully subscribed. This
concentration of ownership by management may also have the effect of delaying or
preventing a change in control of the Company.

 

There is a risk of substantial dilution from future offerings, acquisitions, and
conversions of debt to equity. Investors should be aware that management of the
Company has determined that additional funds should be raised through an
additional private offering. If a future offering is on terms more favorable
than this Offering, purchasers will experience dilution and may be in a junior
position to those who hold either debt or preferred equity. Also, future
creditors who convert their debt to equity will dilute investors and planned
acquisitions will also dilute investors.

 

This is a private offering with no regulatory agency review. The Company has not
registered this Offering under the Securities Act of 1933 (“1933 Act”), as
amended, in reliance on the exemptive provisions of Section 4(2) of the 1933 Act
and Regulation D promulgated by the SEC. The Company also has relied on
apparently available exemptions from securities qualification requirements under
applicable state securities laws. There can be no assurance that the Offering
currently qualifies or will continue to qualify under one or more of such
exemptive provisions due to, among other things, the adequacy of disclosure and
the manner of distribution, the existence of similar offerings in the past or in
the future, or the retroactive change of any securities law or regulation. If,
and to the extent that, claims or suits for rescission are brought and
successfully concluded for failure to register this Offering or other offerings
or for acts or omissions constituting offenses under the 1933 Act or applicable
state securities laws, the Company could suffer material adverse effects,
jeopardizing its ability to operate, even if the Company ultimately prevails in
its defense.

 

There are substantial restrictions on transfer of the Notes and, following
conversion, the Shares. Investors should be fully aware of the long-term nature
of their investment in the Company. Each investor will be required to represent
that it is purchasing the Notes for its own account, for investment purposes and
not with a view toward resale or distribution of any Shares. The Notes and,
following conversion, the Shares are not readily transferable and any transfer
must comply with federal and state securities laws. Any certificates evidencing
the Shares will bear a legend indicating that their transferability is
restricted.

 

Our use of proceeds is not detailed. Use of proceeds from this Offering will
vary solely at the discretion of management. Prospective investors must rely on
the ability of the Company to identify and make business decisions consistent
with the Company’s objectives. Investors will not have the opportunity to
personally evaluate the relevant economic, financial, and other information
which will be utilized by the Company’s management in deciding how and when to
spend the proceeds from the sale of the Notes.

23

 

The offering price was determined arbitrarily. The conversion price of the
Shares was arbitrarily determined by the Board of Directors and may bear no
relationship to the assets, book value, earning potential or net worth of the
Company, or be based on any recognized criteria of value or formula. No
independent opinion on or review of the fairness of the terms under which the
Shares are being offered has been obtained. Prospective investors must rely on
the disclosures set forth in these Risk Factors and the Summary, and on their
own business and investment experience as the basis for their decision to
purchase the Notes.

 

We do not intend to declare any dividends on our Shares. We do not anticipate
paying any dividends to our stockholders for the foreseeable future on our
Shares. Investors seeking cash dividends should not purchase the Shares. Any
determination to pay dividends in the future will be made at the discretion of
our Board of Directors and will depend on our results of operations, financial
conditions, contractual restrictions, restrictions imposed by applicable law and
other factors our Board deems relevant.

 

We have agreed to indemnify our officers and directors. The Company’s
Certificate of Incorporation provides to directors and officers indemnification
to the full extent provided by law, and provides that, to the extent permitted
by Delaware law, a director will not be personally liable for monetary damages
to the Company or its stockholders for breach of his or her fiduciary duty as a
director, except for liability for certain actions that may not be limited under
Delaware law. These indemnification provisions may limit the ability of
stockholders to seek recourse against our officers and directors.

 

Lack of separate counsel. Legal counsel for the Company does not represent the
interests of the investors in connection with any offering of Notes or Shares
and such counsel disclaims any fiduciary or attorney-client relationship with
the investors. The Company has been represented by Gallagher & Kennedy, P.A.
solely with respect to securities matters. No independent legal due diligence
has been conducted by the Company on behalf of any investors with respect to
this Offering. Investors are encouraged to engage independent legal counsel at
their expense to advise them with respect to this Offering and review of any
information provided by the Company.

 

If our stock price fluctuates, you could lose a significant part of your
investment. The price of our Shares may be influenced by many factors, some of
which are beyond our control, including those described above and the
following: 

 

●changes in financial estimates by analysts;    

●announcements by us or our competitors of significant contracts, productions,
acquisitions, joint ventures or capital commitments;    

●variations in quarterly operating results;    

●general economic conditions;    

●terrorist acts;    

●future sales of our Shares; and    

●investor perception of the Company, the filmmaking industry and the other
businesses that we operate in the future.

 

There is a limited trading market for the Shares. Although our stock is publicly
traded, the trading market is limited. As a result, any broker/dealer that makes
a market in our stock or other person that buys or sells our stock could have a
significant influence over its price at any given time. We cannot assure our
stockholders that a market for our stock will be sustained.

24

 

Our reporting obligations as a public company are costly. Operating a public
company involves substantial costs to comply with reporting obligations under
federal securities laws which are continuing to increase as provisions of the
Sarbanes Oxley-Act of 2002 (“Sarbanes-Oxley Act”) are implemented. We may not
reach sufficient size to justify our public reporting status. If we were forced
to become a private company, then our stockholders may lose their ability to
sell their shares and there would be substantial costs associated with becoming
a private company.

 

Our Shares are likely to be “penny stock.” In general, “penny stock” includes
securities of companies which are not listed on the principal stock exchanges
and have a bid price in the market of less than $5.00; and companies with net
tangible assets of less than $2 million ($5 million if the issuer has been in
continuous operation for less than three years), or which has recorded revenues
of less than $6 million in the last three years. As it will likely be “penny
stock” if listed, our stock therefore may be subject to the Rule 15g-9
promulgated under the 1934 Act, which imposes additional sales practice
requirements on broker-dealers which sell such securities to persons other than
established customers and “accredited investors” (generally, individuals with
net worth in excess of $1 million or annual incomes exceeding $200,000, or
$300,000 together with their spouses, or individuals who are the officers or
directors of the issuer of the securities). For transactions covered by Rule
15g-9, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser’s written consent to the transaction
prior to sale. Consequently, this rule may adversely affect the ability of
broker-dealers to sell our stock, and therefore may adversely affect our
stockholders’ ability to sell the stock in the public market.

 

Resale of our Shares will be restricted even though we are a public company. The
securities to be issued will be “restricted securities,” as that term is defined
in Rule 144 promulgated under the 1933 Act, and may not be sold or transferred
without an effective registration statement under the 1933 Act, or pursuant to
an exemption from registration under the Securities Act, the availability of
which is to be established to the satisfaction of the Company. These amendments
may reduce the ability of the Company’s stockholders to sell any shares held in
the Company.

 

The requirements of being a public company may strain our resources, divert
management’s attention and affect our ability to attract and retain qualified
board stockholders. As a public company, we are subject to the reporting
requirements of the 1934 Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street
Reform and Consumer Protections Act, the listing requirements of our exchange or
other market listing our Shares, and other applicable securities rules and
regulations. Compliance with these rules and regulations increases our legal and
financial compliance costs, makes some activities more difficult, time-consuming
or costly and increase demand on our systems and resources. The 1934 Act
requires, among other things, that we file annual, quarterly and current reports
with respect to our business and operating results. The Sarbanes-Oxley Act
requires, among other things, that we maintain effective disclosure controls and
procedures and internal control over financial reporting. In order to maintain
and, if required, improve our disclosure controls and procedures and internal
control over financial reporting to meet this standard, significant resources
and management oversight may be required. As a result, management’s attention
may be diverted from other business concerns, which could harm our business and
operating results. We may need to hire more employees in the future to meet
these requirements, which will increase our costs and expenses.

25

 

In addition, changing laws, regulations and standards relating to corporate
governance and public disclosure are creating uncertainty for public companies,
increasing legal and financial compliance costs and making some activities more
time consuming. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a
result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. We intend to invest
resources to comply with evolving laws, regulations and standards, and this
investment may result in increased general and administrative expenses and a
diversion of management’s time and attention from revenue-generating activities
to compliance activities. If our efforts to comply with new laws, regulations
and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to practice, regulatory authorities may
initiate legal proceedings against us and our business may be harmed.

 

We also expect that being a public company and these new rules and regulations
will make it more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These factors could also make it
more difficult for us to attract and retain qualified stockholders of our board
of directors, particularly to serve any committees, and qualified executive
officers.

 

As a result of disclosure of information in filings required of a public
company, our business and financial condition will become more visible, which we
believe may result in threatened or actual litigation, including by competitors
and other third parties. If such claims are successful, our business and
operating results could be harmed, and even if the claims do not result in
litigation or are resolved in our favor, these claims, and the time and
resources necessary to resolve them, could divert the resources of our
management and harm our business and operating results.

 

As a result of being a reporting company, we are obligated to develop and
maintain proper and effective internal controls over financial reporting. As a
public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley
Act, to furnish a report by management on, among other things, the effectiveness
of our internal control over financial reporting each fiscal year. This
assessment will need to include disclosure of any material weaknesses identified
by our management in our internal control over financial reporting.

 

We may not be able to complete our evaluation, testing and any required
remediation in a timely fashion. During the evaluation and testing process, if
we identify one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert that our internal controls are
effective.

 

If we are unable to assert that our internal control over financial reporting is
effective, we could lose investor confidence in the accuracy and completeness of
our financial reports, which would cause the price of our Shares to decline.

26